Document:

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                                                                   Exhibit 10.18

                         STRATEGIC ALLIANCE AGREEMENT

          THIS AGREEMENT is entered into as of the 17th day of September, 1997
(the "Effective Date"), by and between PENWEST Pharmaceuticals Group ("PPG"), a
division of PENWEST, LTD., a Washington corporation, with its principal place of
business at 2981 Route 22, Patterson, New York 12563, and Endo Pharmaceuticals
Inc., a Delaware corporation with its principal place of business at 223
Wilmington West Chester Pike, Chadds Ford, PA 19317 ("Endo").

          A.   PPG has developed a controlled-release agent covered by one or
more patents, patent applications, know-how and other proprietary technology,
which agent PPG markets under the name and mark "TIMERx(R)" ("TIMERx").

          B.   Endo manufactures and markets various pharmaceutical products,
including without limitation the product marketed under the name *** and has
developed know-how and other proprietary technology with respect thereto. Endo
is interested in developing one or more products incorporating *** and TIMERx
and to make a solid-dosage controlled-release delivery system for oral
administration in humans in one or more dosage strengths.

          C. The parties desire to engage in certain research, development, and
testing activities designed to determine if such drugs can be developed using
TIMERx. If such activities are successful, Endo desires to make and market such
drug(s) as its only line of controlled-release *** products. In that connection,
Endo desires to contract for a supply of TIMERx for use in the manufacture of
such controlled-release forms of ***, and PPG is willing to supply the same
provided that Endo agrees to obtain all of its and its Affiliates' and
sublicensees' requirements of TIMERx from PPG as provided herein.

          D.   The parties desire to build mutual opportunities for the
expansion of the scope of their efforts and agreements to involve other drugs in
related areas and to cooperate in promoting the marketing of such products,
worldwide.

          NOW, THEREFORE, the parties hereby agree as follows:

The confidential portions of this exhibit have been filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request
in accordance with Rule 406 of the Securities Act of 1933.

            REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY AN ***.

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     1.   Definitions.  Certain terms used herein are defined alphabetically in
          -----------
          "Section 1," Sections 1.1 through 1.48, as set forth in the
          Definitions Exhibit attached hereto and incorporated herein by this
          reference. For convenience of reference, italicized type indicates at
          least one of the uses in the body of the Agreement of terms defined in
          the Definitions Exhibit.

     2.  Development Period(s).
          ---------------------

          2.1  During each Development Period, each of PPG and Endo will exert
               its Best Commercial Efforts: (i) to perform the respective
               Development Tasks allotted to it; (ii) to do so in accordance
               with the applicable Development Budget; and (iii) to assist and
               to cooperate as requested with the other party's Best Commercial
               Efforts to do the same as to its own Development Tasks.

          2.2  Each party will, promptly and throughout each Development Period,
               provide to the other party all necessary or useful information in
               or coming into its possession or reasonably available to it to
               support the achievement of the Development Tasks. Notwithstanding
               anything else to the contrary contained herein, nothing shall
               require either party to disclose confidential information for
               which such party has an obligation of confidentiality to a third
               party, but each party will exert its Best Commercial Efforts to
               bring to the attention of the Alliance Committee any such third
               party restrictions as may be relevant to its role hereunder.

          2.3  Each party's Project Contact(s) will provide written reports to
               the other party's Project Contact(s) at least quarterly (and more
               often upon reasonable request of the other party) throughout each
               Development Period, stating in detail all efforts made and in
               process, and all significant progress achieved and difficulties
               encountered in the reporting party's portion of the development
               effort since the last such report. Each of the Project Contacts
               will also be available throughout each Development Period to
               answer any reasonable questions from the other party's Project
               Contacts, as appropriate.

          2.4  During the Development Period, Endo shall provide *** and
               related materials reasonably required to support the applicable
               Development Tasks, although it is understood that the same may be

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               required to remain at one or more of Endo's facilities covered by
               Facilities Certifications. During the Development Period, PPG
               shall provide all TIMERx reasonably required for the applicable
               Development Tasks, all as shall be more fully described in the
               applicable Development Tasks adopted by Committee Action,
               although it is understood that the prototypes of the Formulated
               TIMERx will be developed internally by PPG's personnel at its own
               research facilities, and that such prototypes may then be tested
               with the *** in accordance with the Development Tasks at one or
               more of such Endo facilities. The costs of such materials will be
               treated as among the parties' respective expenditures pursuant to
               the Development Budget, using for this purpose the TIMERx Price
               as to the TIMERx and the *** Price as to the ***.

          2.5  Subject to Section 5.3, each party will share equally the total
               costs of the entire Development Budget for each Development
               Period, regardless of which party is allocated one or more of the
               relevant Development Tasks. Each party shall submit to the
               Alliance Committee at least quarterly (or on such other schedule
               as may be determined by Committee Action) a written accounting of
               the expenditures, costs, and other resources actually devoted by
               it to the Development Tasks in accordance with the applicable
               Development Budget since the last such accounting. Each of the
               parties' quarterly accountings will be reviewed and approved in
               whole or in part (and/or returned in whole or in part to a party
               for correction or adjustment prior to resubmission) by Committee
               Action. The Alliance Committee will notify each party on a
               quarterly basis of the results of such review by it of the
               accountings of both parties. Subject to Section 5.3, to the
               extent that both parties' accountings for prior expenditures,
               costs and other resources for a particular Development Budget
               have been so approved, the Alliance Committee will direct by a
               quarterly invoice (with copies to both parties), issued against
               records for such quarter and payable prior to the 30th day
               following the date of invoice, that the party which has, with
               respect to such Development Budget, devoted thereto less in the
               aggregate than the other party to that time (taking into account
               all prior reconciliation invoices with respect to such
               Development Budget under this section) shall reconcile such
               disparity by paying to the other party one-half of the difference
               in such aggregate amounts.

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          2.6  The parties hereby agree that the Designated Product(s) described
               in Exhibit 2.6 shall be the "Initial Designated Product(s)." The
               initial Development Tasks, and the initial Development Budget
               with respect to such Initial Designated Product(s) shall be laid
               out in a project plan to be developed within 120 days following
               the Effective Date by the parties' Project Contacts, subject to
               approval by Committee Action. During such 120-day period, the
               parties will conduct the Proof of Principle Studies, and during
               the first 30 days of such period, Endo shall conduct the Patent
               Review (and PPG shall cooperate reasonably therewith). Other than
               the costs of the Proof of Principle Studies or the Patent Review,
               and the incidental costs of the Project Contacts associated with
               the development of such a project plan, neither party will devote
               substantial resources or make substantial expenditures in
               connection with the Initial Development Period prior to the
               approval of such project plan by Committee Action. The parties
               understand that such project plan will be preliminary and will
               require revisions, clarifications and supplementation by
               Committee Action in light of the interim results achieved or
               difficulties encountered during the Initial Development Period.

          2.7  Except for the Initial Designated Products described in Section
               2.6, neither party will be obligated to designate any drug
               product or potential drug product as a Designated Product under
               this Agreement. However, during the term of this Agreement,
               neither party shall, and hereby represents and warrants that none
               of its Affiliates shall, develop, attempt to develop, or actively
               investigate any version, materials, or system for any controlled-
               release or time-release oral tablet or capsule product containing
               any *** as its only active ingredient, or as one active
               ingredient together with *** (or agree or seek to agree
               with others to do so or any part thereof), unless one of the
               following applies: (i) such activities are with respect to a
               Certification Period (and subsequent Marketing Period(s)) as to
               which the other party is not an Eligible Party or as to which it
               has elected not to participate, as permitted hereunder, or (ii)
               the relevant product has been demonstrated not to be a workable
               candidate as a Designated Product, as shown by a termination of a
               Development Period therefor pursuant to Section 5.2, or (iii) all
               of the conditions in Sections 2.7.1 and 2.7.2 have been
               satisfied. In addition, neither party shall, and

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               hereby represents and warrants that none of its Affiliates shall,
               during the first five years of the term of this Agreement, in a
               co-development project or marketing arrangement with a non-
               Affiliate third party (i.e., this clause will not apply to
               internal projects of either party), develop, attempt to develop,
               or actively investigate any version, materials, or system for any
               controlled-release or time-release oral tablet or capsule product
               for either (a) any controlled multisource opiate analgesic
               product (e.g., morphine, oxycodone, hydromorphone) not covered by
               the preceding sentence, or (b) any other tablet or capsule
               product containing a new chemical entity with opiate analgesic
               activity (provided, however, that this clause (b) will not apply
               to restrict PPG as to any such products as to which Endo has no
               actual or potential competitive product then at a substantially
               equivalent or later stage of development) unless one of the
               following applies: (i) such activities are with respect to a
               Certification Period (and subsequent Marketing Period(s)) as to
               which the other party is not an Eligible Party or as to which it
               has elected not to participate, as permitted hereunder, or (ii)
               the relevant product has been demonstrated not to be a workable
               candidate as a Designated Product, as shown by a termination of a
               Development Period therefor pursuant to Section 5.2, or (iii) the
               other party has informed the party that would otherwise be
               restricted by this section that such other party has in process
               an internal project for the development of such product or a
               substitutable product (it being understood that such other party
               shall inform the party that would otherwise be restricted by this
               section, and which has a bona fide intent to commence such a
               project with a non-Affiliate third party, whether or not such
               other party has such an internal project whenever it is requested
               in writing to do as to a particular ADS), or (iv) all of the
               conditions in Sections 2.7.1 and 2.7.2 have been satisfied. Such
               conditions are:

               2.7.1  The party desiring to conduct a project or to enter a
                      third-party agreement covered hereby has first notified
                      the other party hereto of its desire to do so; and

               2.7.2  such notifying party has exerted its Best Commercial
                      Efforts, through good faith negotiations over a period
                      of at least 90 days, to reach agreement with the
                      other party hereto to add such product or investigation
                      to the coverage of this Agree-

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                    ment, unless such other party waives this Section 2.7.2 in
                    writing or fails to negotiate in good faith.

     3.   Certification Period(s).
          -----------------------

          3.1  During each Certification Period, each of PPG and Endo will exert
               its Best Commercial Efforts: (i) to perform the respective
               Certification Tasks allotted to it; (ii) to do so in accordance
               with the applicable Certification Budget; and (iii) to assist and
               to cooperate as requested with the other party's Best Commercial
               Efforts to do the same as to its own Certification Tasks.

          3.2  Each party will, promptly and throughout each Certification
               Period, provide to the other party all necessary or useful
               information in or coming into its possession or reasonably
               available to it to support the achievement of the Certification
               Tasks. Notwithstanding anything else to the contrary contained
               herein, nothing shall require either party to disclose
               confidential information for which such party has an obligation
               of confidentiality to a third party, but each party will exert
               its Best Commercial Efforts to bring to the attention of the
               Alliance Committee any such third party restrictions as may be
               relevant to its role hereunder.

          3.3  Each party's Project Contact(s) will provide written reports to
               the other party's Project Contact(s) at least quarterly (and more
               often upon reasonable request of the other party) throughout each
               Certification Period, stating in detail all efforts made and in
               process, and all significant progress achieved and difficulties
               encountered in the reporting party's portion of the certification
               effort since the last such report. Each of the Project Contacts
               will also be available throughout each Certification Period to
               answer any reasonable questions from the other party's Project
               Contacts, as appropriate.

          3.4  During each Certification Period in which it is participating,
               Endo shall provide *** and related materials reasonably required
               to support the applicable Certification Tasks, and PPG shall
               provide all Formulated TIMERx reasonably required therefor, all
               as shall be more fully described in the applicable Certification
               Tasks adopted by Committee Action. The costs of such materials
               will be treated as

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               among the parties' respective expenditures pursuant to the
               Certification Budget, using for this purpose the Formulated
               TIMERx Price as to the TIMERx and the *** Price as to the ***.
               Where, as permitted hereunder, a party is not participating in a
               Certification Period, it will sell such materials to the
               participating party pursuant to Section 6.9.5 or Section 7, as
               applicable, and the price paid therefor shall be treated as part
               of the buyer's expenditures pursuant to the Certification Budget.

           3.5 The parties hereby agree that, unless the Initial Development
               Period is terminated pursuant to Section 5.2 or Section 5.3, a
               separate Certification Period will be established directed toward
               the filing of one or more NDAs with the FDA for the Initial
               Designated Product(s), and securing an Approval with respect
               thereto in the United States (the "Initial US Certification
               Period"). Each party will share equally the total costs of the
               entire Certification Budget for the Initial US Certification
               Period regardless of which party is allocated one or more of the
               relevant Certification Tasks, subject to Section 5.5. In no event
               shall the aggregate of both parties' expenditures, costs, and
               other resources to be devoted to the Certification Tasks pursuant
               to the Certification Budget during the Initial US Certification
               Period, when added to the aggregate of both parties'
               expenditures, costs, and other resources devoted to the Initial
               Development Budget, exceed Fifteen Million Dollars ($15,000,000),
               unless both parties have consented thereto in writing. If the
               Certification Tasks for the Initial US Certification Period have
               not been completed when such $15,000,000 level of aggregate
               expenditures, costs and other resources has been reached, and one
               party but not the other desires to spend further sums or to
               devote further resources to complete such Certification Tasks,
               then the following shall apply:

               3.5.1  The party that does not participate further in the Initial
                      US Certification Period once such point is reached shall
                      not be required to contribute to the reconciliations for
                      the costs of such Certification Period under Section 3.7.
                      Rather, a Certification Excess shall be established with
                      respect to the Initial Designated Product in the US, which
                      shall equal the sums such party would have paid under
                      Section 3.7, had it fully

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                    participated in such Certification Period, but did not pay
                    due to its election under this section.

               3.5.2  If Endo is the party electing not to participate further
                      in the Initial US Certification Period, this shall have
                      the results stated in Section 6.9 as to the Initial
                      Designated Product in the United States, except that:

                    3.5.2.1  the relevant Exclusivity Period for the applicable
                             license to PPG in the US will be coterminous
                             with the License Term, and Section 6.9.3 will
                             accordingly not be applicable; and

                    3.5.2.2  the applicable license to PPG will be royalty-
                             bearing without the relevant Net Realization being
                             reduced as specified in clause (ii) of
                             Section 6.9.4.

               3.5.3  If PPG is the party electing not to participate further in
                      the Initial US Certification Period, this shall be
                      treated, for all purposes of the licenses and the parties'
                      rights hereunder, as if PPG had continued to participate
                      in the Initial US Certification Period, except that the
                      Certification Excess described in Section 3.5.1 shall have
                      the results stated in Section 4.5.

          3.6  Certification Periods other than the Initial US Certification
               Period as described in Section 3.5 may be instituted from time to
               time by Committee Action, and shall be so instituted if: (i) an
               Eligible Party so requests as to certain Specified Nation(s) and
               (ii) Committee Action determines that there is a reasonable
               likelihood that Approval(s) for such Designated Product will be
               obtained in such Specified Nation(s).

               3.6.1  If both parties, as Eligible Parties, elect to participate
                      fully in such Certification Period, each party will share
                      equally the total costs of the entire Certification
                      Budget, regardless of which party is allocated one or more
                      of the relevant Certification Tasks, unless both parties
                      have consented in writing to an alternative arrangement.

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               3.6.2  If an Eligible Party not requesting such Certification
                      Period elects not to participate fully therein,
                      it shall do so by written notice to the other party given
                      within 90 days of the request by the requesting
                      party for such Certification Period (whether or not such
                      Certification Period has been instituted by Committee
                      Action prior to such election).

               3.6.3  A party that does not fully participate in a Certification
                      Period (whether due to its election or because it is
                      not an Eligible Party as to that Certification Period)
                      shall not be required to contribute to the reconciliations
                      for the costs of such Certification Period under
                      Section 3.7. Rather, a Certification Excess shall be
                      shall be established with respect to the relevant
                      Designated Product(s) in the relevant Specified
                      Nation(s), which shall equal the sums such party would
                      have borne or paid under Sections 3.6.1 and 3.7,
                      had it participated in such Certification Period, but
                      did not pay due to its election or such
                      ineligibility under this section.

               3.6.4  If Endo is the party electing not to participate, or is so
                      ineligible, this shall have the results stated in Section
                      6.9.

               3.6.5  If PPG is the party electing not to participate, or is so
                      ineligible, this shall have the results stated in Section
                      6.8.

          3.7  Except as otherwise provided in Section 3.6 or Section 5.5, each
               party shall submit to the Alliance Committee at least quarterly
               (or on such other schedule as may be determined by Committee
               Action) a written accounting of the expenditures, costs, and
               other resources actually devoted by it to the Certification Tasks
               in accordance with the applicable Certification Budget since the
               last such accounting. Each of the parties' quarterly accountings
               will be reviewed and approved in whole or in part (and/or
               returned in whole or in part to a party for correction or
               adjustment prior to resubmission) by Committee Action. The
               Alliance Committee will notify each party on a quarterly basis of
               the results of such review by it of the accountings of both
               parties. Except as otherwise provided in Section 3.6 or Section
               5.5, to the extent that both parties' accountings for prior
               expenditures, costs and other resources for a particular
               Certification Budget have been so approved,

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               the Alliance Committee will direct by a quarterly invoice (with
               copies to both parties), issued against records for each such
               quarter and payable prior to the 30th day following the date of
               invoice, that the party which has, with respect to such
               Certification Budget, devoted thereto less in the aggregate than
               the other party to that time (taking into account all prior
               reconciliation invoices with respect to such Certification Budget
               under this section) shall reconcile such disparity by paying to
               the other party one-half of the difference in such aggregate
               amounts.

      4.  Marketing Period(s).
          -------------------

          4.1  Endo hereby agrees, during the Marketing Period for each and
               every Designated Product as to which it participated throughout
               the Development Period and the relevant Certification Period as
               to the United States, to use its Best Commercial Efforts to
               manufacture, market, promote and sell the Designated Product
               throughout the United States, once Approval has been obtained
               therefor in the United States, commencing with any normal and
               appropriate pre-Approval preparations and a full product launch
               as soon as practical following the applicable Approval, and to do
               so in accordance with the applicable Manufacturing and Marketing
               Plan(s).

          4.2  PPG hereby agrees, during the Marketing Period for each and every
               Designated Product as to which it participated throughout the
               Development Period and the relevant Certification Period as to
               the United States, but as to which Endo did not fully participate
               (including without limitation an election by Endo not to continue
               to participate in the Initial US Certification Period after the
               $15,000,000 level of aggregate expenditures, costs and other
               resources referred to in Section 3.5.2 has been reached), and as
               to which Section 6.9 applies (entirely or to the extent provided
               in Section 3.5.2, where that section is applicable), to use its
               Best Commercial Efforts to manufacture, market, promote and sell
               the Designated Product throughout the United States or to arrange
               therefor with appropriate third parties, once Approval has been
               obtained therefor in the United States, commencing with any
               normal and appropriate pre-Approval preparations and a full
               product launch as soon as practical following the applicable
               Approval, and to do so in accordance with the applicable
               Manufactur-

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               ing and Marketing Plan(s). When considering the establishment of
               any relationships whereby PPG would contract for a third party to
               manufacture the Designated Product covered by this section, PPG
               will give some preference for manufacturing to be conducted by
               Endo, where Endo has a demonstrated ability to manufacture such
               Designated Product.

          4.3  Each of the parties shall, during the Marketing Period for each
               and every Designated Product as to which it participated
               throughout the Development Period and the relevant Certification
               Period as to Specified Nation(s) other than the United States
               (whether or not the other party also so participated), to use its
               Best Commercial Efforts either (i) to present to the Alliance
               Committee a plan (in the form of a Manufacturing and Marketing
               Plan) for such party's manufacturing, marketing, promoting and
               selling the Designated Product throughout such Specified
               Nation(s) and/or other nations to be proposed as Specified
               Nation(s) under a Manufacturing and Marketing Plan (other than
               the United States) or (ii) to present to the Alliance Committee
               an arrangement whereby a third party or third parties will do
               some or all of the tasks described under clause (i). The Alliance
               Committee will determine, by Committee Action, which of the
               approaches (i.e., clause (i) and/or clause (ii), and as to one or
               both of the parties' approaches so presented) will be most likely
               to maximize the early market entry and ultimate market success of
               the applicable Designated Product in the applicable Specified
               Nation(s), or any of them, it being understood, however, that the
               Alliance Committee will give preference, other factors being
               essentially equal, for marketing, promotion and selling to be
               conducted by a party hereto or an Affiliate of a party hereto, if
               any such approach is presented in a timely manner by such party.
               If and to the extent that PPG is determined by Committee Action
               to be the party whose approach to clauses (i) and (ii) above will
               be pursued, this will (unless otherwise specified by such
               Committee Action) have the results stated in Section 6.9 as to
               the relevant Specified Nation(s), except that (unless Section 6.9
               is fully applicable due to any of the reasons stated therein,
               other than as provided in this Section 4.3):

               4.3.1  the relevant Exclusivity Period for the applicable license
                      to PPG in the Specified Nation(s) will be as provided in
                      Section

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                      1.24 (mutatis mutandis for application to patents on Endo
                      Technology existing as of the Effective Date or on
                      Joint Technology and to Endo's Confidential Technology
                      provided to PPG), and Section 6.9.3 will accordingly not
                      be applicable; and

               4.3.2  the applicable license to PPG will be royalty-bearing
                      without the relevant Net Realization being reduced as
                      specified in clause (ii) of Section 6.9.4.

          4.4  Supply of Formulated TIMERx by PPG (or otherwise as provided in
               Section 7.4) in accordance with the Specifications is desired by
               both parties for the technically satisfactory production,
               regulatory approval, and exploitation of the Designated
               Product(s). In accordance with Section 7 (and except as provided
               in Section 7.4), PPG will supply Endo and its Affiliates and
               sublicensees with sufficient quantities of Formulated TIMERx
               produced in accordance with the Specifications in compliance with
               (GMP and all applicable laws and regulations, to meet their
               requirements for the manufacturing of the Designated Product(s)
               during the Marketing Period, and Endo shall purchase all of its
               and its Affiliates' and sublicensees' requirements thereof from
               PPG during such period. The price for all Formulated TIMERx sold
               hereunder shall equal the applicable Formulated TIMERx Price, and
               shall be payable by Endo to PPG within forty-five (45) days after
               the shipping of the Formulated TIMERx to Endo. As provided in
               Exhibit 1.35, the price of the Formulated TIMERx used in the
               Designated Product will be one of the deductions applied in the
               calculation of the Net Realization.

          4.5  Endo hereby agrees to pay to PPG Royalties equal to the
               Applicable Percentage of the relevant Net Realization from any
               and all Designated Products; provided, however, that, if a
               Development Excess exists pursuant to Section 5.3.3 (where PPG is
               the terminating party) or a Certification Excess exists pursuant
               to Sections 3.5.1, 3.6.3, or 5.5.3 (where PPG is the non-
               participating or terminating party), Endo shall pay PPG
               proportionately less than the Applicable Percentage of the
               relevant Net Realization from the relevant Designated Product(s)
               from the relevant Specified Nation(s), until Endo has thereby
               recouped the amount of such Development Excess plus such
               Certifica-

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               tion Excess. (That is, for example, if the total resources
               devoted by both Endo and PPG to the relevant Development Period
               and Certification Period, as approved pursuant to Section 2.5
               and/or Section 3.7, is *** in this example, and Endo bore ***
               and PPG bore *** of that total prior to PPG's making its
               election under Section 5.3 or Section 5.5.3, and if the
               Applicable Percentage is ***, then Endo would pay PPG one-
               eighth (50/400) of the Net Realization from the relevant
               Designated Product(s) from the relevant Specified Nation(s) until
               Endo has thereby recouped the *** total Development Excess
               and/or Certification Excess, which would occur in this example
               when the total of such Net Realization reaches ***. Where a
               Development Period is relevant to more than one Certification
               Period, the total resources so devoted to that Development Period
               will, for the purposes of this section, be apportioned to the
               various relevant Certification Periods pro rata by the respective
               total resources devoted to those Certification Periods.)

          4.6  Endo has agreed to make the payments specified in Section 4.5 in
               recognition of PPG's anticipated contributions of know-how,
               resources, and money during the Development Period(s) and the
               Certification Period(s), and irrespective of whether any patents
               cover such Designated Products; provided, however, that if there
               are any Net Realizations from Designated Products sold in the
               United States to which no license to U.S. PPG Patents or to U.S.
               Joint Technology Patents (including patent applications, as if
               patents had issued thereon) is applicable to the making, using,
               sale, offer for sale, or import thereof, such Net Realizations
               shall be reduced by one-third prior to the calculation of the
               proportion thereof to be paid to PPG as Royalties hereunder.

          4.7  All Royalties and other amounts payable pursuant to this
               Agreement shall be due quarterly within 60 days following the end
               of each calendar quarter for Net Realization in such calendar
               quarter. Each such payment shall be accompanied by a statement of
               Net Realization for the quarter and the calculation of the
               Royalties payable hereunder. All Royalties and all other amounts
               payable under this Agreement will bear interest at the rate of
               *** per month or the maximum legal rate, whichever is less, from
               the date due through the date of payment. Endo shall keep and
               shall cause its Affiliates and its and their

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               sublicensees to keep complete, true and accurate records for the
               purpose of showing the derivation of all Royalties payable to PPG
               under this Agreement. PPG or its representatives shall have the
               right to inspect, copy, and audit such records at any time during
               reasonable business hours upon notice to Endo or any of its
               Affiliates or sublicensees, respectively. Information gathered
               during such an audit shall be held in confidence by PPG and its
               Affiliates, except to the extent any of the exceptions stated in
               Sections 10.1.1 through 10.1.7 apply thereto, and PPG's auditors
               will be required to execute an agreement consistent with this
               obligation and otherwise reasonably acceptable to Endo. Any such
               audit shall be at the expense of PPG, unless the audit reveals
               that, with respect to the period under audit, less than 90% (for
               the first such audit conducted with respect to a particular
               Designated Product) or *** (for any subsequent audits with
               respect to such Designated Product) of the Royalties due to PPG
               hereunder have been paid, in which event Endo shall pay or
               reimburse PPG for the reasonable expenses of such audit, in
               addition to PPG's other remedies for such underpayment.

          4.8  All monies due hereunder shall be paid in United States Dollars
               to PPG in Patterson, New York, U.S.A. The rate of exchange to be
               used shall be the average commercial rate of exchange for the 30
               days preceding the date of payment for the conversion of local
               currency to United States Dollars as published by The Wall Street
               Journal (or if it ceases to be published, a comparable
               publication to be agreed upon by the parties) or, for those
               countries for which such average exchange rate is not published
               by The Wall Street Journal, the exchange rate fixed on the fifth
               day prior to the date of payment as promulgated by the
               appropriate United States governmental agency as mutually agreed
               upon by the parties.

     5.   Term and Termination.
          --------------------

          5.1  The term of this Agreement shall begin on the Effective Date and
               shall, unless earlier terminated as provided herein, continue
               until the last to occur of: (i) the fifth anniversary of the
               later of the Effective Date or the most recent agreement of the
               parties to start a Development Period hereunder; or (ii) the end
               of the last License Term to expire or be terminated, if any such
               License Term(s) are in effect on

                                       14
<PAGE>

               any date determined under clause (i) or clause (iii) below; or
               (iii) the end of the term of any license under Section 6.9, if
               any such license(s) are in effect on any date determined under
               clause (i) or (ii).

          5.2  A Development Period for a Designated Product may be terminated
               before completion thereof, if it is determined by Committee
               Action that due to unfavorable or inconclusive results to that
               time, no further efforts are likely to lead to the successful
               development of the Designated Product. The Initial Development
               Period will terminate pursuant to this section if Committee
               Action determines that, due solely to technical reasons of the
               pharmaceutical sciences growing from results obtained in the
               course of the Proof of Principle Studies, that it will not be
               practicable to develop any Initial Designated Product. The
               Initial Development Period will also terminate if the Patent
               Review results in a determination by Endo, concurred in by
               Committee Action, that the PPG Patents are not as contemplated
               hereunder. If the Initial Development Period is terminated
               pursuant to this section, this Agreement shall thereupon
               terminate, and, subject to Section 5.11, neither party will have
               any further liabilities or obligations to the other hereunder.
               Similarly, Committee Action may determine that no Certification
               Period should be undertaken with respect to a Designated Product
               in one or more nation(s), but such a determination will not by
               itself terminate this Agreement.

          5.3  Either party may at its option terminate its participation in a
               Development Period (including without limitation the Initial
               Development Period) at its election and upon at least 30 days'
               prior written notice to the other party (subject, however, to a
               continuing duty to contribute as provided herein to the costs of
               tasks previously committed prior to such notice), if it
               determines that no further efforts are likely to lead to the
               successful development of any of the relevant Designated
               Products.

               5.3.1  If the terminating party is Endo, this shall have the
                      results stated in Section 6.9.

               5.3.2  If the terminating party is PPG, this shall have the
                      results stated in Section 6.8.

                                       15
<PAGE>

               5.3.3  The terminating party shall not be required to contribute
                      further to the annual reconciliations for the costs of
                      such Development Period under Section 2.5, other than to
                      the extent that a disparity of the sort described
                      in Section 2.5 has theretofore accrued that
                      would call for a reconciliation payment by
                      such terminating party to the other party,
                      in which event such reconciliation payment
                      shall be accounted for and made by such terminating
                      party within sixty (60) days of the termination of
                      its participation under this section, or with the next
                      scheduled annual reconciliation payment under Section 2.5
                      (whichever is sooner). Rather, a Development Excess shall
                      be established with respect to the relevant Designated
                      Product(s), which shall equal the sums such party
                      would have paid under Section 2.5, had it participated
                      fully in such Development Period, but did not
                      pay due to its election under this section.

          5.4  A Certification Period for a Designated Product may be terminated
               before completion thereof, if it is determined by Committee
               Action that due to unfavorable or inconclusive results to that
               time, no further efforts are likely to lead to the applicable
               Approval for the Designated Product.

          5.5  Either party may at its option terminate its participation in any
               Certification Period (including without limitation the Initial
               U.S. Certification Period) at its election and upon at least 30
               days' prior written notice to the other party (subject, however,
               to a continuing duty to contribute as provided herein in the
               costs of tasks previously committed prior to such notice), if it
               determines that no further efforts are likely to lead to the
               applicable Approval for any of the relevant Designated Products.

               5.5.1  If the terminating party is Endo, this shall have the
                      results stated in Section 6.9.

               5.5.2  If the terminating party is PPG, this shall have the
                      results stated in Section 6.8.

               5.5.3  The terminating party shall not be required to contribute
                      further to the annual reconciliations for the costs of
                      such Certifi-

                                       16
<PAGE>

                    cation Period under Section 3.7, other than to the extent
                    that a disparity of the sort described in Section 3.7 has
                    theretofore accrued that would call for a reconciliation
                    payment by such terminating party to the other party, in
                    which event such reconciliation payment shall be accounted
                    for and made by such terminating party within sixty (60)
                    days of the termination of its participation under this
                    section, or with the next scheduled annual reconciliation
                    payment under Section 3.7 (whichever is sooner). Rather, a
                    Certification Excess shall be established with respect to
                    the relevant Designated Product(s), which shall equal the
                    sums such party would have paid under Section 3.7, had it
                    participated fully in such Certification Period, but did not
                    pay due to its election under this section.

          5.6  PPG may at its option terminate the Exclusivity Period for a
               particular Designated Product in one or more Specified Nation(s)
               if Endo fails to meet the Minimum Net Realization levels in such
               Specified Nation(s) under the then-current Manufacturing and
               Marketing Plan(s) for such Designated Product during any two
               consecutive calendar years.

          5.7  If Endo fails to launch full-scale marketing of a Designated
               Product in any Specified Nations within the time frames specified
               in the then-current Manufacturing and Marketing Plan(s) therefor,
               or announces its intention to discontinue active marketing of
               such Designated Product in such nation(s), PPG may at its option
               elect to terminate the License Term for such Designated Product
               in such nation(s) upon the delivery of written notice to Endo.
               Any such termination of such License Term will have the effect of
               removing the affected Specified Nation(s) from the Territory for
               such Designated Product and shall have the results stated in
               Section 6.9.

          5.8  In the event that either party materially breaches any of the
               terms, conditions or agreements contained in this Agreement to be
               kept, observed or performed by it, then the other party may
               terminate this Agreement, at its option and without prejudice to
               any of its other legal or equitable rights or remedies, by giving
               the party who committed the breach (i) in the case of breach of
               obligations other than the payment of money, 90 days' notice in
               writing, unless the notified

                                       17
<PAGE>

               party within such 90-day period shall have cured the breach, and
               (ii) in the case of breach of an obligation for the payment of
               money, 30 days' notice in writing, unless the notified party
               within such 30-day period shall have cured the breach, including
               any required payment of interest on previously unpaid amounts as
               set forth herein.

               5.8.1  If the defaulting party is Endo, a termination under this
                      section shall have the results stated in Section 6.9.

               5.8.2  If the defaulting party is PPG, a termination under this
                      section shall have the results stated in Section 6.8.

          5.9  This Agreement will automatically terminate if Endo files for
               protection under federal or state bankruptcy laws, becomes
               insolvent, makes an assignment for the benefit of creditors,
               appoints or suffers appointment of a receiver or trustee over its
               property, files a petition under any bankruptcy or insolvency act
               or has such petition filed against it. A termination under this
               section shall have the results stated in Section 6.9.

          5.10 This Agreement will automatically terminate if PPG files for
               protection under federal or state bankruptcy laws, becomes
               insolvent, makes an assignment for the benefit of creditors,
               appoints or suffers appointment of a receiver or trustee over its
               property, files a petition under any bankruptcy or insolvency act
               or has such petition filed against it. A termination under this
               section shall have the results stated in Section 6.8.

          5.11 Endo's obligations regarding payment of Royalties accrued as of
               the date of termination, PPG's rights under Sections 6.10 and
               6.11 (except if this Agreement is terminated due to an uncured
               breach on the part of PPG), and Endo's rights under Section 6.12
               (except if this Agreement is terminated due to an uncured breach
               on the part of Endo), and the provisions of Sections 5, 6.6,
               6.8 -6.13, 9, 10, 12, 13, and 14, hereof shall survive any
               expiration or termination of this Agreement.

                                       18
<PAGE>

 6.  Ownership and Licenses.
     ----------------------

     6.1  Except as otherwise explicitly licensed or transferred as provided
          herein, each party will, as between it and the other party hereto,
          retain ownership of any and all inventions, copyrights, trade secrets,
          patent rights and other technology and rights to the extent made
          solely by its personnel, Affiliates, or contractors (other than the
          other party hereto), and the parties will jointly own any and all
          Joint Technology. Inventorship for these purposes will be determined
          under the prevailing U.S. rules and interpretations. Unless otherwise
          approved by Committee Action, the party primarily responsible for the
          filing of a PLA, including without limitation NDAs in the U.S., shall
          own such PLAs. Neither party makes any grant of rights by implication.

     6.2  Except as otherwise provided herein, each party shall be responsible,
          as it shall determine, for the filing and prosecution of any and all
          patent applications with respect, in whole or in part, to its own
          intellectual property and for the maintenance of any available patent
          protection with respect thereto, and the Alliance Committee will
          determine which of PPG or Endo, or both, will be responsible for the
          filing and prosecution of any and all patent applications with respect
          to the Joint Technology, with due regard to reasonable concerns, if
          any, expressed by either party as to the impact such a filing and
          prosecution may have on its other rights and technologies; provided
          however, that neither party commits that any such patent protection
          will be available or continuous hereunder.

     6.3

          6.3.1 PPG hereby grants to Endo a license under the Joint Technology,
                 the PPG Patents, and PPG's Confidential Technology disclosed to
                 Endo hereunder to make, have made, use, sell, offer for sale,
                 and import the Designated Product(s) in the Territory during
                 the License Term applicable to such Designated Product. Such
                 license shall be exclusive as to the applicable nation(s)
                 during the Exclusivity Period applicable thereto for such
                 Designated Product, and shall otherwise be nonexclusive. Such
                 license does not extend to the making of TIMERx or Formulated
                 TIMERx, but does cover the incorpo-

                                       19
<PAGE>

                 ration of the same into the Designated Product(s). Endo shall
                 have no right to grant sublicenses hereunder without the prior
                 written consent of PPG, which consent shall not
                 be unreasonably withheld. PPG will, throughout the License
                 Term, promptly notify Endo of all PPG Patents referred to
                 in Section 1.38.3 and provide Endo with access to all
                 of the same, solely for use within the
                 scope of the license stated in this section.

          6.3.2 Endo hereby grants to PPG a license, with right to sublicense,
                 under any and all Endo Technology and Joint Technology to make,
                 have made, use, sell, offer for sale, and import the Designated
                 Product(s) in the Territory; provided, however, that during the
                 term and within the scope of the Exclusivity Period(s) for the
                 license granted by PPG to Endo under Section 6.3.1, such
                 license under Section 6.3.1 will take precedence over the
                 license under this Section 6.3.2, and the rights under this
                 section will be exercised by Endo. The license under this
                 Section 6.3.2 shall be exclusive to PPG for an "Exclusivity
                 Period" (as defined in Section 1.24, mutatis mutandis for
                 application to patents on Endo Technology and Joint Technology
                 and to Endo's Confidential Technology provided to PPG);
                 provided, however, that if and to the extent that the license
                 granted to Endo under Section 6.3.1 continues after the end of
                 an applicable Exclusivity Period thereunder (whether pursuant
                 to Section 5.6, 1.24, or otherwise), this license to PPG under
                 this Section 6.3.2 shall be nonexclusive.

     6.4  Endo acknowledges that PPG, for itself and for others, applies, and
          will seek to apply, *** to other products. Other than Section 2.7, no
          provision hereof, and no exclusivity hereunder, shall prevent PPG from
          so applying *** or ***, so long as the end product is not a Designated
          Product for manufacture or sale in the Territory during the
          Exclusivity Period applicable thereto.

     6.5  [intentionally omitted]

     6.6  In recognition of the parties' cooperative efforts with respect to the
          Joint Technology, but without the express or implied grant of any
          license to any underlying or enabling rights or technology (except as

                                       20
<PAGE>

          otherwise provided herein), it is agreed that each party and its
          Affiliates shall have the nonexclusive, worldwide right and license,
          with right to sublicense, under the Joint Technology, to make, have
          made, use, sell, offer for sale, and import any products or services
          (other than a Designated Product by PPG or its Affiliates in the
          relevant Specified Nation(s) during an applicable Exclusivity Period
          under the license in Section 6.3.1, or by Endo or its Affiliates in
          the relevant Specified Nation(s) during an applicable Exclusivity
          Period described in Section 6.9.3). Such license will be royalty-free
          except as is otherwise provided herein. Each party will promptly
          notify the other of all Joint Technology and provide such other party
          with access to all of the same.

     6.7  Subject to and conditional upon the failure or continuing
          unwillingness of PPG to meet Endo's and its Affiliates' and
          sublicensees' requirements as provided in Section 7.4, PPG grants to
          Endo a nonexclusive license under the TIMERx Production Technology to
          make and have made Formulated TIMERx in the Territory solely for use
          in the Designated Product(s) for sale in the Territory during the
          License Term. Endo shall have no right to grant sublicenses of its
          rights hereunder (whether to Affiliate(s) or otherwise) without the
          prior written consent of PPG, which consent shall not be unreasonably
          withheld.

     6.8  Subject to and conditional upon PPG's termination of its participation
          in a Development Period pursuant to Section 5.3 or in a Certification
          Period pursuant to Section 5.5, or PPG's election not to participate
          in a Certification Period (or its ineligibility to do so) as provided
          in Section 3.6, or the termination of this Agreement pursuant to
          Section 5.8 due to an uncured breach by PPG, or a termination pursuant
          to Section 5.10, PPG's license to Endo under Section 6.3.1 and its
          conditional license under Section 6.7, shall continue with respect to
          the relevant Specified Nation(s) and the relevant Designated
          Product(s) or successors thereto containing *** and designed
          as tablets or capsules for substantially the same functions and
          indications (as may be determined by Committee Action), but with the
          following changes and adjustments as to such license with respect to
          such Designated Product(s) or successors in the relevant Specified
          Nation(s):

                                       21
<PAGE>

          6.8.1  Endo's license to PPG under Section 6.3.2 shall terminate
                 upon the effectiveness of this Section 6.8 with respect to
                 the relevant Designated Product in the relevant Specified
                 Nation(s).

          6.8.2  The Exclusivity Period for the license under Section 6.3.1, to
                 the extent applicable to the relevant Designated Product(s) in
                 the relevant Specified Nation(s), shall, unless earlier ended
                 pursuant to Section 1.24.1, last until the longer of five (5)
                 years commencing with the effective date of the applicable
                 termination (or from the start of a Certification Period
                 covered by Section 3.6.5) or until there are no more Joint
                 Technology Patents (if any) applicable to such Designated
                 Product in the relevant Specified Nation(s) (or, as
                 to pending patent applications, that would be so applicable,
                 if they were then issued as patents), and shall
                 thereafter be nonexclusive in such Specified Nation(s).

          6.8.3  The license under Section 6.3.1, to the extent applicable to
                 the relevant Designated Product(s) in the relevant Specified
                 Nation(s), will be royalty-bearing and Sections 4.5, 4.7 and
                 4.8 shall apply thereto; provided, however, that the relevant
                 Net Realization (without regard to Section 4.6, which it is
                 agreed shall not be applicable) shall be reduced by one-third
                 prior to the calculation of the proportion thereof to be
                 paid to PPG as Royalties hereunder.

          6.8.4  The parties' agreements under Section 4.4 and Section 7 will
                 continue to apply to Endo's and its Affiliates' and
                 sublicensees' requirements of Formulated TIMERx for use in the
                 Designated Product(s) produced pursuant to this section for
                 sale in the relevant Specified Nation(s), throughout the life
                 of the license under Section 6.3.1, to the extent applicable to
                 the relevant Designated Product(s) in the relevant Specified
                 Nation(s).

          6.8.5  As used herein, the "relevant Specified Nation(s)" shall
                 be the entire Territory as to a termination of PPG's
                 participation in a

                                       22
<PAGE>

                 Development Period, and shall be the Specified Nation(s) for
                 the applicable Certification Period as to a termination of
                 PPG's participation in a Certification Period or its election
                 not to participate therein (or its ineligibility to do so).

          6.8.6 The license under Section 6.3.1, to the extent applicable to the
                 relevant Designated Product(s) in the relevant Specified
                 Nation(s), will apply only to the PPG Patents, the Joint
                 Technology, the TIMERx Production Technology, and PPG's
                 Confidential Technology made or discovered prior to expiration
                 of two years after the effectiveness of the applicable
                 termination (or prior to the start of a Certification Period
                 covered by Section 3.6.5), together with any and all
                 intellectual property and other rights thereto and therein in
                 the relevant Specified Nation(s), inclusive of later-issued
                 patents to the extent disclosing the same. Notwithstanding
                 Sections 1.38.2 or 1.38.3, any such technology made or
                 discovered more than two years following such termination shall
                 not be licensed to Endo for exploitation with respect to the
                 applicable Designated Product(s) in the relevant Specified
                 Nation(s). PPG will, throughout the term of the license under
                 Section 6.3.1, to the extent applicable to the relevant
                 Designated Product(s) in the relevant Specified Nation(s),
                 promptly notify Endo of all the licensed PPG technology and
                 provide Endo with access to all of the same, solely for use
                 within the scope of the license under Section 6.3.1, to the
                 extent applicable to the relevant Designated Product(s) in the
                 relevant Specified Nation(s).

          6.8.7  The requirement that Endo obtain PPG's consent to sublicenses
                 under Section 6.3.1 shall not apply to the extent that such
                 sublicenses relate only to the relevant Designated Product in
                 the relevant Specified Nation(s) covered by this section.

     6.9  Subject to and conditional upon Endo's termination of its
          participation in a Development Period pursuant to Section 5.3 or in a
          Certification Period pursuant to Section 5.5, or Endo's election not
          to participate in a Certification Period (or its ineligibility to do
          so) as provided in Section 3.5 (to the extent specified in Section
          3.5.2) or Section 3.6, or

                                       23
<PAGE>

          the termination of an Exclusivity Period pursuant to Section 5.6 or of
          a License Term pursuant to Section 5.7, or (to the extent specified in
          Section 4.3) the acceptance by Committee Action under Section 4.3 of
          PPG or its designated third party to pursue the activities described
          in that section in a Specified Nation(s), or the termination of this
          Agreement pursuant to Section 5.8 due to an uncured breach by Endo, or
          a termination pursuant to Section 5.9, Endo's license to PPG under
          Section 6.3.2 shall continue with respect to the relevant Specified
          Nation(s) and the relevant Designated Product(s) or successors thereto
          designed as tablets or capsules for substantially the same functions
          and indications (as may be determined by Committee Action), but with
          the following changes and adjustments as to such license with respect
          to Designated Product(s) or successors in the relevant Specified
          Nation(s):

          6.9.1  Except where the applicable termination is only of an
                 Exclusivity Period under Section 5.6, the License Term with
                 respect to the relevant Designated Product(s) in the relevant
                 Specified Nation(s) affected by such termination shall, for
                 purposes of the licenses granted by PPG under Sections 6.3.1
                 and 6.7, terminate upon the applicable termination.

          6.9.2  The term of the license under Section 6.3.2, to the extent
                 applicable to the relevant Designated Product(s) in
                 the relevant Specified Nation(s), shall last for the duration
                 of a Marketing Period as specified in Section 1.33.1,
                 mutatis mutandis for application to patents on
                 Endo Technology or Joint Technology.

          6.9.3  Except where the applicable termination is only of an
                 Exclusivity Period under Section 5.6, the license under
                 Section 6.3.2, to the extent applicable to the relevant
                 Designated Product(s) in the relevant Specified Nation(s),
                 shall be exclusive within its scope
                 to PPG for an "Exclusivity Period" (as defined in Section 1.24,
                 mutatis mutandis for application to patents on Endo Technology
                 existing as of the Effective Date and to Endo's Confidential
                 Technology provided to PPG) lasting, unless earlier terminated
                 pursuant to Section 1.24.1 as made
                 applicable by this section, until the longer of five (5)

                                       24
<PAGE>

                 years commencing with the effective date of the applicable
                 termination (or from the start of a Certification Period
                 covered by Section 3.6.4) or until there are no more Joint
                 Technology Patents (if any) applicable to such
                 Designated Product in the relevant Specified Nation(s)
                 (or, as to pending patent applications, that would
                 be so applicable, if they were then issued as patents), and
                 shall thereafter be nonexclusive in such Specified Nation(s).

          6.9.4  The license under Section 6.3.2, to the extent applicable to
                 the relevant Designated Product(s) in the relevant Specified
                 Nation(s), will be royalty-bearing and Sections 4.5,
                 4.7 and 4.8 shall apply thereto, mutatis mutandis,
                 as follows: (i) subject to clause (ii) below, PPG shall
                 pay Royalties thereunder to Endo with respect to relevant
                 Net Realization of PPG or its Affiliates or licensees
                 pursuant to such license under this Section 6.9 and
                 with due regard (as provided in Section 4.5, but applied in the
                 other direction) to any Development Excess or Certification
                 Excess theretofore borne by PPG due to Endo's not making the
                 payments it would otherwise have made under Section 2.5 and/or
                 Section 3.7; and (ii) the relevant Net Realization shall be
                 reduced by one-third prior to the calculation of the proportion
                 thereof to be paid to Endo as Royalties hereunder; and (iii)
                 payments of Royalties will be made to Endo in Chaddsford, PA
                 U.S.A.

          6.9.5  Throughout the life of the license under Section 6.3.2,
                 to the extent applicable to the relevant Designated
                 Product(s) in the relevant Specified Nation(s),
                 Endo will provide to PPG and its Affiliates and
                 sublicensees reasonable assistance on commercially
                 reasonable terms for the purposes of developing, testing,
                 certifying, making, using, selling, offering for sale, or
                 importing the relevant Designated Product(s) or any services
                 involving such Designated Product(s) in the relevant Specified
                 Nation(s), including without limitation making available to PPG
                 the benefit of any and all Facilities Certifications to the
                 maximum extent permitted by law.  Without limiting the
                 generality of the foregoing, Endo will specifically either:

                                       25
<PAGE>

                    (i)  supply PPG and its Affiliates' and sublicensees' with
                         sufficient quantities of the *** active drug substance
                         (ADS) produced in accordance with the Specifications in
                         compliance with GMP and all applicable laws and
                         regulations, to meet their reasonable requirements for
                         the manufacturing of the Designated Product(s). If and
                         to the extent this clause (i) is effective, PPG shall
                         purchase all of its and its Affiliates' and
                         sublicensees' requirements thereof for such uses from
                         Endo during such period. The price for all *** sold
                         hereunder shall equal the applicable *** Price, and
                         shall be payable by PPG to Endo within thirty (30) days
                         after the shipping of the *** to PPG. As provided in
                         Exhibit 1.35, the price of the *** ADSs used in the
                         Designated Product will be one of the deductions
                         applied in the calculation of the Net Realization. The
                         *** shall be provided FOB Garden City, New York, and
                         all other terms of such supply shall be as provided in
                         Section 7, mutatis mutandis for application to the ***
                         sold by Endo, inclusive without limitation of the
                         provisions of Section 7.4, which shall be applicable if
                         Endo for any reason fails to supply PPG with its and
                         its Affiliates' and sublicensees' requirements of ***
                         during the life of the license under Section 6.3.2, to
                         the extent applicable to the relevant Designated
                         Product(s) in the relevant Specified Nation(s); or

                    (ii) manufacture and sell to PPG and its Affiliates and
                         sublicensees, on commercially reasonable terms, the
                         finished Designated Product(s) for sale in the relevant
                         Specified Nation(s) and shall deliver the same to the
                         relevant Specified

                                       26
<PAGE>

                         Nation(s), or otherwise assist PPG or its Affiliates or
                         sublicensees to effect such deliveries.

                 In the absence of any specific election by PPG between clause
                 (i) and (ii), it will be deemed to have selected clause (ii).
                 PPG may, on good cause shown and after consultation with Endo,
                 reasonably elect to switch a single time as to the relevant
                 Designated Product in any Specified Nation (unless Endo in its
                 discretion approvals subsequent switches, one way or the other
                 as to such Designated Product in such Specified Nation) from
                 the course specified in clause (ii) to that in clause (i), and
                 Endo agrees to reasonably assist PPG to be able to make such a
                 switch. PPG will, at the reasonable request of Endo, switch to
                 clause (i) in those situations in which it is able to do so
                 without significant harm to its interests and in which this
                 would be of substantial benefit to Endo.

          6.9.6  As used herein, the "relevant Specified Nation(s)" shall mean
                 the entire Territory as to a termination of Endo's
                 participation in a Development Period or as to the termination
                 of this Agreement pursuant to Section 5.8 due to an uncured
                 breach by Endo or a termination pursuant to Section 5.9. The
                 "relevant Specified Nation(s)" shall mean the Specified
                 Nation(s) for the applicable Certification Period as to a
                 termination of Endo's participation in a Certification Period
                 or its election not to participate therein (or its
                 ineligibility to do so); shall mean, as to Marketing Period
                 licenses to PPG or its designated third parties under Section
                 4.3, those nation(s) to which the last sentence of Section 4.3
                 is applicable; and shall mean the applicable Specified
                 Nation(s) as to the termination of an Exclusivity Period
                 pursuant to Section 5.6 or of a License Term pursuant to
                 Section 5.7.

          6.9.7  As used herein, the "then-existing Endo Technology and then-
                 existing Joint Technology" shall mean the Endo Technology and
                 Joint Technology made or discovered prior to the expiration of
                 two years following the effectiveness of the applicable
                 termination (or prior to the start of a Certification Period
                 covered by Section 3.6.4), together with any and all intellec-

                                       27
<PAGE>

               -tual property and other rights thereto and therein in the
               relevant Specified Nation(s), inclusive of later-issued patents
               to the extent disclosing the same. Notwithstanding Section 6.10,
               Endo Technology made or discovered following more than two years
               such termination shall not be licensed to PPG for exploitation
               with respect to the applicable Designated Product(s) in the
               relevant Specified Nation(s). Endo will promptly notify PPG of
               all existing Endo Technology and provide PPG with access to all
               of the same, solely for use within the scope of the license under
               Section 6.3.2, to the extent applicable to the relevant
               Designated Product(s) in the relevant Specified Nation(s).

     6.10 Subject to Section 6.9.7, Endo hereby grants to PPG a worldwide,
          nonexclusive license, with right to sublicense, under any and all Endo
          Improvement Technology to make, have made, use, sell, offer for sale,
          and import any products or services using or based upon TIMERx or
          related technology. Such license will be royalty-free except as is
          otherwise provided herein. Endo will, throughout the term of this
          license, promptly notify PPG of all Endo Improvement Technology and
          provide PPG with access to all of the same, solely for use within the
          scope of the license stated in this section.

     6.11 Endo hereby grants PPG a nonexclusive and royalty-free license, with
          right to sublicense, under all rights of Endo and its Affiliates and
          sublicensees in and to the Endo Test and Regulatory Data to use the
          same for purposes of marketing or complying with governmental
          requirements of any country (other than with respect to a Designated
          Product or a product directly competitive with a Designated Product
          for manufacturing, marketing or use in the Territory during an
          applicable Exclusivity Period); provided that PPG will not use any of
          the same for purposes of marketing or disclosure to the public, to the
          extent the particular Endo Test and Regulatory Data is then Endo's
          Confidential Technology, unless Endo has consented thereto, which
          consent shall not be unreasonably withheld.  Endo hereby consents to
          PPG's and its sublicensees' cross-referencing, in any PLAs or other
          regulatory filings made by them within the scope of such license, any
          PLA filing made or drug master file created by Endo or its Affiliates
          relating to or containing any of the Endo Test and Regulatory Data.

                                       28
<PAGE>

          The license under this section shall survive any termination or
          expiration of the term of this Agreement, except a termination under
          Section 5.8 due to an uncured breach by PPG. Endo will, throughout the
          License Term and solely for use within the scope of the license stated
          in this section, provide to PPG on request access to all of the Endo
          Test and Regulatory Data in or coming into Endo's possession or
          otherwise reasonably available to it.

     6.12 PPG hereby grants Endo a nonexclusive, paid-up license, with right to
          sublicense, under all rights of PPG and its Affiliates in and to the
          PPG Test and Regulatory Data to use the same for purposes of complying
          with governmental requirements, but solely with respect to the
          Designated Product(s) for marketing or use in the Territory. PPG
          hereby consents to Endo's and its sublicensees' cross-referencing, in
          any PLAs or other regulatory filings made by them within the scope of
          such license, any PLA filing made or drug master file created by PPG
          or its Affiliates relating to or containing any of the PPG Test and
          Regulatory Data. The license and rights under this section shall
          survive any termination or expiration of the term of this Agreement,
          except a termination under Section 5.8 due to an uncured breach by
          Endo. PPG will, throughout the License Term and solely for use within
          the scope of the license stated in this section, provide to Endo on
          request access to all of the PPG Test and Regulatory Data in or coming
          into PPG's possession or otherwise reasonably available to it.

     6.13 Each party agrees to mark and to have marked by its sublicensees every
          product manufactured, used or sold by it or its sublicensees in
          accordance with the laws of the United States or other applicable
          Specified Nation relating to the marking of patented articles with
          notices of patent.

 7.  Supply of TIMERx.
     ----------------

     7.1  All sales of Formulated TIMERx shall be F.O.B. Patterson, New York,
          and Endo shall bear all transportation, insurance, taxes, duties, and
          other costs and risks of loss, spoilage and damage associated with the
          shipping and delivery of Formulated TIMERx to Endo or its Affiliates
          or sublicensees.

                                       29
<PAGE>

     7.2  Subject to Sections 2.5 and 3.7, PPG shall perform routine quality
          control tests with respect to all Formulated TIMERx as required by the
          FDA, or otherwise as PPG deems necessary in accordance with its
          applicable policies, and PPG will also bear the expenses and fees for
          filing the Drug Master File for TIMERx with the FDA. No other or
          special tests by PPG with respect to the raw materials or Formulated
          Formulated TIMERx will be required, unless and to the extent that Endo
          establishes that the same are required in order to obtain or maintain
          a governmental license to market a Designated Product in the
          Territory. PPG shall promptly, upon completion of each lot or batch of
          Formulated TIMERx, deliver to Endo a copy of the record of such test
          performed on said lot or batch. Endo will perform quality control
          tests on Formulated TIMERx immediately on receipt at its plant and
          advise PPG within thirty (30) days of any deviations from
          Specifications.

     7.3  If Endo considers any such shipment not to conform to the applicable
          Specifications, Endo shall notify PPG as provided in Section 7.2 and
          provide PPG with the relevant analysis.  PPG's SOLE OBLIGATION AND
          Endo's EXCLUSIVE REMEDY FOR ANY SUCH NONCONFORMITY SHALL BE AS
          FOLLOWS:

                    (i)  PPG shall at its own expense accept return of any
                         shipment not accepted, or else reimburse Endo for the
                         cost of disposal or destruction;

                   (ii)  PPG shall use its Best Commercial Efforts to replace
                         the non-conforming shipment with conforming Formulated
                         TIMERx; and

                  (iii)  Section 7.4 shall apply if in any circumstances set out
                         in that Section PPG shall be unable to supply
                         replacement conforming Formulated TIMERx.

     7.4 If for any reason PPG fails to supply Endo with its and its Affiliates'
          and sublicensees' requirements of Formulated TIMERx during a Marketing
          Period, PPG shall, AS ENDO'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE
          TO SUPPLY

                                       30
<PAGE>

          Formulated TIMERx, grant Endo a nonexclusive license to manufacture
          Formulated TIMERx under the *** Production Technology and make
          knowledgeable personnel reasonably available, at PPG's expense, to
          consult with Endo, all to the extent necessary to enable Endo to
          produce TIMERx that would otherwise have been supplied by PPG
          hereunder for Endo and its Affiliates and sublicensees in connection
          with the production of the relevant Designated Product pursuant to
          this Agreement during such Marketing Period.

          7.4.1  Such license shall be royalty-free, it being understood that
                 Endo's actual direct manufacturing costs and allocable indirect
                 costs relating to the manufacture of the Formulated TIMERx will
                 be one of the deductions applied in the calculation of the Net
                 Realization.

          7.4.2  Endo shall maintain TIMERx Production Technology delivered to
                 Endo pursuant to this section, whether orally or in writing, in
                 strictest confidence and shall use such information and
                 technology only for the purpose of producing Formulated TIMERx
                 for its own use and the use of its Affiliates and sublicensees
                 in connection with this Agreement.

          7.4.3  Endo acknowledges that, in doing the foregoing, PPG will not be
                 providing a turnkey operation. Rather, PPG will only be
                 required to make reasonably available to Endo the best standard
                 of knowledge and information then available to PPG and directly
                 used in its or its Affiliates manufacture of Formulated TIMERx.

     7.5  While PPG is supplying Formulated TIMERx hereunder to Endo, PPG shall,
          after receipt of reasonable prior notice, give duly accredited
          representatives of Endo access at all reasonable times during regular
          business hours to PPG's plant in which the Formulated TIMERx is being
          produced, to ensure production practices created Formulated TIMERx
          conforming to Specifications. PPG will exert its Best Commercial
          Efforts to maintain at all times during the Marketing Period at least
          two approved sources for the production of Formulated TIMERx (whether
          or not inclusive of PPG's own production facili-

                                       31
<PAGE>

          ties). To the extent necessary to obtain or maintain an Approval, PPG
          will exert its Best Commercial Efforts to obtain similar access for
          Endo to the production facilities of any of PPG's third-party
          suppliers of the Formulated TIMERx.

     7.6  Endo shall deliver to PPG firm written orders stating its (and/or its
          Affiliates' and sublicensees') requirements for Formulated TIMERx to
          be used for production of the Designated Product(s) for commercial use
          or sale no less than three (3) months in advance of the requested
          delivery date therefor, by giving firm orders at the beginning of each
          month that creates firm orders during the third following month (the
          order-submission month and the first and second months following
          having already been the subject of prior firm orders). All such orders
          shall be firm and shall not be cancelled or deferred by Endo.

     7.7  At least six months before Endo and/or its Affiliates or sublicensees
          begin production of the Designated Product for commercial use or sale
          (and in any event not later than concurrently with the submission of
          the first order for use in the production of the applicable Designated
          Product intended for commercial sale during each Marketing Period),
          Endo shall deliver to PPG a written, non-binding estimate of all
          requirements of Formulated TIMERx therefor during the following 12
          months. Endo will deliver to PPG updates to such estimates on or
          before the first day of each January, April, July and October
          thereafter, which updates may revise estimates previously submitted,
          and will add estimates for additional months so that each such
          estimate covers the 8-month period following the end of the firm-order
          period (that is, the 4th through the 11th month after the month in
          which such estimates are made).

     7.8  PPG will exert Best Commercial Efforts to supply Endo with all amounts
          of Formulated TIMERx requested by Endo, but PPG shall have no
          obligation to supply Endo with quantities of Formulated TIMERx during
          any quarter in excess of 125% of the quantity estimated in Endo's
          estimate for that quarter which estimate was given to PPG six months
          prior to the end of such quarter pursuant to Section 7.7 (the Six-
          Month Estimated Quantity), nor shall Endo order quantities for any
          quarter less than 75% of the applicable Six-Month Estimated Quantity.

                                       32
<PAGE>

     7.9  Each party shall promptly notify the other of any fact, circumstance,
          condition or knowledge dealing with TIMERx, Formulated TIMERx, or the
          Designated Product of which the Party becomes aware that bears upon
          the safety or efficacy of TIMERx, Formulated TIMERx, or the Designated
          Product. Each party shall immediately notify the other of any
          inspection or audit relating to TIMERx, Formulated TIMERx, or the
          Designated Product by any governmental regulatory authority in the
          Territory. If a representative of the governmental authority takes
          samples in connection with such audit or inspection, the parties shall
          immediately provide each other, as appropriate, samples from the same
          batch. The party in receipt of such notice will provide the other
          party within 72 hours, with copies of all relevant documents,
          including FDA Forms 482 and 483 (as applicable), warning letters and
          other correspondence and notifications as such other party may
          reasonably request. PPG and Endo agree to cooperate with each other
          during any inspection, investigation or other inquiry by the FDA or
          other governmental entity, including providing information and/or
          documentation, as requested by the FDA, or other governmental entity.
          To the extent permissible, PPG and Endo also agree to discuss any
          responses to observations or notifications received and to give the
          other party an opportunity to comment on any proposed response before
          it is made. In the event of disagreement concerning the content or
          form of such response, Endo shall be responsible for deciding the
          appropriate form and content of any response with respect to any of
          its cited activities and PPG shall be responsible for deciding the
          appropriate form and content of any response with respect to any of
          its cited activities. Each party shall inform the other of all
          comments and conclusions received from the governmental authority.

 8.  Use of Trademarks.  Endo agrees to market the Designated Product(s) in
     -----------------
     conjunction with the appropriate PPG Trademark(s), and as provided in this
     section, including uses on such packaging, labeling and other materials as
     the Alliance Committee shall reasonably determine.  The provisions of this
     Section 8 shall apply, mutatis mutandis, to marketing of Designated
     Product(s) by PPG or its designees as contemplated under Sections 4.2, 4.3,
     or 6.9, with respect to the use by PPG or such designees of the Endo
     Trademarks.

                                       33
<PAGE>

     8.1  Endo acknowledges that all PPG Trademarks and all rights therein or
          registrations thereof, worldwide, shall belong exclusively to PPG.
          All use of the PPG Trademarks as contemplated in this Agreement by
          Endo shall accrue to the benefit of PPG.  Endo shall make no use of
          any of the PPG Trademarks except to identify and promote the
          Designated Product as contemplated hereunder for sale in the
          Territory.  Endo shall not continue using the PPG Trademarks after
          termination or expiration of this Agreement, nor after the removal or
          alteration of any such PPG Trademark from Exhibit 1.20, except to
          complete the sale of inventory of the Designated Product on hand at
          the time of termination or expiration, or at the time of such removal
          or alteration.

     8.2  Endo shall cooperate with PPG to protect the interest of PPG in the
          PPG Trademarks, and shall neither attempt to register nor authorize
          others to register any PPG Trademarks without the prior written
          consent of PPG in each instance.  Endo shall promptly inform PPG of
          any actual or apparent infringement of any PPG Trademarks or other
          intellectual properties of PPG which may come to Endo's attention
          during the term hereof.

     8.3  Endo shall use all appropriate notices of trademark status of the PPG
          Trademarks, including the "(TM)" designation (or the (R) symbol for
          registered marks, if any), in all labeling and promotional materials
          and shall otherwise conform with all policies and notices of PPG's
          rights in the marks and for the protection of the PPG Trademarks,
          including without limitation the inclusion of an appropriate footnote
          acknowledging the use of the PPG Trademark(s) under license. Endo will
          impose a spatial separation between any PPG Trademarks and any other
          names or marks of Endo or any others, and will not otherwise use any
          of PPG's names, marks or symbols in any manner that could, whether
          immediately or over time, create any substantial association between
          them and the business of Endo.

     8.4  Samples of the Designated Product and any advertising, promotional
          materials or packaging related thereto that bear the PPG Trademarks
          shall be provided by Endo to PPG at least thirty days prior to the
          first use or sale thereof, and at other times upon the request of PPG.
          Endo shall not put any of such items into initial use without first
          obtaining

                                       34
<PAGE>

          the written approval of PPG, which approval shall not be unreasonably
          withheld. PPG shall at all times have the right to enter into Endo's
          facilities and/or to take other appropriate methods to check the
          quality of the Designated Product manufactured or offered by Endo,
          from time to time during the term of this Agreement. If at any time or
          times PPG thinks that the quality of the Designated Product
          manufactured or offered by Endo, or the packaging or promotional
          materials therefor, is not suitable for using the PPG Trademarks or
          any of them, PPG, at its option, shall have the right to suspend or
          prohibit the use of such PPG Trademark(s), provided that PPG has given
          Endo a written notice thereof and a period of 60 days to bring them up
          to PPG's standards; provided further, however, that PPG need not give
          such opportunity to cure any deficiency that has been the subject of
          more than two such notices on prior occasions during the preceding
          twelve months.

 9.  Representations, Warranties and Indemnities.
     -------------------------------------------

     9.1  Each party represents and warrants to the other that it is duly
          organized and validly existing under the laws of the state of its
          organization, that it has the requisite corporate or limited liability
          company authority to execute and deliver this Agreement and to perform
          its obligations hereunder, and that the execution and performance of
          its obligations hereunder are not and will not be in violation of or
          in conflict with any material obligation it may have to any third
          party.

     9.2  PPG represents and warrants that any Formulated TIMERx supplied by it
          to Endo hereunder for use in the Designated Product, at the point of
          delivery:

          9.2.1  will conform to the Specifications in effect as of the order
                 date therefor; and

          9.2.2  to PPG's current knowledge, without undertaking any special
                 investigation, will not infringe upon the intellectual property
                 rights of any third party.

     9.3  Each party represents and warrants to the other that it has obtained,
          and will at all times during the term of this Agreement hold and

                                       35
<PAGE>

          comply with, all licenses, permits and authorizations necessary to
          perform this Agreement and to test, manufacture, market, export, and
          import the Designated Product(s), ***, or Formulated TIMERx to be so
          tested, manufactured, marketed, exported or imported by it as provided
          herein, as now or hereafter required under any applicable statutes,
          laws, ordinances, rules and regulations of the United States and any
          applicable foreign, state, and local governments and governmental
          entities, including without limitation all Facilities Certifications
          (as to Endo).

     9.4  THE FOREGOING WARRANTIES ARE IN LIEU OF, AND THE PARTIES EACH
          DISCLAIM, ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW,
          INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
          MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-
          INFRINGEMENT. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
          REPRESENTATION OR WARRANTY (i) BY PPG AS TO THE PATENTABILITY,
          VALIDITY, OR SCOPE OF ANY PPG PATENTS, PPG'S CONFIDENTIAL TECHNOLOGY,
          TIMERx PRODUCTION TECHNOLOGY, PPG TEST AND REGULATORY DATA, OR JOINT
          TECHNOLOGY, NOR AS TO THE UTILITY, EFFICACY, NONTOXICITY, SAFETY OR
          *** OR THE DESIGNATED PRODUCT; OR (ii) BY ENDO AS TO THE
          PATENTABILITY, VALIDITY, OR SCOPE OF ANY ENDO TECHNOLOGY, ENDO TEST
          AND REGULATORY DATA, OR JOINT TECHNOLOGY, NOR AS TO THE UTILITY,
          EFFICACY, NONTOXICITY, SAFETY OR APPROPRIATENESS OF ANY PRODUCTS MADE
          THEREFROM.

     9.5  PPG shall indemnify, defend and hold Endo and its Affiliates and
          sublicensees harmless from any and all third-party claims to the
          extent arising from, in connection with, based upon, by reason of, or
          relating in any way to:

          9.5.1  any claim, action or damages arising out of any alleged
                 infringement by reason of the manufacture, use or sale by
                 Endo of the Designated Product(s) to the extent such
                 infringement

                                       36
<PAGE>

                 would apply as well to the manufacture, sale or distribution of
                 TIMERx alone;

          9.5.2  PPG's contributions to the formulation or
                 development of the Designated Product(s) and the
                 Specifications therefor hereunder; provided, however,
                 that matters of infringement of third party rights or
                 intellectual properties shall be included under this
                 clause only to the extent the same are covered by Section 9.5.1
                 or are within PPG's knowledge, without undertaking any special
                 investigation, and of which PPG failed to inform Endo within 30
                 days following the later of the Effective Date or PPG's first
                 obtaining such knowledge;

          9.5.3  any failure of the Formulated TIMERx manufactured by PPG or its
                 alternate supplier (but not by Endo under Section 7.4), as
                 delivered to Endo hereunder for use in the Designated
                 Product(s), to conform to the Specifications; or

          9.5.4  any failure of PPG to comply with its obligation under Section
                 7.9 to notify Endo of any information coming into PPG
                 possession and bearing on the safety of TIMERx or the
                 Designated Product(s),

and not arising from any other aspect of the Designated Product(s) or its
formulation, development, supply, production, manufacture, sale, delivery,
distribution or use, nor from any act, omission or contribution of Endo with
respect to the Designated Product, or with respect to the Formulated TIMERx
following its delivery to Endo hereunder.

     9.6  Endo shall indemnify, defend and hold PPG harmless from any and all
          third-party claims to the extent arising from, in connection with,
          based upon, by reason of, or relating in any way to, the formulation,
          development, supply, production, manufacture, sale, delivery,
          distribution or use of the Designated Product(s) by Endo, its
          Affiliates or sublicensees, except for any matters which are covered
          by PPG's indemnities under Section 9.5.

     9.7  Notwithstanding anything to the contrary set forth elsewhere herein,
          neither Endo nor PPG shall be obligated to indemnify the other party

                                       37
<PAGE>

          for claims or liabilities to the extent arising from such other
          party's, or its Affiliates', sublicensees or assigns, negligence,
          intentional misconduct, or breach of its duties, obligations,
          warranties or representations set forth herein.

     9.8  Whenever indemnification is provided for a party under this Agreement,
          such right of indemnification shall extend also to the indemnified
          party's Affiliates, officers, directors, shareholders, successors,
          assigns, agents, employees, and insurers to the extent the same become
          subject to such claim in such capacity. The party seeking
          indemnification shall provide the indemnifying party with written
          notice of any claim or action within ten (10) days of its receipt
          thereof, and shall afford the indemnifying party the right to control
          the defense and settlement of such claim or action. The party seeking
          indemnification shall provide reasonable assistance to the
          indemnifying party in the defense of such claim or action. If the
          defendants in any such action include both Endo and PPG, and either
          party concludes that there may be legal defenses available to it which
          are different from, additional to, or inconsistent with, those
          available to the other, that party shall have the right to select
          separate counsel to participate in the defense of such action on its
          behalf, and such party shall bear the cost and expense of such
          separate defense, unless and to the extent the parties otherwise
          agree, or it is determined through arbitration hereunder that such
          costs and expense are or were required to be indemnified by the other
          party hereunder and are or were required to be incurred separately due
          to such different, additional, or inconsistent defenses. Should the
          indemnifying party determine not to defend such claim or action, the
          other party shall have the right to maintain the defense of such claim
          or action and the indemnifying party agrees to provide reasonable
          assistance to it in the defense of such claim or action and to bear
          the reasonable cost and expense of such defense (including attorneys'
          and experts' fees and expenses). Neither party shall settle any such
          claim or action in a way that prejudices or adversely impacts the
          other party to this Agreement without the prior approval of such other
          party (which approval shall not be unreasonably withheld).

     9.9  NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT
          (OTHER THAN FOR:

                                       38
<PAGE>

          BREACHES OF SECTION 9.3; INDEMNITIES UNDER SECTIONS 9.5 AND 9.6 FOR
          PATENT INFRINGEMENT OR FOR HARM TO PERSONS OR TANGIBLE PROPERTY; AND
          BREACHES OF SECTION 10), NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES
          BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL,
          CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS
          OR SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE OR
          BREACH OF ANY OTHER PROVISION OF THIS AGREEMENT OR THE USE OR
          INABILITY TO USE TIMERx, THE DESIGNATED PRODUCT, PPG PATENTS, PPG's
          CONFIDENTIAL TECHNOLOGY, TIMERx PRODUCTION TECHNOLOGY, PPG TEST AND
          REGULATORY DATA, CONFIDENTIAL ENDO TECHNOLOGY, ENDO TEST AND
          REGULATORY DATA, OR JOINT TECHNOLOGY, OR ANY CLAIMS ARISING IN TORT,
          PERSONAL INJURY, OR PRODUCT LIABILITY, EVEN IF SUCH PARTY HAS BEEN
          ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

10.   Confidentiality and Non-Solicitation.
      ------------------------------------

     10.1 In the course of performance under this Agreement or during the
          discussions leading thereto, a party may disclose, or may have
          disclosed, to the other confidential information belonging to such
          party in writing, orally or by demonstration or sample, which
          information is marked or stated in writing to be confidential or trade
          secret information, or where the circumstances of the disclosure
          and/or the nature of the information otherwise reasonably give notice
          of the confidential character of the information.  All such
          confidential information of a party shall be maintained in confidence
          by the other and will not be used by the other party for any purpose
          except as authorized hereunder.  Each party shall exercise, and shall
          cause its Affiliates, sublicensees, and consultants to exercise, a
          reasonable degree of care and at least the same degree of care as it
          uses to protect its own confidential information of similar nature to
          preserve the confidentiality of such information of the other party.
          Each party shall safeguard such information against disclosure to
          third parties, including without limitation employees and persons
          working or consulting for such

                                       39
<PAGE>

          party that do not have an established, current need to know such
          information for purposes authorized under this Agreement. This
          obligation of confidentiality does not apply to information and
          material:

          10.1.1 that were properly in the possession of the receiving party,
                 without any restriction on use or disclosure, prior to receipt
                 from the other party;

          10.1.2 that are at the time of disclosure hereunder in the public
                 domain by public use, publication, or general knowledge;

          10.1.3 that become general or public knowledge through no fault of the
                 receiving party or its Affiliates following disclosure
                 hereunder;

          10.1.4 that are properly obtained by the receiving party from a third
                 party not under a confidentiality obligation to the disclosing
                 party hereto;

          10.1.5 that are documented to have been independently developed by
                 or on behalf of the receiving party without the assistance of
                 the confidential information of the other party;

          10.1.6 that consist merely of an idea or conception for the
                 combination of one or more active drug ingredients with a
                 controlled-release agent such as TIMERx; or

          10.1.7 to the extent the same are required to be disclosed by order of
                 any court or governmental authority; provided, however, that
                 the receiving party shall use its Best Commercial Efforts to
                 give the disclosing party prior notice of any such disclosure
                 so as to afford the disclosing party a reasonable opportunity
                 to seek, at the expense of the disclosing party, such
                 protective orders or other relief as may be available in the
                 circumstances.

     10.2 Neither party shall make any public announcement or other publication
          regarding this Agreement (whether as to the existence or terms hereof)
          or the development work or project hereunder or the results

                                       40
<PAGE>

          thereof without the prior, written consent of the other party, which
          consent shall not be unreasonably withheld; provided that the
          foregoing shall not prohibit any disclosure which, in the opinion of
          counsel to the disclosing party, is required by any applicable law or
          by any competent governmental authority. In no event shall either
          party make any disclosure of any such results before a patent
          application has been filed with respect thereto, except upon the prior
          written approval of the other party.

     10.3 Each of PPG and Endo agrees that during the License Period, neither of
          them will directly or indirectly solicit or encourage any employee or
          consultant of the other to leave or terminate such employment or
          consultancy for any reason, including without limitation, becoming
          employed or otherwise engaged in any capacity by such party (or any
          person or entity associated with such party, whether or not an
          Affiliate), nor will it assist others in doing so.

11.  Infringement.
     ------------

     11.1 PPG shall promptly inform Endo of any suspected infringement of any of
          the PPG Patents or Joint Technology Patents or the infringement or
          misappropriation of the TIMERx Production Technology or Joint
          Technology by a third party, to the extent such infringement or
          misappropriation involves the manufacture, use or sale of a Designated
          Product or a substitutable or directly competitive product in the
          Territory ("Covered Infringement"). Endo shall promptly inform PPG of
          any suspected infringement of any of the PPG Patents or Joint
          Technology Patents or infringement or misappropriation of the TIMERx
          Production Technology or Joint Technology of which Endo is aware,
          whether or not the same involves a Covered Infringement.

     11.2 If the suspected infringement or misappropriation does not involve a
          Covered Infringement, PPG may take, or refrain from taking, any action
          it chooses, with or without notice to Endo, and Endo shall have no
          right to take any action with respect to such suspected infringement
          or misappropriation, nor to any recoveries with respect thereto.  If
          the suspected infringement or misappropriation involves a Covered
          Infringement, PPG shall, within 120 days of the first notice referred
          to in Section 11.1, inform Endo whether or not PPG intends to
          institute

                                       41
<PAGE>

          suit against such third party with respect to a Covered Infringement.
          Endo will not take any steps toward instituting suit against any third
          party involving a Covered Infringement until PPG has informed Endo of
          its intention pursuant to the previous sentence.

     11.3 If PPG notifies Endo that it intends to institute suit against a third
          party with respect to a Covered Infringement, and Endo does not agree
          to join in such suit as provided in Section 11.4, PPG may bring such
          suit on its own and shall in such event bear all costs of, and shall
          exercise all control over, such suit.  PPG may, at its expense, bring
          such action in the name of Endo and/or cause Endo to be joined in the
          suit as a plaintiff.  Recoveries, if any, whether by judgment, award,
          decree or settlement, shall belong solely to PPG.

     11.4 If PPG notifies Endo that it desires to institute suit against such
          third party with respect to a Covered Infringement, and Endo notifies
          PPG within 30 days after receipt of such notice that Endo desires to
          institute suit jointly, the suit shall be brought jointly in the names
          of both parties and all costs thereof shall be borne equally to the
          extent applicable to the Covered Infringement.  Recoveries, if any,
          whether by judgment, award, decree or settlement, shall (to the extent
          attributable to the Covered Infringement), after the reimbursement of
          each of PPG and Endo for its share of the joint costs in such action,
          be shared equally between PPG and Endo.

     11.5 If PPG notifies Endo that it does not intend to institute suit against
          such third party with respect to a Covered Infringement, Endo may
          institute suit on its own.  Endo shall bear all costs of, and shall
          exercise all control over, such suit.  Recoveries, if any, whether by
          judgment, award, decree or settlement, shall belong solely to Endo;
          provided however that, after reimbursement of Endo for its costs in
          such action, any portion of such net recoveries which constitutes the
          equivalent of, or damages or payments in lieu of, a royalty measured
          by the defendants sales, shall be shared equally between PPG and Endo.

     11.6 Should either PPG or Endo commence a suit under the provisions of this
          Section 11 and thereafter elect to abandon the same, it shall give
          timely notice to the other party, who may, if it so desires, be joined
          as a plaintiff in the suit (or continue as such if it is already one)
          and

                                       42
<PAGE>

          continue prosecution of such suit, provided, however, that the sharing
          of expenses and any recovery of such suit shall be as may be
          determined for that situation by Committee Action.

12.  Escalation Procedures.
     ---------------------

     12.1 The parties intend that, to the maximum extent practicable, they shall
          reach decisions hereunder cooperatively through the deliberations of
          the Alliance Committee and by consent of its members as described in
          Section 1.10.1.  In cases in which that does not occur (other than as
          to a question of patent validity or as to a matter left to the
          discretion of a party hereunder), either party may institute an
          Escalation Procedure in which a proposed Committee Action approved by
          at least two members of the Alliance Committee, is provided in writing
          to each party's Escalation Officer.  Such Escalation Officers shall
          discuss the proposed Committee Action, and shall meet with respect
          thereto if either of them believes a meeting or meetings to be useful.
          If the Escalation Officers do not resolve the matter by either
          approving the proposed Committee Action (whether or not in a revised
          form) or agreeing to reject it, within thirty (30) days (or such
          lesser or longer period as they may agree is a useful period for their
          discussions), then either of them may institute a formal mediation of
          such matter pursuant to Section 12.2.

     12.2 Any dispute or difference (other than as to a question relating to
          patent validity or as to a matter left to the discretion of a party
          hereunder), between the parties arising out of or in connection with
          this Agreement, including without limitation a disagreement over a
          proposed Committee Action, that cannot be resolved by the consent of
          the Escalation Officer of each party shall be referred to mediation
          before any party resorts to arbitration, litigation, or other dispute
          resolution procedure.  Unless the parties agree otherwise, the
          mediation will be conducted in accordance with The CPR Mediation
          Procedure for Business Disputes (Revised 1994) of the CPR Institute
          for Dispute Resolution by a mediator who has had both training and
          experience as a mediator of general corporate and commercial matters.
          If the parties cannot agree on a mediator, then the mediator will be
          selected by the President of the CPR Institute for Dispute Resolution
          in accordance with the criteria set forth in the preceding sentence.

                                       43
<PAGE>

          Within thirty days after the selection of the mediator, the parties
          and their respective attorney's will meet with the mediator for one
          mediation session of at least four hours.  If the dispute cannot be
          settled during such mediation session or during any mutually agreed
          continuation of such session, any party to this Agreement may give to
          the mediator and the other party to this Agreement written notice
          declaring the mediation process at an end, and such dispute will be
          resolved by arbitration pursuant to Section 13.  All discussions
          pursuant to this section will be confidential and will be treated as
          compromise and settlement discussions.  Nothing said or disclosed, and
          no document produced, in the course of such discussions which is not
          independently discoverable may be offered or received as evidence or
          used for impeachment or for any other purpose in any arbitration or
          litigation.  The costs of any mediation pursuant to this section will
          be shared equally by the parties to this Agreement.  Each party to
          this Agreement acknowledges receipt of a copy of The CPR Model
          Mediation Procedure for Business Disputes (Revised 1994) of the CPR
          Institute for Dispute Resolution.  The use of mediation will not be
          construed under the doctrines of laches, waiver or estoppel to affect
          adversely the rights of either party, and in particular either party
          may seek a preliminary injunction or other interim judicial relief at
          any time if in its judgment such action is necessary to avoid
          irreparable damage.

 13.   Arbitration. Should the parties fail to reach agreement with respect to a
       -----------
       dispute or difference (other than as to a question relating to patent
       validity or as to a matter left to the discretion of a party hereunder),
       between the parties arising out of or in connection with this Agreement,
       including without limitation a disagreement over a proposed Committee
       Action, through the aforesaid mediation or otherwise, then the dispute or
       difference will be determined by arbitration in New York City in
       accordance with the Non-Administered Arbitration Rules & Commentary
       (Amended 1993) of the CPR Institute for Dispute Resolution by a tribunal
       of three independent and impartial arbitrators, one of which will be
       appointed by each of Endo and PPG, and the third of which shall have had
       both training and experience as an arbitrator of general corporate and
       commercial matters and who shall be, and for at least ten years shall
       have been, a partner, shareholder or member in a highly respected law
       firm headquartered in the United States. If the parties to this Agreement
       cannot agree on the third arbitrator, then the third arbitrator will be
       selected by the President of the CPR Institute for Dispute Resolution

                                        44
<PAGE>

     in accordance with the criteria set forth in the preceding sentence;
     provided that no person who served as a mediator pursuant to Section 12.2
     with respect to such dispute may be selected by the President of the CPR
     Institute for Dispute Resolution as an arbitrator pursuant to this section.
     The tribunal may decide any issue as to whether, or as to the extent to
     which, any dispute is subject to the arbitration and other dispute
     resolution provisions in this Agreement. The tribunal must base its award
     on the provisions of this Agreement and must render its award in a writing
     which must include an explanation of the reasons for such award. Any
     arbitration pursuant to this section will be governed by the substantive
     laws of the State of New York applicable to contracts made and to be
     performed in that state, without regard to conflicts of law rules, and by
     the arbitration law of the Federal Arbitration Act (9 U.S.C. (S) 1 et
     seq.), and judgment upon the award rendered by the arbitrator may be
     entered by any court having jurisdiction thereof. The statute of
     limitations of the state of New York applicable to the commencement of a
     lawsuit will apply to the commencement of an arbitration under this
     section, except that no defenses will be available based upon the passage
     of time during any negotiation or mediation required pursuant to Section
     12. All fees, costs and expenses of the arbitrators, and all other costs
     and expenses of the arbitration, will be shared equally by the parties to
     this Agreement unless such parties agree otherwise or unless the tribunal
     in the award assesses such costs and expenses against one of such parties
     or allocates such costs and expenses other than equally between such
     parties. Each party to this Agreement acknowledges receipt of a copy of the
     Non-Administered Arbitration Rules & Commentary (Amended 1993) of the CPR
     Institute for Dispute Resolution. Notwithstanding the foregoing, either
     party may, on good cause shown, seek a temporary restraining order and/or a
     preliminary injunction from a court of competent jurisdiction, to be
     effective pending the institution of the arbitration process and the
     deliberation and award of the arbitration tribunal.

14.  Miscellaneous.
     -------------

     14.1 This Agreement incorporates the Definitions Exhibit and the numbered
          Exhibits referenced herein.  This Agreement constitutes the entire
          agreement and supersedes all prior agreements and understandings, both
          written and oral, between the parties hereto with respect to the
          subject matter hereof.

                                       45
<PAGE>

     14.2 This Agreement shall be binding upon and inure to the benefit of the
          parties hereto and their successors and permitted assigns; provided,
          however, that except as part of the transfer of all or substantially
          all assets to a single buyer or pursuant to a merger or other
          corporate reorganization, neither party shall assign or delegate any
          of its rights or obligations hereunder at any time without the prior
          written consent of the other party hereto, which consent shall not be
          unreasonably withheld.

     14.3 All notices, requests or other communication provided for or permitted
          hereunder shall be given in writing and shall be hand delivered or
          sent by facsimile, reputable courier or by registered or certified
          mail, postage prepaid, return receipt requested, to the address set
          forth on the signature page of this Agreement, or to such other
          address as either party may inform the other of in writing.  Notices
          will be deemed delivered on the earliest of transmission by facsimile,
          actual receipt or three days after mailing as set forth herein.

     14.4 Any terms of this Agreement may be amended, modified or waived only in
          a writing signed by both parties.

     14.5 If any provision of this Agreement shall be held invalid, illegal or
          unenforceable, such provision shall be enforced to the maximum extent
          permitted by law and the parties fundamental intentions hereunder, and
          the remaining provisions shall not be affected or impaired.

     14.6 Nothing herein contained shall constitute this a joint venture
          agreement or constitute either party as the partner, principal or
          agent of the other, this being an Agreement between independent
          contracting entities.  Neither party shall have the authority to bind
          the other in any respect whatsoever.

     14.7 In the event that either party hereto is prevented from carrying out
          its obligations under this Agreement by events beyond its reasonable
          control, including without limitation acts or omissions of the other
          party, acts of God or government, natural disasters or storms, fire,
          political strife, labor disputes, failure or delay of transportation,
          default by suppliers or unavailability of parts, then such party's
          performance of its obligations hereunder shall be excused during the
          period

                                       46
<PAGE>

          of such event and for a reasonable period of recovery thereafter, and
          the time for performance of such obligations shall be automatically
          extended for a period of time equal to the duration of such event or
          events; provided, however, that the other party may, at its election,
          terminate this Agreement upon 120 days' prior notice to the party
          affected by such events, unless such events cease to prevent such
          affected party's performance hereunder during such 120-day period.

     14.8 This Agreement shall be governed by, and construed and enforced in
          accordance with, the laws of the State of New York without regard to
          its conflict of laws rules.

          IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and acknowledge this Agreement as of the date
first written above.

ENDO PHARMACEUTICALS INC.            PPG

By: /s/ Carol Ammon                  By: /s/ John V. Talley
   -------------------------------      -------------------------------
Its: President & CEO                 Its: President
   -------------------------------      -------------------------------
Address:                             Address:

 223 Wilmington West Chester Pike       2981 Route 22
 Chadds Ford, PA  19317                 Patterson, N.Y. 12563
 FAX:_____________________________      FAX:  (914) 878-3420
 Attn:  Carol A. Ammon                  Attn.:  John V. Talley
 CC:  Osagie Imasogie                   CC:  Michael Mallon

                                       47
<PAGE>

     Definitions Exhibit

1.  Definitions.
    -----------

1.1   "Affiliate" of PPG shall mean and include the entities listed as such in
       ---------
Exhibit 1.1, and "Affiliate" of Endo shall mean and include the entities listed
as such in Exhibit 1.1, which, in each case are the entities that, directly or
indirectly, own and control the voting of more than 50% of the voting capital
interests of such party ("Parent"), or more than 50% of the voting capital
interests (or equivalent control) of which is, directly or indirectly, owned,
and the voting of which is controlled, by such party or its Parent, as of the
Effective Date.  Subject to Section 14.2, for purposes of this definition and
this Agreement:

1.1.1  no entity shall remain an "Affiliate" unless it continues to meet the
       foregoing criteria; and

1.1.2  no entity shall become an "Affiliate" (even if it meets such criteria)
       without the consent of the other party hereto, which consent shall not be
       unreasonably withheld.

1.2   "Alliance Committee" shall mean a committee of six members, three of whom
       ------------------
will be designated in writing by each of PPG and Endo.  The initial Alliance
Committee shall have six members, as follows:  John V. Talley, Jr., Dr. Paul
Wotton, and Dr. Anand Baichwal, designated by PPG, and Dr. D. Kao, Chuck
Cottone, and Osagie Imasogie designated by Endo.  If at any time a vacancy
occurs (whether due to death, disability, resignation, removal by a party of its
designee by written notice to the other party, or otherwise), the vacancy will
be filled as soon as is reasonably practicable by designation by the party that
originally designated the prior incumbent. In the meantime, the Alliance
Committee shall continue to function with its remaining members, provided that
any Committee Action described in Section 1.2 will continue to require the
consent of at least four members.

1.3   "Applicable Percentage" shall mean the following percentages of the
       ---------------------
following portions of Net Realization:

1.3.1  *** of all Net Realization from all units of each respective Designated
       Product sold outside of the United States;

                                       48
<PAGE>

1.3.2  *** of all Net Realization from all units of each respective Designated
       Product sold by Endo or its distributors or licensees in any tier in the
       United States, until the aggregate of all such Net Realization from such
       Designated Product described in this clause 1.3.2 during the term of this
       Agreement equals ***;

1.3.3  *** of all Net Realization from all units of each respective Designated
       Product sold by Endo or its distributors or licensees in any tier in the
       United States, after the aggregate of all such Net Realization from such
       Designated Product described in clause 1.3.2 and this clause 1.3.3 during
       the term of this Agreement equals ***, but before such aggregate
       equals ***;

1.3.4  *** of all Net Realization from all units of each respective Designated
       Product sold by Endo or its distributors or licensees in any tier in the
       United States, after the aggregate of all such Net Realization from such
       Designated Product described in clause 1.3.2, clause 1.3.3, and this
       clause 1.3.4 equals ***;

1.3.5  *** of all Net Realization from all units of each respective Designated
       Product sold by PPG or its distributors or licensees in any tier in the
       United States, until the aggregate of all such Net Realization from such
       Designated Product described in this clause 1.3.5 during the term of this
       Agreement equals ***;

1.3.6  *** of all Net Realization from all units of each respective Designated
       Product sold by PPG or its distributors or licensees in any tier in the
       United States, after the aggregate of all such Net Realization from such
       Designated Product described in clause 1.3.5 and this clause 1.3.6 during
       the term of this Agreement equals ***, but before such aggregate equals
       ***; and

1.3.7  *** of all Net Realization from all units of each respective Designated
       Product sold by PPG or its distributors or licensees in any tier in the
       United States, after the aggregate of all such Net Realization from such
       Designated Product described in clause 1.3.5, clause 1.3.6, and this
       clause 1.3.7 equals ***.

                                       49
<PAGE>

1.4  "Approval" shall mean, with respect to each Designated Product and as to
      --------
each nation in the Territory, the approval by the Regulatory Authority in such
nation of a Designated Product for commercial sale in oral solid-dosage form for
administration in humans, pursuant to a Product License Application ("PLA")
submitted by or for Endo, or if a license to PPG under Section 6.9 is
applicable, pursuant to a PLA submitted by or for PPG.  In the United States,
the "Approval" for a Designated Product shall be the approval of the U.S. Food
and Drug Administration (herein "FDA") of such Designated Product for sale in
oral solid-dosage form for administration in humans, pursuant to a New Drug
Application ("NDA").

1.5  "Best Commercial Efforts" shall mean the exertion on a substantially
      -----------------------
continuous basis of efforts as would normally be devoted to the applicable task
by commercial parties with similar resources to those of the applicable party,
where such parties are highly motivated to accomplish such task to the maximum
extent practicable, and consider and treat such task as having a priority at
least as high as that for any similar task with respect to such party's other
drug development or marketing efforts (as the case may be).  Best Commercial
Efforts will not mean that a party commits that it will actually accomplish the
applicable task, nor that it will devote thereto efforts or resources beyond
those that a prudent commercial enterprise would devote, even though remaining
motivated to do so as described above.

1.6  "Certification Budget(s)" shall mean the set of expenditures, costs, and
      -----------------------
other resources anticipated to be devoted by the respective parties to the
Certification Tasks during a Certification Period, with respect to the
applicable Designated Product.

1.7  "Certification Excess" shall mean the amount which a party would have borne
      --------------------
or paid under Sections 3.6.1 and 3.7, had it participated fully in a
Certification Period, but did not pay due to its ineligibility to participate in
such Certification Period or due to its election, duly made as provided herein,
not to participate fully in such Certification Period.

1.8  "Certification Period" shall mean, with respect to each Designated Product
      --------------------
and as to each Specified Nation or group of Specified Nations as may be
specified herein or by Committee Action, the period beginning at the later of
the end of the Development Period for such Designated Product or the institution
of such Certification Period by Committee Action, and ending on the earliest of:

1.8.1  the completion of all of the Certification Tasks applicable thereto;

                                       50
<PAGE>

1.8.2  the termination of the Certification Period for such Designated Product
       pursuant to Section 5.4; or

1.8.3  the termination of this Agreement as provided herein.

1.9  "Certification Task(s)" shall mean, with respect to each Designated Product
      ---------------------
and as to each Specified Nation or group of Specified Nations as may be
specified herein or by Committee Action for the relevant Certification Period:

1.9.1  those tasks or milestones as shall be designated from time to time by
       Committee Action as being, within industry norms and standards,
       sufficient (together with the Development Tasks for such Designated
       Product) to support the filing of an NDA with the FDA for such
       Designated Product, or, as to other nations than the U.S., to support
       the filing of an analogous PLA in the applicable Regulatory Authority;

1.9.2  the filing of one or more NDAs and other PLAs with respect to the
       Designated Product with the FDA and/or the other Regulatory Authorities
       designated by Committee Action;

1.9.3  obtaining Approval of such NDAs and PLAs (on a nation-by-nation basis, as
       to the approval by the Regulatory Authority having jurisdiction in that
       nation); and

1.9.4  the preparation by Endo, or if and to the extent that Sections 4.2 or
       4.3, or a license to PPG under Section 6.9 are applicable, the
       preparation by PPG, and the approval by Committee Action, of an initial
       Manufacturing and Marketing Plan for such Designated Product.

In most cases, the Certification Tasks will include (without limitation) large-
scale trials of safety and efficacy, of the sort called "Phase III Clinical
Trials" in the FDA context, and all other testing and studies including as to
efficacy, bioequivalence, and safety and toxicology, in connection with the
development, licensing, manufacture and marketing of the Designated Product, and
for compliance with all requirements imposed by the government of the United
States (inclusive without limitation of the FDA and the DEA) and by any other
government(s) as may be designated by Committee Action.  However, the applicable
Certification Tasks may be defined and altered in specific cases by Committee
Action, whether or not in conformity with the above described usual case as now
anticipated.  Committee Action to designate

                                       51
<PAGE>

Certification Tasks may occur contemporaneously with the designation of the
Designated Product, but this (and/or alterations and amendments) may be deferred
for later Committee Action.

1.10  "Committee Action" shall mean an official act, decision, or ruling of the
       --------- ------
Alliance Committee, which shall require in each case that at least one of the
following applies:

1.10.1 all members of the Alliance Committee present and acting (but in any
       event a minimum of four such members) have consented thereto, where
       such consent is given either in writing (signed either collectively or
       in multiple identical counterparts, the signers being considered
       "present and acting" for this purpose) or by vote at a duly convened
       meeting of the Alliance Committee subsequently entered into the minutes
       of such meeting; or

1.10.2 at least two members of the Alliance Committee have consented thereto (in
       the manner described above), and have further instituted an Escalation
       Procedure in which the act, decision, or ruling has received the written
       approval of the Escalation Officer of each party; or

1.10.3 arbitration pursuant to Section 13 results in the adoption of the act,
       decision, or ruling as constituting Committee Action.

A Committee Action may include the rescinding or amendment of any prior
Committee Action.

1.11 "Confidential Technology" shall mean all technology that is, at the
      -----------------------
relevant time hereunder, protected or required to be protected as confidential
information pursuant to Section 10 hereof.

1.12 "Designated Product(s)" shall mean ***. The parties anticipate that there
      ---------------------
will be multiple Designated Products developed and marketed under this Agreement
and the relationship established hereby, as the same shall be designated
pursuant to Section 2.6 or otherwise from time to time by written consent of
both parties.

                                       52
<PAGE>

1.13  "Development Budget(s)" shall mean the set of expenditures, costs, and
       ---------------------
other resources anticipated to be devoted by the respective parties to the
Development Tasks during a Development Period.

1.14  "Development Excess" shall mean the amount which a party would have borne
       ------------------
or paid under Section 2.5, had it participated fully in a Development Period,
but did not pay due to its election, duly made as provided herein, not to
participate fully in such Development Period.

1.15  "Development Period" shall mean, with respect to each Designated Product,
       ------------------
the period from the designation of such Designated Product as such by the
parties (or as stated in Section 2.6), through the earliest of

1.15.1 the successful completion of the Development Tasks therefor;

1.15.2 the termination of the Development Period for such Designated Product
       pursuant to Section 5.2; or

1.15.3 the termination of this Agreement as provided herein.

1.16  "Development Task(s)" shall mean, with respect to each Designated Product:
       -------------------

1.16.1 those tasks or milestones, together with estimated completion dates or
       durations therefor, as shall be designated from time to time by Committee
       Action as being, within industry norms and standards, sufficient evidence
       of a potentially useful and marketable product that the next steps in the
       development of such product would be Certification Tasks, or (where no
       Certification Tasks have then been designated by Committee Action) large-
       scale clinical trials to determine the safety and efficacy of such
       Designated Product; and

1.16.2 the designation by Committee Action of an initial set of Certification
       Tasks and an initial Certification Budget for such Designated Product.

In most instances, the Development Tasks will include (without limitation)
formulation development, in vitro dissolution studies and/or animal studies and
bioavailability studies, as well as small-scale clinical trials conducted under
an Investigational New Drug Application ("IND") filed with the FDA, of the sort
called "Phase I Clinical Trials" and "Phase II Clinical Trials" in order to
demonstrate that, within the scope of such studies, the Designated Product is
shown, when adminis-

                                       53
<PAGE>

tered BID, to be a stable formulation having substantially equigesic effect in
blood level studies to the targeted dosage strength of the relevant immediate
release Oxymorphone product. In most cases, the large-scale trials to follow
during the Certification Period would be of the sort called "Phase III Clinical
Trials" in the FDA context. However, the applicable Development Tasks may be
defined and altered in specific cases by Committee Action, whether or not in
conformity with the above described usual case as now anticipated.

1.17  "Eligible Party" shall mean:
       --------------

1.17.1 with respect to the first proposed Certification Period for a particular
       Designated Product (or group of Designated Products that were developed
       in the same Development Period), a party to this Agreement that
       participated in the Development Period for the relevant Designated
       Product(s) and that did not, as to such Development Period, exercise
       its rights to cease its participation hereunder; and

1.17.2 with respect to any other proposed Certification Period, a party to this
       Agreement that participated in the Development Period and the first
       Certification Period for the relevant Designated Product (or group of
       Designated Products developed in such Development Period), and that did
       not, as to either of such Development Period or such first Certification
       Period, exercise its rights to cease its participation hereunder.

1.18  "Endo Improvement Technology" shall mean any and all technology and rights
       ---------------------------
of Endo, or in which Endo or any of its Affiliates or sublicensees otherwise has
any rights or interests during the term of this Agreement, to the extent the
same are improvements, modifications, alterations, or enhancements to any of the
inventions covered by the PPG Patents, PPG's Confidential Technology, or the
TIMERx, and to the extent made or discovered, or disclosing inventions made or
discovered, prior to the end of the applicable Certification Period, together
with all United States and foreign intellectual property and other rights and
interests of Endo and its Affiliates and sublicensees thereto and therein,
including without limitation patents, trade secrets, copyright, periods of
market exclusivity, and other related rights or interests.

1.19  "Endo Technology" shall mean any and all technology and rights of Endo, or
       ---------------
in which Endo or any of its Affiliates or sublicensees otherwise has any rights
or interests during the term of this Agreement, which are used or contemplated
to be

                                       54
<PAGE>

used in connection with the activities contemplated under this Agreement,
including without limitation all *** rights and technology (and other
technology, rights and properties) to the extent the same directly relate to,
are desirable for, or are necessary or useful for, the production, storage
and/or marketing of one or more Designated Product(s) and any and all Endo
Improvement Technology, together with all United States and foreign intellectual
property and other rights and interests of Endo and its Affiliates and
sublicensees thereto and therein, including without limitation patents, trade
secrets, copyright, periods of market exclusivity, and other related rights or
interests.

1.20  "Endo Trademark(s)" shall mean those names, symbols and or characters
       -----------------
described in Exhibit 1.20 hereto, as the same may be amended from time to time
during the term of this Agreement by Endo on at least six (6) months' prior
written notice to PPG, that are owned by Endo and that have been designated by
it for use in conjunction with PPG's packaging and promotion of a Designated
Product hereunder, pursuant to Section 8.

1.21  "Endo Test and Regulatory Data" shall mean any and all test data, test
       -----------------------------
designs and protocols, clinical studies and results thereof, government licenses
and applications therefor, government certifications and findings, and related
materials, information and rights (including without limitation information
regarding bioavailability and bioequivalence, and any adverse drug reactions),
developed, commissioned or otherwise obtained by Endo or any of its Affiliates
or sublicensees during the term of this Agreement for the uses intended by this
Agreement relating to TIMERx, Endo Technology, Joint Technology, the Designated
Product, PPG Patents, Joint Technology, TIMERx Production Technology and/or
PPG's Confidential Technology.

1.22  "Escalation Officer" shall mean the President and Chief Executive Officer
       ------------------
of PENWEST, LTD. (currently Tod Hamachek), and the President and Chief Executive
Officer of Endo (currently Carol Ammon) , and the persons holding such positions
from time to time.

1.23  "Escalation Procedure" shall mean the decision making procedure described
       --------------------
in Section 12, whereby the parties intend to avoid deadlocks between them and
undue delay's reaching mutually acceptable Committee Action(s).

1.24  "Exclusivity Period" shall mean, with respect to each Designated Product:
       ------------------

                                       55
<PAGE>

1.24.1 with respect to any member nation of the European Union (and any other
       nation in the Territory in which applicable law would restrict the
       permissible duration of a period of exclusivity to the life of applicable
       patents), the Exclusivity Period is the period during the License Term
       for such Designated Product in such nation, until there are no longer
       any PPG Patents (exclusive of those described in Section 1.38.3) or Joint
       Technology Patents in that nation applicable to the Designated Product
       or, if later, until all of PPG's Confidential Technology provided to Endo
       hereunder has been disclosed without restriction to the public (but in
       this case, where there are no longer any such PPG Patents and there are
       no Joint Technology Patents in that nation applicable to the Designated
       Product, the Exclusivity Period will not last longer in such nation
       than ten years from the first Approval for such Designated Product in
       any nation in the European Union); and

1.24.2 with respect to any other nation, the Exclusivity Period is coterminous
       with the License Term,

except where the Exclusivity Period is shortened as otherwise provided in this
Agreement.

1.25  "Facilities Certifications" shall mean those governmental certifications,
       -------------------------
licenses and other approvals however designated held or obtained at any time by
or for Endo or its Affiliates or sublicensees, and for the facilities of any of
them, that are required for the legal production, transportation, storage,
testing and or packaging of *** products, whether for commercial or
research use or sale, or otherwise.

1.26  "Formulated TIMERx" shall mean TIMERx TIMERx and certain additives in a
formulation to be developed hereunder specifically for use in a Designed
Product.

1.27  "Formulated TIMERx Price" shall mean PPG's contract manufacturing cost
       -----------------------
or, if made internally, its variable costs plus directly allocable fixed costs
relating to the manufacture or acquisition of the Formulated TIMERx to be
provided to Endo or its Affiliates or sublicensees hereunder, as shall be
determined and adjusted no more often than annually; provided, however, that any
amounts paid or payable by PPG for third-party royalties (or for materials
acquisition costs to the extent attributable to third-party intellectual
properties and essentially equivalent to royalties) which are the responsibility
of PPG under Sections 9.5.1 or 9.5.2 shall not be counted as part of the
Formulated TIMERx Price. If any patent applications are filed or prosecuted by

                                       56
<PAGE>

PPG on Joint Technology, as provided in Section 6.2, the reasonable costs
thereof, and of the maintenance of any patents that issue therefrom, shall (to
the extent not reflected in a Development Budget or a Certification Budget and
the reconciliations under Sections 2.5 or 3.7) be part of the allocable indirect
costs of the manufacture or acquisition of any Formulated TIMERx provided for
use in a Designated Product that would be disclosed in whole or in part in such
patent or patent application.

1.28  "Initial Development Period" shall mean the Development Period for the
       --------------------------
Initial Designated Product(s), to be planned and conducted as described in
Section 2.6.

1.29  "Joint Technology" shall mean any and all inventions, improvements,
       ----------------
modifications, alterations, or enhancements that are made jointly by Endo or any
of its Affiliates, on the one hand, and PPG or any of its Affiliates, on the
other hand, during and in the course of the parties cooperative development
activities under or in support of this Agreement, together with all United
States and foreign intellectual property and other rights and interests of the
parties and their respective Affiliates thereto and therein, including without
limitation patents, trade secrets, copyright, periods of market exclusivity, and
other related rights or interests, to the extent the same remain protected by
any such rights and interests from being used freely by others.

1.30  "Joint Technology Patent(s)" shall mean any United States patents and
       --------------------------
foreign equivalents and United States and foreign patent applications and all
divisions, continuations, continuations-in-part, reissues, or extensions
thereof, any periods of marketing exclusivity relating thereto, and any letters
patent that issue thereon, to the extent the same claim any Joint Technology.

1.31  "License Term" shall mean, with respect to each Designated Product in each
       ------------
nation in the Territory, the cumulative period covered by the Development
Period, the Certification Period, and the Marketing Period.

1.32  "Manufacturing and Marketing Plan(s)" shall mean, with respect to each
       -----------------------------------
Designated Product and as to those Specified Nation(s) specified in such
Manufacturing and Marketing Plan, a detailed business, manufacturing, and
marketing plan of the sort prepared internally and used by Endo and/or its
Affiliates (or, if a license to PPG under Section 6.9 is applicable, and/or in
the circumstances described in Section 4.2 or 4.3, such a plan of the sort
prepared and used internally by PPG and/or its designated third-party marketer)
with respect to their drug products generally,

                                       57
<PAGE>

including without limitation quantifiable and verifiable plans, goals and
milestones for the levels and types of resources, personnel, promotion,
advertising, detailing, and other efforts to be devoted to the manufacturing,
packaging, quality control, and marketing of such Designated Product, and with
respect to the measures of the degree of success achieved in doing so, including
without limitation target dates for the full-scale market launch of the
Designated Product in each of the Specified Nation(s), and Minimum Net
Realization(s) for each of the Specified Nation(s) in such Manufacturing and
Marketing Plan (and related goals and projections for pretax profitability).
Each Manufacturing and Marketing Plan shall also describe the schedule and
methods to be used to effect the revision thereof and the adoption of
substituted Manufacturing and Marketing Plans no less often than annually,
through Committee Action.

1.33  "Marketing Period" shall mean, with respect to each Designated Product and
       ----------------
as to each nation in the Territory, the period beginning at the end of the
Certification Period for such Designated Product in such nation and ending on
the earliest of:

1.33.1 the twentieth (20th) anniversary of the end of such Certification Period
       or, if later, the time at which there are no longer any PPG Patents or
       Joint Technology Patents applicable to such Designated Product in such
       nation, to the extent such patents disclose inventions made prior to the
       end of such Certification Period; or

1.33.2 the termination of the Marketing Period for such Designated Product in
       such nation pursuant to Section 5.7 or of the License Term for such
       Designated Product in such nation pursuant to Section 6.9.1; or

1.33.3 the termination of this Agreement as provided herein.

1.34  "Minimum Net Realization" shall mean, with respect to each Designated
       -----------------------
Product and each Specified Nation or group of Specified Nations under the then-
current Manufacturing and Marketing Plan therefor, a minimum amount of Net
Realization generated from sales of such Designated Product in such Specified
Nation(s) (as will be stated in such Manufacturing and Marketing Plan).  The
Minimum Net Realization(s) shall be set at levels at least as high as those that
Endo and its Affiliates would expect to obtain from the marketing of their most
prominently marketed drug products, taking into account the level and nature of
competitive products, the method of promotion and marketing, the Net
Realizations specified

                                       58
<PAGE>

and obtained for such Designated Product in other nations, and other factors as
shall be determined by Committee Action.

1.35  "Net Realization" shall mean that portion of the amounts paid or payable
       ---------------
(whether in cash, cash equivalents, current or deferred consideration, barter,
or other monetary or in-kind compensations or considerations of any nature)
attributable to the sale or other distribution of a Designated Product, or to
the grant of any rights to make, market, or otherwise exploit a Designated
Product, which is to be treated hereunder as a net amount realized by the actual
or intended recipient of the same, after the deduction of those direct and
indirect costs incurred as provided under a Manufacturing and Marketing Plan
approved by Committee Action and appropriately attributable thereto (including
without limitation the Formulated TIMERx Price paid to PPG for the TIMERx
incorporated therein, or if Section 6.9.5 becomes applicable, the amounts paid
to Endo thereunder), all to be determined in accordance with the accounting and
attribution standards and principles described in Exhibit 1.35, as the same may
be amended from time to time by Committee Action.

1.36  "*** Price" shall mean Endo's contract manufacturing cost or, if
       -----------------
made internally, its variable costs plus directly allocable fixed costs relating
to the manufacture or acquisition of *** to be provided to PPG or its Affiliates
or sublicensees hereunder, as shall be determined and adjusted no more often
than annually; provided, however, that any amounts paid or payable by Endo for
third-party royalties (or for materials acquisition costs to the extent
attributable to third-party intellectual properties and essentially equivalent
to royalties) which are the responsibility of Endo under Section 9.6 shall not
be counted as part of the *** Price.

1.37  "Patent Review" shall mean Endo's and its counsel's review, during the
       -------------
first 30 days after the Effective Date, of the PPG Patents listed in Exhibit
1.38, to confirm to Endo's reasonable satisfaction that the same are as
contemplated to the extent relevant to this Agreement.

1.38  "PPG Patents" shall mean:
       -----------

1.38.1 those United States patents and foreign equivalents listed in Exhibit
       1.38 and all divisions, continuations, continuations-in-part, reissues,
       or extensions thereof, any periods of marketing exclusivity relating
       thereto;

                                       59
<PAGE>

1.38.2 (i) those United States and foreign patent applications pending as of the
       Effective Date that are owned by PPG, to the extent the same would, if
       issued as patent(s), in the absence of the licenses granted hereunder be
       infringed by Endo's production, use, sale, offer for sale, or import of a
       Designated Product as contemplated under this Agreement; and (ii) subject
       to Section 6.8.6, any other patent rights owned or controlled and
       sublicenseable by PPG, to the extent the same would in the absence of the
       licenses granted hereunder be infringed by Endo's production, use, sale,
       offer for sale, or import of a Designated Product as contemplated under
       this Agreement and to the extent disclosing inventions made or discovered
       prior to the end of the applicable Certification Period; and

1.38.3 subject to Section 6.8.6, PPG's rights under United States and foreign
       patents in the Territory, if any, to the extent disclosing any of PPG's
       improvements, modifications, alterations, or enhancements to any of the
       inventions covered by the PPG Patents that are made for or are otherwise
       related to or useful with one or more of the Designated Product(s)
       prior to the end of the applicable Certification Period.

1.39  "PPG Test and Regulatory Data" shall mean any and all test data, test
       ----------------------------
designs and protocols, clinical studies and results thereof, government licenses
and applications therefor, government certifications and findings, and related
materials, information and rights (including without limitation information
regarding bioavailability and bioequivalence, and any adverse drug reactions),
developed, commissioned or otherwise obtained by PPG or any of its Affiliates
during the term of this Agreement relating to TIMERx, PPG Patents, and/or TIMERx
Production Technology and that are developed for or are otherwise related to or
useful with a Designated Product.

1.40  "Proof of Principle Studies" shall mean those early-stage in vitro studies
       --------------------------
to be mutually agreed upon by the parties and conducted by them within the first
120 days of the Initial Development Period as part of the Initial Development
Tasks, and directed at a determination of whether there is physical
compatibility between *** and TIMERx and whether it is likely, as a technical
matter of the pharmaceutical sciences, that at least one Initial Designated
Product can be developed.

1.41  "PPG Trademark(s)" shall mean those names, symbols and or characters
       -------------
described in Exhibit 1.20 hereto, as the same may be amended from time to time
during the term of this Agreement by PPG on at least six (6) months' prior
written

                                       60
<PAGE>

notice to Endo, that are owned by PPG and that have been designated by it for
use in conjunction with Endo's packaging and promotion of a Designated Product
hereunder, pursuant to Section 8.

1.42  "Project Contact(s)" shall mean the persons appointed by each party to
       ------------------
serve as contact persons between the parties from time to time in relation to
this Agreement (in addition to those representatives of the parties on the
Alliance Committee, who may or may not also contemporaneously be Project
Contact(s)). The initial Project Contact for PPG for business matters is Michael
Mallon, and the initial Project Contact for PPG for technical and scientific
matters is Dr. Dileep Bhagwat.  The initial Project Contact for Endo for
business matters is Osagie Imasogie, and the initial Project Contact for Endo
for technical and scientific matters is Dr.  D.  Kao.  Each party shall promptly
notify the other party of any substitution of other personnel as its Project
Contact(s).  Each party may select and supervise its other project staff as
needed.

1.43  "Regulatory Authority" shall mean the competent authority for each nation
       --------------------
of the Territory or for any relevant grouping of nations legally responsible for
authorizing the sale or supply of drug products in that nation or group.

1.44  "Royalties" shall mean the royalties payable to PPG pursuant to Section
       ---------
4.5 hereof, or the royalties payable to Endo pursuant to Section 6.9, if that
section becomes applicable.

1.45  "Specifications" shall mean such standards and analytical methods
       --------------
established by Committee Action from time to time with respect to particular
Designated Products and the components thereof (including without limitation the
Formulated TIMERx).

1.46  "Specified Nation(s)" shall mean, as applicable, those nations specified
       -------------------
herein or by Committee Action as the nation(s) in which or as to which the
Certification Tasks under the respective Certification Period will be conducted,
and/or those nations specified in a Manufacturing and Marketing Plan as
nation(s) in which the manufacturing, marketing, and promotional activities for
a Designated Product will be conducted.

1.47  "Territory" shall initially mean all nations of the world, but may be
       ---------
reduced as to particular nations and particular Designated Products, pursuant to
Section 5.7 or Section 6.9.1.

                                       61
<PAGE>

1.48  "TIMERx Production Technology" shall mean PPG's rights under the PPG
       ----------------------------
Patents and any and all other patents, patent applications, and other technology
belonging to PPG or which PPG has the right to practice and to sublicense
from time to time during the term of this Agreement that directly relate to, are
desirable for, or are necessary or useful for the production of, Formulated
TIMERx for use in a Designated Product.

                                       62
<PAGE>

                                  Exhibit 1.1
                                  -----------

                                  Affiliates

PPG Affiliates:

               PENWEST, LTD.

               Edward Mendell Co., Inc.

               Penford Products Co.

               Edward Mendell GmBH

               Edward Mendell Finland OY

               PEN WEST Foreign Sales Corporation

Endo Affiliates:  None

                                      63

<PAGE>

                                  Exhibit 1.20
                                  ------------

                                   Trademarks

Endo Trademarks:

Endo

***

PPG Trademarks:

TIMERx Oral Delivery System

                                      64

<PAGE>

                                  Exhibit 1.35
                                  ------------

              Accounting and Attribution Standards and Principles

Net Sales          Invoiced amount less trade and quantity discounts, returns
                   and allowances, rebates, chargebacks, retroactive price
                   adjustments, and a 2% accrual of invoiced amount to cover bad
                   debt, sales & excise taxes which is to be reconciled and
                   adjusted to actual on a semi-annual basis.

Grants of Rights   Amount realized from grant of rights to make, market or
                   otherwise exploit a Designated Product.

Manufacturing
 Costs

  Bulk ADS Cost    The *** Price for the *** used.

  TIMERx           The Formulated TIMERx Price for the Formulated TIMERx used.
  Excipient

  Dose Form        Variable standard costs plus cost variances to be reconciled
  Finishing &      quarterly, plus allocated fixed costs supporting only the
  Packaging        manufacturing of Designated Products based on activity based
                   costing concepts that are approved by Committee Action.

Development Costs

  Dosage Form      A benefit and OH percentage approved by Committee Action
                   that is applied to labor dollars and is adjusted annually.
Marketing
Expenses

  Premarketing     Expenses incurred prior to launch for grants, agency fees,
                   symposia, opinion leader development, plus pre-launch
                   Marketing Managers & clinical liaisons based on FTE
                   percentage of time spent on the Designated Products. Expenses
                   are subject to Alliance Committee review and approval by
                   Committee Action on a quarterly basis.

  Sales & Product  As mutually agreed, but not to be duplicative with Field
   Management      Selling costs defined below, subject to Alliance Committee
                   review and approval by Committee Action on a quarterly basis.

                                      65
<PAGE>

  Field Selling    Common Standard Selling Cost per detail multiplied by number
                   of details subject to Alliance on a quarterly basis.

  Advertising &    Out-of-pocket costs plus Product Management costs (to the
   Promotion       extent not already included in Sales & Product Management
                   costs defined above) based on FTE and actual time subject to
                   Alliance Committee review and approval by Committee Action on
                   a quarterly basis.

  Commissioned     Actual reasonable commissions, if applicable
  Sales Rep.

Finished Product
Distribution
Expense (FPDE)

  Variable and     A 2% accrual of Net Sales to be reconciled and adjusted to
  Fixed            actual on an annual basis.

Post Registration  Studies required by the FDA or other applicable Regulatory
Studies            Authority. Direct costs will be charged.  Studies are
                   subject to Alliance Committee review and approval by
                   Committee Action.

General & Admin.   Legal, management, forecasting, accounting, financial
Expenses (G&A)     analysis & reporting, MIS, and administrative services, all
                   as and to the extent directly required for the foregoing
                   activities, and as reviewed and approved by Committee Action
                   on a quarterly basis.

Total Cost of      Sum of Manufacturing Costs, Development Costs, Marketing
Sales              Expenses, FPDE, Post Registration Studies, and G&A. Note,
                   however, that the Total Costs of Sales will not include as
                   appropriately attributable expenses or costs any amounts paid
                   or payable by a party for third-party royalties to the extent
                   the same would be the responsibility of the paying party
                   under Section 9.5.1, 9.5.2, or 9.6 of the Agreement.

Net Realization    Net Sales plus Grant of Rights less Total Cost of Sales.

                                      66

<PAGE>

                                  Exhibit 1.38
                                  ------------

                                  PPG Patents

Patent Number    Date                      Title                    Inventor
--------------------------------------------------------------------------------
U.S. Patents
------------

1.  4,994,276    2/19/91      Directly Compressible Sustained      A. Baichwal
                               Release Excipient                   J. Staniforth

2.  5,128,143    7/7/92       Sustained Release Excipient and      Baichwal
                               Tablet Formulation                  J. Staniforth

3.  5,135,757    8/4/92       Compressible Sustained Release       A. Baichwal
                               Solid Dosage Forms                  J. Staniforth

4.  5,169,639    12/8/92      Controlled Release Verapamil         A. Baichwal
                               Tablets                             J. Staniforth

5.  5,330,761    7/19/94      Bioadhesive Tablet for Non-Systemic  A. Baichwal
                               Use Products
6.  5,399,358    3/21/95      Sustained Release Formulations for   A. Baichwal
                               24-hour Release of Metoprolol       J. Staniforth

7.  5,399,359    3/21/95      Controlled Release Oxybutynin        A. Baichwal
                               Formulations

8.  5,399,362    3/21/95      Once-A-Day Metroprolol Oral Dosage   A. Baichwal
                               Form                                T. McCall

9.  5,455,046    10/3/95     Sustained Release Heterodisperse      A. Baichwal
                              Hydrogel Systems for Insoluble Drugs

10. 5,472,711   12/5/95     Agglomerated Hydrophilic Complexes    A. Baichwal
                              with Multi-Phasic Release           J. Staniforth
                              Characteristics

11. 5,478,574   12/26/95    Agglomerated Hydrophilic Complexes    A. Baichwal
                             with Multi-Phasic Release            J. Staniforth
                             Characteristics

12. 5,512,297   4/30/96     Sustained Release Heterodisperse      A. Baichwal
                             Hydrogel Systems and Insoluble Drugs

13. 5,554,387   9/10/96     Sustained Release Heterodisperse      A. Baichwal
                             Hydrogel Systems for Insoluble Drugs

14. 5,612,053   3/18/97     Controlled Release Insufflation       A. Baichwal
                             Carrier for Medicaments              J. Staniforth

                                      67

<PAGE>

Patent Number    Date                      Title                    Inventor
--------------------------------------------------------------------------------
Japanese
 Patents
------------

1.  1903060     2/8/95      Directly Compressible Sustained       A. Baichwal
                             Release Recipient                    J. Staniforth

2.  2014960     4/12/95     Controlled Release Verapamil Tablet   A. Baichwal
                                                                  J. Staniforth
Australian
 Patents
------------

1.  649163      8/1/92      Controlled Release Verapamil Tablet   A. Baichwal
                                                                  J. Staniforth

2.  623182      10/12/92    Directly Compressible Sustained       A. Baichwal
                             Excipient                            J. Staniforth

3.  669531      10/1/96     Agglomerated Hydrophilic Complexes    A. Baichwal
                             with Multi-Phasic Characteristics    J. Staniforth

Europe (EPO)
 Patents
------------

1.  EPO360562*  7/28/93     Directly Compressible Sustained       A. Baichwal
                             Release Excipient                    J. Staniforth

 (*subject to opposition proceeding; patent upheld by EPO Opposition Division;
                               now under appeal)

2.  EPO550737   1/22/97     Controlled Release Verapamil Tablet   A. Baichwal
                                                                  J. Staniforth
                                      68<PAGE>

                                                                   EXHIBIT 10.19

                   AGREEMENT BETWEEN ENDO PHARMACEUTICALS INC.

                                       AND

                       LIVINGSTON HEALTHCARE SERVICES INC.

                                    EFFECTIVE

                                FEBRUARY 1, 2000

The confidential portions of this exhibit have been filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment request
in accordance with Rule 406 of the Securities Act of 1933.

            REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY AN ***.

                                       1
<PAGE>

This Agreement ("Agreement") is effective as of February 1, 2000, by and between
ENDO PHARMACEUTICALS INC., a Delaware corporation, with its principal office at
223 Wilmington West Chester Pike, Chadds Ford, Pennsylvania 19317 ("ENDO") and
LIVINGSTON HEALTHCARE SERVICES INC., a Delaware corporation, with its principal
office at 220 Lake Drive, Newark, Delaware 19702 ("LHSI").

                              W I T N E S S E T H:

WHEREAS, LHSI is in the business of providing outsource logistics services to
pharmaceutical manufacturers and other similar product manufacturers; and

WHEREAS, ENDO is an integrated pharmaceutical company which requires customer
service, chargeback processing, certain account receivables management services
and other logistics services for its pharmaceutical business; and

WHEREAS, LHSI desires to provide certain outsource logistics services to ENDO,
as more particularly set forth herein;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained herein and other good and valuable
consideration each to the other paid and received, the receipt and sufficiency
of which is hereby acknowledged, LHSI and ENDO agree as follows:

1.   DEFINITIONS
     -----------

1.1  "Adverse Drug Experience" means all data concerning any serious or
     unexpected adverse event associated with the use of a drug in humans,
     whether or not considered drug-related, with regard to any Product which
     may come to the attention of any LHSI employee providing Services under
     this Agreement, and which is of such a nature and magnitude that it is
     required under the laws and regulations of the FDA to be collected,
     maintained, and reported to the FDA.

1.2  "Affiliate" means any corporation, association or other entity, which
     directly or indirectly controls, is controlled by or is under common
     control with the party in question. As used herein the term "control" means
     control with possession of the power to direct, or cause the direction of,
     the management and policies of a corporation, association, or other entity.

1.3  "Authorized Customer" shall mean any party approved in a Record by ENDO.

1.4  "Best Efforts" means those efforts which would be made by a reasonably
     prudent business person acting in good faith, in the exercise of reasonable
     commercial judgment and in a manner consistent with those efforts a party
     would devote to the provision of Services to its own customers.

                                       2
<PAGE>

1.5  "Controlled Substance" means the pharmaceutical product classified by DEA
     as a scheduled drug in categories II through V and which are included as a
     Product in Schedule A, attached hereto and made a part hereof, as the same
     may be amended by from time to time, at ENDO's option. ENDO may add to or
     delete a Controlled Substance from Schedule A for no additional cost.

1.6  "DEA" means the Drug Enforcement Administration of the United States.

1.7  "ENDO Literature" means any written information concerning the Products
     provided to LHSI by ENDO.

1.8  "FDA" means the United States Food and Drug Administration.

1.9  "Fee" means the logistics fees to be paid by ENDO to LHSI as set forth in
     Schedule B, attached hereto and made a part hereof, as the same may be
     amended from time to time, by mutual consent of the parties.

1.10 "Force Majeure" means acts of war; civil disturbance or riot; earthquake;
     fire; flood; hurricane; windstorm; or similar natural disasters; material
     change in the laws or regulations governing the importation and manufacture
     of active drug substances and/or final finished pharmaceutical products,
     marketing, promotion, sale, and/or distribution of pharmaceutical products,
     including controlled substances of any government, regulatory or judicial
     authority; destruction of facilities and materials; labor disturbances;
     failure of public utilities or common carriers; all beyond the reasonable
     control of the applicable party; and other acts defined as Force Majeure
     under the laws of the State of Delaware.

1.11 "LHSI Premises" means the distribution facilities operated by LHSI.

1.12 "Product" means, individually and collectively, the ENDO pharmaceutical
     products and all product extensions (including single and combination
     products), product improvements, dosage forms (including placebos),
     strengths, and package sizes of such Products listed in Schedule A-I and
     ScheduleA-II (collectively, "Schedule A"), which may be amended from time
     to time, at ENDO's option. ENDO may add to or delete a Product from
     Schedule A for no additional cost.

1.13 "Record" means information inscribed on a tangible medium or stored in an
     electronic medium and retrievable in a perceivable or written form.

1.14 "Report" means a report or analysis regarding any reports requested by ENDO
     which are related to the Services provided by LHSI to ENDO. The type of and
     frequency of such reports are described in Schedule C and the cost of such
     reports is included in the Fee set forth in Schedule B.

1.15 "Services" means the full scope of logistics services to be provided by
     LHSI to ENDO as more fully described herein, in Schedule C, and in the Work
     Instructions, including (i) the

                                       3
<PAGE>

     Warehouse and Distribution Services, (ii) the Customer Service and
     Chargeback Processing Services, and (iii) the Accounts Receivable Services.

1.16 "Term" means the periods described in Section 3 for the various Services
     provided under this Agreement.

1.17 "Territory" means the fifty (50) states of the United States of America,
     the District of Columbia, its commonwealths, possessions, and territories,
     and any other locations on which the parties may agree in a Record.

1.18 "Work Instructions" means those procedures to be established jointly by
     ENDO and LHSI no later than January 31, 2000 for the provision of Services.
     Such procedures shall be used to train LHSI personnel in order for such
     personnel to perform their responsibilities under this Agreement. The Work
     Instructions may be amended from time to time by consent of the parties in
     a Record.

1.19 A "Year 2000 Problem" means a data handling problem relating to the Year
     2000 date change that would cause a computer system, software or equipment
     to fail to correctly perform, process and handle date-related data for the
     dates within and between the twentieth and twenty-first centuries and all
     other centuries, including leap year calculations.

2.   APPOINTMENT
     -----------

2.1  During the Term of this Agreement, LHSI shall provide the Services set
     forth in Schedule C to ENDO in the Territory.

2.2  LHSI shall commence providing the Warehouse and Distribution Services on
     March 1, 2000, and shall commence providing the Customer Service and
     Chargeback Processing Services, as well as the Accounts Receivable
     Services, on the date hereof.

2.3  During the Term of this Agreement, ENDO grants to LHSI a nonexclusive right
     to use at no cost the SAP computer program provided by ENDO solely for the
     purpose of performing the Services under this Agreement

2.4  LHSI shall use its Best Efforts to recruit and retain personnel with the
     requisite expertise, experience, and skills to provide the Services to ENDO
     and perform its obligations under this Agreement.

2.5  Within five (5) days of the execution of this Agreement, LHSI and ENDO
     shall each appoint a representative who shall be the primary contact
     between the parties and shall be responsible for managing the relationship
     between the parties. The representatives shall meet periodically but no
     less than once per calendar week at a location to be mutually agreed to by
     the parties.

                                       4
<PAGE>

3.   TERM; COMMENCEMENT OF SERVICES
     ------------------------------

     This Agreement shall commence and shall remain in effect for the following
     periods unless earlier terminated in accordance with paragraph 16: (i) with
     respect to the Warehouse and Distribution Services described on Schedule C,
     the period from February 1, 2000 through and including February 28, 2005,
     (ii) with respect to the Customer Service and Chargeback Processing
     Services described on Schedule C, the period from the date of this
     Agreement through January 31, 2003, and (iii) with respect to the Accounts
     Receivable Services described on Schedule C, the period from the date of
     this Agreement through January 31 2001; provided, however, that LHSI's
     distribution services which are described as part of the Warehouse and
     Distribution Services on Schedule C will commence at the Memphis, Tennessee
     LHSI Premises on March 1, 2000, and provided further, however, that LHSI's
     processing of returns which is described as part of the Warehouse and
     Distribution Services on Schedule C will commence on April 1, 2000.
     Notwithstanding the foregoing commencement dates, LHSI will continue to
     perform the distribution and warehouse services it presently performs at
     the other LHSI Premises until the transition to Memphis, Tennessee is
     completed in a manner which provides uninterrupted distribution and
     warehouse services to ENDO. If LHSI does not have all applicable federal,
     state and local licenses, permits and registrations necessary for the
     performance of its obligations under this Agreement including, without
     limitation, its DEA license for the new Controlled Substances vault, by
     March 31, 2000, then ENDO shall have the right to either terminate this
     Agreement or negotiate a restructuring of this Agreement with LHSI. Upon
     mutual consent of the parties, this Agreement may be renewed for Additional
     Term(s) for such Services and on such terms as may be negotiated and agreed
     to by the parties.

4.   SERVICES
     --------

     The services to be provided by LHSI to ENDO for the Term of this Agreement
     are set forth herein and in Schedule C.

5.   BEST EFFORTS
     ------------

     During the Term of this Agreement, each party shall use its Best Efforts to
     meet its obligations under this Agreement.

6.   COMPENSATION AND REIMBURSEMENT
     ------------------------------

6.1  Compensation.

     (a)  During the Term of this Agreement, ENDO shall pay LHSI the
          compensation for Services as set forth in Schedule B. No compensation
          other than as described on Schedule B shall be paid to LHSI in
          connection with this Agreement or the Services. Schedule B sets forth
          the applicable volume discounts and Schedules B and C set forth the
          assumptions on which the compensation is based.

                                       5
<PAGE>

     (b)  In the event that the parties renew this Agreement, the compensation
          for Services provided by LHSI to ENDO during such additional Term
          shall be determined by mutual consent of the parties.

6.2  Reimbursement. ENDO shall also reimburse LHSI for certain expenses
     specified on Schedule B incurred by LHSI in connection with the performance
     of the Services under this Agreement. For each project such as the mailing
     of ENDO promotional materials to customers, LHSI shall provide ENDO with an
     estimate of the expenses to be incurred for such project. Such estimate
     shall be approved by ENDO prior to LHSI undertaking such project.

6.3  Payment Terms

     (a)  LHSI shall provide to ENDO an invoice on a monthly basis, in arrears,
          for Warehouse and Distribution Services (including a transportation
          cost management fee of *** (***) percent of the preceding month's
          third-party transportation charges, but excluding the fixed monthly
          storage fee provided for in paragraph 6.3(b) below), the Customer
          Service and Chargeback Processing Services, and the Accounts
          Receivable Services, and ENDO shall pay LHSI within thirty (30) days
          of receipt of such invoice.

     (b)  LHSI shall provide to ENDO an invoice on a monthly basis, in advance,
          for the fixed monthly storage fee which will be due and payable on the
          first day of each month.

     (c)  Commencing with the year 2001, LHSI shall provide to ENDO an invoice
          on or about February first of each year, in arrears, for the
          Transportation Shared Savings Allowance described in Appendix B, and
          ENDO shall pay LHSI within thirty (30) days of receipt of such
          invoice. To enable the calculation of the Transportation Shared
          Savings Allowance, ENDO will provide prior to February 1 the prior
          year's net sales. ENDO and LHSI will also share, from time to time,
          such information and figures as may be necessary or desirable to
          reduce transportation costs and perform the calculations associated
          with the Transportation Shared Savings Allowance.

     (d)  LHSI shall provide to ENDO an invoice for actual transportation
          service charges from third-party transportation service providers as
          of the 15th day and the last day of each month, and ENDO shall pay
          LHSI within fifteen (15) days of receipt of such invoice.

     (e)  Reimbursable expenses incurred by LHSI and not addressed in 6.3 (b)
          above shall be paid by ENDO to LHSI within thirty (30) days of receipt
          of an invoice from LHSI for such expenses.

     (f)  In addition to LHSI's right to terminate this Agreement under Article
          16.1 in the case of non-payment, if LHSI elects not to terminate this
          Agreement, ENDO shall pay a finance charge of *** (***) per month
          for each invoice past due for more

                                       6
<PAGE>

          than thirty (30) days from the payment date as set forth in paragraphs
          6.3 (a), (b) and (c) above.

6.4  Records and Inspections

     (a)  ENDO may inspect and audit any and all records, books, and documents
          related to LHSI's performance of the Services and its obligations
          under this Agreement, during normal business hours provided, however,
          that ENDO shall first provide LHSI with reasonable notice (which shall
          not be less than 72 hours) in a Record of any such intended inspection
          and/or audit. Further, LHSI shall permit representatives of the FDA or
          DEA or their agents with reasonable notice to visit and inspect and
          audit any and all records, documents, or facilities related to or used
          by LHSI in the performance of the Services and its obligations under
          this Agreement.

     (b)  Endo shall have the right to require LHSI to deliver to ENDO from
          time-to-time such records, books, and documents related to LHSI's
          performance of the Services and its obligations under this Agreement
          as ENDO shall designate. When LHSI ceases to provide Warehouse and
          Distribution Services to ENDO, it shall provide ENDO with a complete
          history of all Warehouse and Distribution Services activities under
          this Agreement and all preceding agreements in an electronic format to
          be designated by ENDO.

     (c)  LHSI will provide to ENDO on request all information necessary in
          connection with all Product recalls including, without limitation,
          customer(s) who received the Product, lot number, date shipped,
          ship-to address and other relevant information, all in an electronic
          format to be specified by ENDO at the time of the Product recall.

6.5. Retention of Records

     All documentation and records pertaining to this Agreement and the Services
     provided by LHSI shall be held by LHSI for the length of time specified by
     the applicable laws and regulations. After the termination or expiration of
     the Term of this Agreement, and for as long as such information is required
     by the FDA or DEA to be made available, and for such longer periods as are
     customary when dealing with substances such as the Products, LHSI will
     provide to ENDO on request all information necessary in connection with all
     Product recalls including, without limitation, customer(s) who received the
     Product, lot number, date shipped, ship-to address and other relevant
     information, all in an electronic format to be specified by ENDO at the
     time of the Product recall.

7.   WARRANTIES AND REPRESENTATIONS
     ------------------------------

7.1  Each party represents and warrants to the other that it has the legal
     power, authority and right to enter into this Agreement and to perform its
     respective obligations as set forth herein.

                                       7
<PAGE>

7.2  Each party represents and warrants that as of the date of this Agreement it
     is not a party to any agreement or arrangement with any third party or
     under any obligation or restrictions, which in any way limits or conflicts
     with its ability to fulfill any of its obligations under this Agreement.

7.3  LHSI further represents and warrants that it has the requisite expertise,
     experience and skill to provide the Services set forth herein and in
     Schedule C, and that it shall use its Best Efforts to perform such Services
     in a competent, efficient and professional manner.

7.4  The foregoing representations and warranties shall survive the execution,
     delivery, and performance of this Agreement, notwithstanding any due
     diligence investigation by or on behalf of ENDO.

8.   LHSI'S DUTIES
     -------------

8.1  LHSI shall use its Best Efforts to train its personnel and perform all
     services required under this Agreement in accordance with the Work
     Instructions.

8.2  The Services to be provided by LHSI under this Agreement are specified in
     Schedule C attached hereto and made a part hereof, and may be amended in
     writing from time-to-time upon the mutual consent of the parties.

8.3  Access and Modifications to the LHSI Premises

     (a)  LHSI represents that the LHSI Premises as currently configured and
          equipped, and taken as a whole, are adequate to meet ENDO's current
          requirements. With respect to the Warehouse and Distribution Services,
          ENDO's "current requirements" (as that term is used in this Section)
          are the requirements established by the Warehousing and Distribution
          Agreement dated as of June 15, 1999, as amended, and these
          requirements will remain applicable until March 1, 2000, when the
          requirements for Warehouse and Distribution Services described in this
          Agreement and Schedule C will become the applicable current
          requirements. The work required to enable LHSI to provide the
          Warehouse and Distribution Services described in this Agreement and
          Schedule C and satisfy all projected requirements at the LHSI Premises
          will be completed, at LHSI's sole cost and expense, no later than
          February 29, 2000.

     (b)  LHSI shall within twenty-four (24) hours notify ENDO, upon notice to
          LHSI, of all inspections of any LHSI facility by any federal, state,
          or local regulatory representative. LHSI shall provide ENDO within
          twenty-four (24) hours with written summaries of the results of such
          inspections, and of the actions, if any, taken to remedy conditions
          cited in such inspections.

                                       8
<PAGE>

     (c)  Endo reserves the right to conduct audits and inspections of the LHSI
          Premises at any time and from time to time during the Term upon at
          least twenty-four (24) hours prior written notice.

8.4  Other Duties

     (a)  Upon seventy-two (72) hours advance notice, LHSI shall allow ENDO's
          personnel or its representatives, as well as its lenders and auditors,
          to perform physical inventory audits of Products in LHSI's custody,
          possession or control at any time during normal business hours,
          provided such audit is performed without interruption of LHSI's normal
          business activities.

     (b)  LHSI shall provide, with ENDO's consent, ENDO's lenders and auditors
          with any document to which ENDO is otherwise entitled that any such
          lender or auditor may reasonably request.

     (c)  LHSI shall obtain and maintain all applicable federal, state and local
          licenses, permits and registrations from all applicable federal,
          state, and local agencies necessary for the performance of its
          obligations under this Agreement, including without limitation, the
          warehousing, storage, distribution, use, marketing, promotion, and
          sale of Products, including Controlled Substances. LHSI shall be
          responsible, with the assistance of ENDO, if requested by ENDO, for
          any and all communications with the DEA or other federal, state or
          local drug enforcement agency with respect to the maintenance of all
          appropriate licenses and payment of fees in connection with the
          ordertaking, invoicing, and recordkeeping of Controlled Substances.
          LHSI shall immediately notify ENDO of any significant regulatory
          action which impacts or may impact upon the ability of LHSI and/or
          ENDO to perform their respective obligations under this Agreement.

     (d)  LHSI shall comply with all requirements of all federal, state and
          local governments and agencies having jurisdiction over the Products
          and LHSI's activities under this Agreement, including without
          limitation, the FDA, DEA, Environmental Protection Agency,
          Occupational Safety and Health Administration and the Department of
          Transportation.

     (e)  LHSI shall work cooperatively with ENDO to expeditiously and
          economically execute and implement the transition of Services from
          ENDO's current Services providers to LHSI.

     (f)  LHSI shall discuss Products with Authorized Customers in the Territory
          in accordance with Work Instructions.

     (g)  LHSI shall only utilize the ENDO Literature provided by ENDO, at
          ENDO's expense and direction, to be used in communications with
          Authorized Customers in the Territory.

                                       9
<PAGE>

     (h)  LHSI shall be responsible for executing, at ENDO's direction, all
          responses to inquiries from Authorized Customers in the Territory in
          connection with the performance of the Services provided by LHSI to
          ENDO under this Agreement.

     (i)  LHSI shall from time-to-time perform activities identified by ENDO
          which are not presently within the scope of the Services, and which
          will not be billable to ENDO (at either the Schedule B overtime rate
          or the Accessorial rate) if these activities: (1) are performed during
          normal business hours; (2) are scheduled by LHSI; (3) require no types
          of resources which are not normally employed by LHSI in rendering the
          Services to Endo; and (4) do not cause LHSI to incur additional
          expense.

     (j)  To the extent out of scope activities are identified by ENDO which
          cannot be performed under 8.4(i), above, LHSI will perform such
          activities under this Agreement at the accessorial or overtime rates
          specified on Schedule B II. LHSI will endeavor to perform out of scope
          activities requested by ENDO first, under 8.4(i) above, second, during
          normal working hours at the accessorial rate, and third, to the extent
          neither of these two options are feasible, at the overtime rate.

     (k)  PDMA Obligations

          (1)  LHSI shall comply with the Prescription Drug Marketing Act of
               1987, as amended ("PDMA") and all other applicable laws, rules,
               and regulations, including maintaining appropriate procedures and
               policies and maintaining and retaining all reports required by
               such laws.

          (2)  LHSI shall comply with all applicable federal, state, and local
               laws, rules, and regulations governing the ordertaking,
               invoicing, and recordkeeping of Products, including Controlled
               Substances, including, but not limited to, the Controlled
               Substances Act, as amended. LHSI shall be responsible for
               completion, submission to the DEA and /or any other state, or
               local regulatory agency, and retention of any forms and/or
               reports with respect to the ordertaking for and invoicing of
               Products, including Controlled Substances in accordance with any
               applicable federal, state, and/or local laws, rules, and
               regulations.

          (3)  LHSI shall provide input in the development of and maintain,
               monitor and enforce the Work Instructions governing the
               day-to-day management of all LHSI personnel who are responsible
               for the performance of LHSI's obligations under this Agreement
               including but not limited to policies and procedures regarding
               PDMA and ordertaking, invoicing, and recordkeeping of Products,
               including Controlled Substances, Authorized Customer addition and
               deletion processes, and Adverse Drug Experience/product complaint
               reporting.

          (4)  LHSI shall immediately investigate and take action, if necessary,
               against any and all LHSI personnel in connection with any
               violation of or noncompliance with

                                       10
<PAGE>

               any local, state, or federal laws, rules and regulations,
               including but not limited to, the PDMA and the Controlled
               Substances Act, the Work Instructions, and/or any LHSI policy
               and/or procedure governing the performance of its obligations
               under this Agreement.

          (5)  LHSI shall notify ENDO of any material discrepancy, violation, or
               act of noncompliance within seven (7) calendar days from the date
               that LHSI becomes aware of such occurrence.

          (6)  LHSI shall be responsible for the payment of any and all fines,
               penalties, and/or any other corrective actions which may be taken
               by local, state, and federal agencies, including but not limited
               to the DEA and/or FDA, in connection with and to the extent of
               LHSI and/or its personnel's failure to comply with any local,
               state, and/or federal laws, rules, and regulations.

          (7)  To the extent required by applicable law or regulation, LSHI will
               not use the services of any individual or firm debarred by the
               FDA or anyone convicted of a felony under federal law for conduct
               relating to List 1 chemicals (as set forth in 21 CFR Section
               1310.02) or Controlled Substances in connection with the
               provision of Services.

9.   ENDO'S DUTIES
     -------------

9.1  ENDO shall use its Best Efforts to perform all obligations required under
this Agreement substantially in accordance with the Work Instructions.

9.2  ENDO's Products.

     (a)  ENDO shall deliver Products to LHSI at the LHSI Premises during normal
          working hours, unless alternative arrangements have been made in
          advance. Products delivered for storage shall be properly marked and
          packaged, and shall provide a manifest showing sizes or specific stock
          keeping units.

     (b)  ENDO shall be responsible for providing its Products to LHSI at the
          LHSI Premises in quantities sufficient to meet the demands of ENDO's
          customers, subject to the manufacturing capacity of ENDO and its
          suppliers, and the demand, if any, for ENDO's Products.

     (c)  ENDO shall be responsible for the procurement, marketing and sale of
          the Products.

     (d)  ENDO shall be responsible for ensuring that the Products comply with
          all federal, state, local and other laws and regulations with respect
          to Product manufacturing, safety, labeling and advertising.

                                       11
<PAGE>

     (e)  ENDO shall be responsible to its Authorized Customers for all
          warranties express or implied that exist with respect to the Products
          as required by law.

     (f)  ENDO shall be responsible for addressing all regulatory issues
          regarding manufacturing defects or safety issues related to any
          Product, including handling, with the assistance of LHSI, at ENDO's
          request, any Product recalls.

     (g)  ENDO shall pay the Fees enumerated in Schedule "B" and perform all of
          its other obligations under this Agreement and the Work Instructions

9.3  Other Duties:

     (a)  ENDO shall provide to LHSI, at ENDO's expense, all ENDO Literature for
          each Product to be utilized by LHSI representatives in communications
          to Authorized Customers in the Territory.

     (b)  ENDO shall be responsible for all inquiries from healthcare
          professionals in the Territory.

     (c)  ENDO shall be responsible for developing the content of all responses
          to inquiries from Authorized Customers in the Territory in connection
          with the performance of the Services provided by LHSI to ENDO under
          this Agreement.

     (d)  During the Term of this Agreement, ENDO shall promptly notify LHSI of
          any additions or deletions to the Products on Schedule A so that LHSI
          may expeditiously update the information used by its personnel to
          perform their obligations under this Agreement.

9.4  Title to and ownership of the Products in possession of LHSI shall always
be vested in ENDO and subject to its direction and control.

9.5  ENDO shall bear the expense of any taxes on inventory, such as personal
     property taxes.

10.  ADVERSE DRUG EXPERIENCES/PRODUCT COMPLAINTS
     -------------------------------------------

10.1 LHSI shall notify ENDO or its designee within twenty-four hours (24) of
     receipt by LHSI of any Adverse Drug Experience or product complaint
     resulting from the marketing, sale, promotion, and/or use of any Product in
     the Territory.

10.2 ENDO shall be responsible for completion and submission to the FDA of any
     forms and/or reports, including periodic and annual reports with respect to
     an Adverse Drug Experience involving Products or any complaint that would
     require a field alert, as and when appropriate.

                                       12
<PAGE>

10.3 ENDO shall inform LHSI of any withdrawal or recall of any Product, or any
     other significant regulatory actions by the FDA or DEA, which may affect
     LHSI's ability to perform its obligations under this Agreement.

11.  CONFIDENTIALITY
     ---------------

11.1 All information disclosed by one party to the other under this Agreement
     shall be deemed to be confidential information ("Confidential
     Information"). The parties hereby agree to hold in strictest confidence any
     and all Confidential Information disclosed by one party to the other under
     this Agreement or obtained by either party as a result of performing its
     obligations under this Agreement. The parties hereby agree that the
     following shall not be considered Confidential Information subject to this
     Agreement:

     (a)  information which at the time of disclosure by one party to the other
          is in the public domain;

     (b)  information which, after disclosure by one party to the other becomes
          part of the public domain by publication or otherwise, provided that
          such publication is not in violation of this Agreement or any other
          confidentiality agreement;

     (c)  information which the receiving party can establish in a Record was
          already known to it or was in its possession at the time of disclosure
          by the other party and was not acquired, directly or indirectly, from
          the disclosing party.

     (d)  information which the receiving party lawfully receives from a third
          party, provided, however, that such third party was not obligated to
          hold such information in confidence.

     (e)  information which the receiving party is compelled to disclose by a
          court or other tribunal of competent jurisdiction, or the FDA,
          provided however, that in such case the receiving party shall
          immediately give notice to the disclosing party to enable the
          disclosing party to exercise its legal rights to prevent and/or limit
          such disclosure. In any event, the receiving party shall disclose only
          that portion of the Confidential Information that, in the opinion of
          the disclosing party's legal counsel, is legally required to be
          disclosed and will exercise reasonable efforts to ensure that any such
          information so disclosed will be accorded confidential treatment by
          said court or tribunal.

11.2 The receiving party shall not use Confidential Information for any purpose
     other than for the purposes set forth in this Agreement, which includes not
     using ENDO's Confidential Information for the benefit of a third party or
     in connection with the provision by LHSI of similar services to any third
     party for any third party's products that directly compete with any
     Product.

                                       13
<PAGE>

11.3 The receiving party will not disclose Confidential Information to any
     person other than to its employees, officers, agents, and consultants that
     have a need to know such information to effectuate the purpose of this
     Agreement and that such employees, officers, agents, and consultants shall
     be informed of this Confidentiality Agreement and shall, in a Record, be
     bound by its terms. All Confidential Information will contain a statement
     indicating that the information is confidential and should not be disclosed
     to unauthorized individuals.

11.4 Upon request in a Record from the disclosing party or termination or
     expiration of this Agreement, whichever comes sooner, the receiving party
     shall either promptly return to the disclosing party all Confidential
     Information provided to the receiving party pursuant to this Agreement
     including any copies thereof and notes, extracts based thereon, other
     derivative documents or information; or in the alternative, provide the
     disclosing party with a notarized certification by the senior executive
     officer of the receiving party that all such documents have been duly
     destroyed by the receiving party; except that the receiving party may keep
     one (1) copy of such documents for archival purposes.

11.5 The terms of this confidentiality provision shall remain in effect until
     five (5) years after the expiration or termination of this Agreement.

11.6 ENDO and LHSI agree not to make any public announcements regarding the
     existence of this Agreement or its terms without the prior review and
     consent of the other party in a Record, unless such disclosure is required
     by law, in which event the disclosing party will provide the non-disclosing
     party with sufficient prior notice of such legally required disclosure as
     well as the nature of the information to be disclosed prior to disclosing
     such information. Notwithstanding the foregoing, LHSI may list ENDO in its
     client list and make such client list available publicly after consultation
     with ENDO. For purposes of clarification, the prohibition against public
     announcement contained in this paragraph 11.6 shall not require LHSI to
     conceal the presence of the Products at the LHSI Premises.

12.  INDEPENDENT CONTRACTOR
     ----------------------

12.1 LHSI and its directors, officers, and the persons providing Services under
     the Agreement are at all times independent contractors with respect to
     ENDO. Persons provided by LHSI to perform Services shall not be deemed
     employees of ENDO. ENDO shall not be responsible for the acts of LHSI's
     officers, agents or employees while performing the Services whether on ENDO
     premises or elsewhere.

12.2 LHSI shall not be responsible for any cost, however, attributable to: (i)
     any actions by ENDO that caused a person(s) provided by LHSI to perform
     Services under this Agreement to be reclassified as an employee of ENDO,
     (ii) any unlawful or discriminatory acts of ENDO, and (iii) language in any
     ENDO benefit plan that is deemed to extend coverage to a person(s) provided
     by LHSI to perform Services under the Agreement based on their activities
     under this Agreement.

                                       14
<PAGE>

13.  OWNERSHIP OF PROPERTY AND DEVELOPMENTS
     --------------------------------------

     All Confidential Information, and any derivative property or documents,
     supplied to either party during the Term of this Agreement, by or through
     the other, which relate to the Services shall be the sole and exclusive
     property of the originator of those materials and developments. Each party
     agrees to hold all such property and developments, confidential in
     accordance with Article 11 of this Agreement. For purposes of this
     Agreement, information regarding ENDO's customers, including, but not
     limited to, customer lists, customer identifying information, customer
     profiles, customer purchasing history, and customer phone logs, whether
     created by ENDO or LHSI in the performance of its obligations under this
     Agreement, shall be the property of ENDO and may not be used by LHSI
     without ENDO's prior written consent.

14.  NONCOMPETITION
     --------------

     During the Term of this Agreement, the LHSI personnel responsible for
     performing the Customer Service and Chargeback Processing Services and the
     Accounts Receivable Services under this Agreement shall not provide similar
     Services to any third party for any third party's products that directly
     compete with any Product. At no time during or after the expiration or
     termination of this Agreement, shall LHSI or any of its personnel
     (regardless of the type of Service they provide) use ENDO Confidential
     Information for the benefit of any third party or in connection with the
     provision by LHSI of similar services to any third party for any third
     party's products that directly compete with any Product.

15.  INSURANCE AND INDEMNIFICATION
     -----------------------------

15.1 LHSI Insurance

     (a)  At all times during the term of this Agreement, LHSI shall maintain,
          at its own expense, the following insurance coverage:

          (1)  Workmen's compensation in an amount sufficient to comply with the
               statutory requirements of the State of Delaware, or any other
               state in which LHSI performs its obligations hereunder;

          (2)  Logistics management liability (including warehouseman's legal
               liability) insurance in an amount no less than ***;

          (3)  Comprehensive general liability insurance for bodily injury or
               property damage designating ENDO as an additional insured for any
               losses or damages arising out of LHSI's duties hereunder in the
               amount of at least ***. The policy shall also cover liabilities
               specifically assumed under this Agreement; and

                                       15
<PAGE>

          (4)  Crime coverage for employee dishonesty and forgery in amounts
               sufficient to cover losses in connection with LHSI's rendering of
               the Accounts Receivable Services.

     (b)  LHSI shall have ENDO listed as an additional insured on its insurance
          policies providing the coverage described in Sections 15.1(a)(2), and
          15.1(a)(3) during the entire Term of this Agreement, and for five (5)
          years after this Agreement expires or is terminated, which insurance
          shall be primary to any other insurance. LHSI will supply at least
          thirty (30) days prior written notice to ENDO in the event of
          cancellation or material reduction in coverage, and upon request
          promptly submit to ENDO satisfactory evidence of such insurance.

15.2 LHSI Indemnification. LHSI shall indemnify, defend, and hold harmless ENDO,
     its officers, agents, Affiliates, subsidiaries, parent companies, and
     employees, from and against any and all loss, damage, claim, injury, cost
     or expenses, including reasonable attorneys' fees and expenses of
     litigation, in connection with any illness or personal injury, including
     death, or property damage, that arises out of or is attributable to: (1)
     the negligence or willful misconduct of LHSI; (2) the violation of or
     noncompliance with any statutes or regulations applicable to the Services
     provided by LHSI under this Agreement; or (3) LHSI 's breach of the terms
     of this Agreement; provided, however, LHSI shall, under no circumstances,
     be obligated to indemnify ENDO to the extent that any loss, damage, claim,
     injury, cost, or expense arises out of ENDO's sole negligence, willful
     misconduct, violation of and/or noncompliance with any statutes or
     regulations governing the use, manufacture, marketing, promotion and/or
     sale, of Products in the Territory, or ENDO's breach of the terms of this
     Agreement.

15.3 Endo Insurance. ENDO shall maintain primary comprehensive first-party
     insurance sufficient to cover the replacement value of Products in the
     possession of LHSI. ENDO shall maintain in effect during the term of this
     Agreement and for a period of five (5) years after termination of this
     Agreement, product liability insurance in the amount of at least
     *** and general liability insurance in the amount of at least ***, which
     shall include contractual liability coverage for all liability assumed
     under this Agreement and shall include LHSI as an additional insured. ENDO
     shall have LHSI listed as an additional insured on its comprehensive
     general liability and products/completed operations insurance during the
     entire term of this Agreement, and for five (5) years after this Agreement
     expires or is terminated, which insurance shall be primary to any other
     insurance. ENDO will supply at least thirty (30) days prior written notice
     to LHSI in the event of cancellation or material reduction in coverage, and
     upon request promptly submit to LHSI satisfactory evidence of such
     insurance.

15.4 Endo Indemnification. ENDO shall indemnify, defend, and hold harmless LHSI,
     its officers, agents, Affiliates, subsidiaries, parent companies, and
     employees, from and against any and all loss, damage, claim, injury, cost
     or expense, including reasonable attorneys' fees and expenses of
     litigation, in connection with any illness or personal

                                       16
<PAGE>

     injury, including death, or property damage, that arises out of: (1) the
     negligence or willful misconduct of ENDO; (2) the violation of or
     noncompliance with any statutes or regulations governing the manufacturing,
     use, marketing, promotion, and/or sale, of Products; (3) an alleged defect
     in any ENDO Product; (4) ENDO's breach of the terms of this Agreement; or
     (5) a claim that Services rendered by LHSI or obligations performed by LHSI
     under this Agreement infringe any patent, trademark, copyright, license or
     other property right or proprietary right of any third party, provided,
     however, ENDO shall, under no circumstances, be obligated to indemnify LHSI
     to the extent that any loss, damage, claim, injury, cost or expense arises
     out of LHSI's sole negligence, willful misconduct, violation of and/or
     noncompliance with any statutes or regulations applicable to the Services
     provided by LHSI under this Agreement or LHSI's breach of the terms of this
     Agreement.

15.5 Indemnification Process. Any indemnity available hereunder shall be
     dependent upon the party seeking indemnity providing prompt notice to the
     indemnitor of any claim or lawsuit giving rise to the indemnity.
     Thereafter, the indemnitor shall have exclusive control over the handling
     of the claim or lawsuit, and the indemnitee shall provide reasonable
     assistance to the indemnitor, at the indemnitor's expense, in defending the
     claim.

16.  TERMINATION
     -----------

16.1 Material Breach. Either party may terminate this Agreement in the case of a
     material breach by one of the other parties which is not cured within
     thirty (30) days after notice by the terminating party in a Record of the
     breach; provided, however, that the failure of LHSI to obtain all
     applicable federal, state and local licenses, permits and registrations
     necessary for the performance of its obligations under this Agreement
     including, without limitation, its DEA license for the new Controlled
     Substances vault, by March 1, 2000, shall entitle ENDO to terminate this
     Agreement immediately.

16.2 Bankruptcy. Either party may terminate this Agreement immediately in its
     entirety if the other party is declared insolvent by a court of competent
     jurisdiction, files a petition of bankruptcy, is adjudged bankrupt, takes
     advantage of any insolvency act, is in receivership, or executes an or
     assignment for the benefit of creditors.

16.3 Termination by ENDO. This Agreement or, from time-to-time, the Term with
     respect to any one or more Services rendered under this Agreement, may be
     terminated by Endo for any of the following reasons upon one hundred twenty
     (120) days prior notice, which notice shall specify the basis for such
     termination:

     (a)  The sale of ENDO or its parent company;

     (b)  The sale by ENDO of all or substantially all of its business;

                                       17
<PAGE>

     (c)  The present owners of the stock of ENDO entitled to vote shall no
          longer own or control in the aggregate more than fifty (50%) percent
          of such voting stock or control the election of the board of directors
          of ENDO;

     (d)  The present owners of the stock of ENDO's parent company entitled to
          vote shall no longer own or control in the aggregate more than fifty
          (50%) percent of such voting stock or control the election of the
          board of directors of ENDO's parent company;

     (e)  The determination by ENDO to perform directly or through one or more
          Affiliates ("in-house") the Services with respect to which the Term is
          being terminated; or

     (f)  The inability of LHSI to supply storage space for Products in addition
          to the storage space described on Schedule B within 90 days of any
          request by ENDO's for such space in a Record.

     In the event of a termination under this paragraph 16.3 of the Warehouse
     and Distribution Services, ENDO will pay to LHSI an amount equal to the
     positive difference, if any, between the "Capital Investment" (defined
                                               ------------------
     below) minus the "Liquidated Capital Investment" (defined below). For
                       -----------------------------
     purposes hereof, the "Capital Investment" shall mean the costs incurred by
     LHSI prior to the effective date of termination exclusively in connection
     with LHSI's preparations to perform the Warehouse and Distribution Services
     required under this Agreement, which are not reimbursable by a third party
     or which cannot be cancelled, and which are documented appropriately in
     writing; provided, however, that in no event shall the amount of the
     Capital Investment exceed One Million Five Hundred Fifty Thousand Dollars
     ($1,550,000.00). LHSI shall have no obligation to include eligible costs
     it incurs in the Capital Investment amount. There shall be no obligation
     on the parties to agree upon the calculation of the Capital Investment
     prior to LHSI's requesting payment under this paragraph, although ENDO
     shall have the right to request a non-binding estimate of the Capital
     Investment amount once LHSI has commenced rendering all of the Services
     under this Agreement. For purposes hereof, the "Liquidated Capital
     Investment" shall equal the Capital Investment divided by sixty (60)
                                                    ----------
     multiplied by the number of months between February 1, 2000 and the month
     -------------
     in which ENDO terminates this Agreement. If ENDO is to make a payment to
     LHSI in connection with a termination under this Section 16.3, then legal
     title to and possession of any and all assets whose costs are included in
     the Capital Investment amount (whether LHSI acquired those assets by
     purchase, lease and/or construction) shall be transferred to ENDO at the
     time of payment, and LHSI shall cooperate with ENDO in effecting such
     transfer; provided, however, that ENDO shall not acquire any rights of any
     kind to LSHI's proprietary information technology, or the cost of any
     modifications to such proprietary information technology, included in the
     Capital Investment amount.

     In the event of a termination under this Section 16.3 (a), (b), (c), (d) or
(e) of the Warehouse and Distribution Services provided under this
Agreement, ENDO shall also pay to LHSI,

                                       18
<PAGE>

subject to the conditions and limitations described below, an amount (the
"Termination Payment") equal to the sum of: (i) the percentage of LHSI's
Memphis, Tennessee facility (the "Facility") then occupied by ENDO under this
Agreement multiplied by one-half of the Facility's annual rent, plus (ii) two
weeks' of LHSI's payroll costs for any LHSI clerical and warehouse (but not
management) personnel then dedicated to providing Warehouse and Distribution
Services to ENDO whose employment is terminated by LHSI when the Warehouse and
Distribution Services are terminated because there is no other work for them at
the Facility; provided, however, that in no event shall the Termination Payment
exceed $96,000. The portion of the Termination Payment described in clause (i)
will be paid in equal installments over the six-month period commencing with the
effective date of the termination. The portion of the Termination Payment
described in clause (ii) will be paid within 30 days after LHSI provides the
payroll cost information to ENDO. The portion of the Termination Payment
provided for in clause (i) will be reduced dollar-for-dollar by all amounts
collected from any one or more third party or parties who, during the six month
following ENDO's termination, occupy the area(s) in the Facility occupied by
ENDO at the time of its termination of the Agreement. The Termination Payment
will not include the payroll costs for any LHSI clerical and warehouse personnel
who are rehired by LHSI within one year of the date of their termination of
employment, and LHSI agrees to repay to ENDO any amounts it paid under clause
(ii) for those employees who are rehired. If ENDO is making payments under
clause (i) above, ENDO shall have the right to use the portions of the Facility
it previously occupied, subject to LHSI's right to make that space available to
third parties on an arm's-length basis. At the conclusion of ENDO's post-
termination use of the portions of the Facility it previously occupied, LHSI
agrees to assist ENDO with moving out any remaining Product and related
transition issues, with compensation for this activity to be mutually agreed-
upon. LHSI and ENDO agree to meet monthly during the six month period which
begins on the effective date of the termination under this Section 16.3 (a),
(b), (c), (d) or (e) to discuss issues related to the use of the Facility.

16.4 Effect of Termination. Termination of this Agreement shall have no effect
     on, or relieve any party from the to perform any actions arising prior to
     the effective date of termination. Further, any rights and obligations of
     the parties which by their intent are meant to survive the termination or
     expiration of this Agreement shall survive the expiration or termination of
     this Agreement.

17.  SOLICITATION OF EMPLOYEES. During the Term of this Agreement and the
     --------------------------
     twenty-four (24) month period commencing on the date this Agreement expires
     or is terminated, if either party, without the consent of the other party,
     either directly or indirectly, on its own behalf or in the service of or on
     behalf of others, solicits, recruits or persuades any person to terminate
     such person's employment with the other party, whether or not such person
     is a full-time employee or whether or not such employment is pursuant to a
     written agreement or is at-will, then the soliciting party shall pay to
     such other party, if such other party actually replaces such employee
     within ninety (90) days from the date of departure of such employee,
     compensation for such employee in the amount of *** (***) of such
     employee's then annual salary, at the time of employment by the soliciting
     party, excluding any
                                       19
<PAGE>

     incentive compensation and the cost of employee benefits. Such payment
     shall be made within thirty (30) days of a written request from the
     non-soliciting party.

18.  YEAR 2000 COMPLIANCE
     --------------------

18.1 Each party agrees to request from those of its suppliers whose performance
     may materially affect such party's performance hereunder, or to receive
     assurance from such supplier's Web site, that each such supplier agree that
     it will not permit a Year 2000 Problem to computer systems, software or
     equipment owned by it, its Affiliates or subsidiaries, or leased or
     licensed to it, its Affiliates or subsidiaries, to interfere with such
     supplier's performance. The parties will use their Best Efforts to
     cooperate and share information to further comply with this section, and to
     minimize the impact of any Year 2000 Problem on the parties' respective
     performance under this Agreement. Each party will inform the other party of
     any material circumstance indicating a potential obstacle to such
     compliance, and the steps being taken to avoid or overcome the obstacle.

18.2 Provided a party complies with this section, such party will not be liable
     to the other party for any failure to perform obligations under this
     Agreement to the extent such failure arises from a Year 2000 Problem (1)
     affecting one of the non-performing party's suppliers or (2) beyond that
     party's reasonable control (e.g., a Year 2000 Problem affecting a
     governmental entity). In particular, to the extent a non-performing party
     is not liable to the other party under this section, such non-performing
     party shall have no liability to the other party for any damages, including
     direct, indirect, incidental, special, consequential, punitive or exemplary
     damages.

19.  MISCELLANEOUS
     -------------

19.1 Assignment. Neither party may assign its interests, rights, duties, and
     obligations under this Agreement without the prior consent of the other
     party in a Record, which shall not be unreasonably withheld, provided,
     however, that ENDO may assign its interests, rights, duties, and
     obligations hereunder to any Affiliate or any successor in interest,
     including as a result of a merger or acquisition by a third party of
     substantially all or all of ENDO's assets, or acquisition of fifty percent
     (50%) of any equity in ENDO, or any reorganization or change in control of
     ENDO so long as the acquirer and/or surviving organization/entity (i) is a
     financially capable business entity and (ii) expressly assumes in a Record
     those interests, rights, duties, and obligations.

19.2 Integration. This Agreement supersedes all prior arrangements and
     understandings between parties related to the subject matter of this
     Agreement including, without limitation, the Customer Services Agreement
     between the parties dated April 1, 1999 and the Warehousing and
     Distribution Services Agreement between the parties dated June 15, 1999, as
     amended.

19.3 Force Majeure. Noncompliance with the obligations of this Agreement due to
     a Force Majeure event shall not constitute a breach of Agreement; provided,
     however, that if one

                                       20
<PAGE>

     party to this Agreement claims, for a period of forty-five (45) days, that
     it is unable to fulfill its obligations hereunder due to the existence of a
     Force Majeure event, then the other party may elect to terminate this
     Agreement with immediate effect.

19.4 Severability. If any provision of this Agreement is finally declared null
     and void, or found to be illegal or unenforceable by a court of competent
     jurisdiction, both parties shall be relieved of all obligations arising
     under such provision, but, if capable of performance, the remainder of this
     Agreement shall not be affected by such declaration or finding.

19.5 Amendment. No modification, extension or release from any provision hereof
     shall be affected by mutual agreement, acknowledgment, acceptance of
     contract documents, or otherwise, unless the same shall be in a Record
     signed or otherwise authenticated by the other party and specifically
     described as an amendment or extension of this Agreement.

19.6 Arbitration.

     (a)  All disputes over the meaning and interpretation of this Agreement
          shall be resolved by conciliation and non-binding mediation and if
          such mediation is unsuccessful then such disputes shall be finally
          settled by an Arbitration Panel comprising of one (1) arbitrator
          appointed by LHSI and one (1) arbitrator appointed by ENDO, and a
          Chairman of the Arbitration Panel appointed by the first two (2)
          arbitrators. Any such arbitration proceeding shall be conducted in
          accordance with the arbitration rules of the AAA; shall be held in the
          State of Delaware, unless otherwise agreed by the parties; and the
          arbitration award shall be final and nonappealable and such award may
          be entered in any court having jurisdiction.

     (b)  In order to initiate procedures for dispute resolution by
          conciliation, mediation and arbitration either party may give notice
          to the other in a Record of intention to resolve a dispute, and absent
          satisfactory resolution, then to arbitrate. Such notice shall contain
          a statement setting forth the nature of the dispute and the resolution
          sought. If, within thirty (30) days of such notice a resolution by
          conciliation between the parties themselves or by mediation has not
          been achieved to the satisfaction of both parties, and if within sixty
          (60) days from said notice in a Record an Arbitration Panel has not
          been appointed with an arbitration schedule satisfactory to both
          parties, then either party may proceed with judicial remedies.

19.7 Notices. All notices required under this Agreement shall be in a Record and
     shall be effective if delivered to the party entitled to receive the same
     by hand or if deposited in the United States Mail addressed to such party
     at the address set forth below.

                                       21
<PAGE>

     If to Endo

          Endo Pharmaceuticals Inc.
          223 Wilmington West Chester Pike
          Chadds Ford, Pennsylvania 19317, U.S.A.
          Attn: Mariann T. MacDonald, Executive Vice President, Operations
          with a copy to: Osagie Imasogie, General Counsel

     If to: LHSI

          Livingston Healthcare Services, Inc.
          220 Lake Drive
          Newark, Delaware 19702
          Attn: Peter Westermann, President

19.8 Taxes. LHSI shall be responsible for all taxes, including federal, state,
     and local taxes assessed or assessable against it for the Services
     performed under this Agreement.

19.9 Governing Law. This Agreement shall be construed according to the laws of
     the State of Delaware, without reference to its conflict of law rules.

19.10 Counterparts This Agreement may be executed in any number of counterparts,
     each of which, when executed, shall be deemed to be an original and all of
     which together shall constitute one and the same document.

19.11 Survival. The provisions of this Agreement which by their intent and/or
     effect are meant to survive the termination or expiration of this Agreement
     shall survive the termination or expiration of this Agreement.

                                       22
<PAGE>

WHEREFORE, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives on the date first above written.

LIVINGSTON HEALTHCARE
SERVICES, INC.                       ENDO PHARMACEUTICALS INC.

By: /s/ Peter Westermann             By: /s/ Mariann T. MacDonald
    ----------------------------         ----------------------------------
Name: Peter Westermann               Name: Mariann T. MacDonald
Title: President                     Title: Executive Vice President, Operations

                                       23
<PAGE>

                                 SCHEDULE A-I

                           ENDO PHARMACEUTICALS INC.
                         BRAND PRODUCT SPECIFICATIONS

                                      ***

                                      24
<PAGE>

                                 SCHEDULE A-I

                           ENDO PHARMACEUTICALS INC.
                        GENERIC PRODUCT SPECIFICATIONS

                                      ***

                                      25
<PAGE>

                                 Schedule A-II

                               Returns Products

                                     Brand

                                      ***

                                      26
<PAGE>

                                 Schedule A-II

                               Returns Products

                                    Generic

                                      ***

                                      27
<PAGE>

                              SCHEDULE B - Part 1

         FEE SCHEDULE FOR CUSTOMER SERVICE AND CHARGEBACK PROCESSING
                       AND ACCOUNTS RECEIVABLE SERVICES

                                      ***

                                      28
<PAGE>

                             SCHEDULE B - PART II

             FEE SCHEDULE FOR WAREHOUSE AND DISTRIBUTION SERVICES

                                      ***

                                      29
<PAGE>

                                  SCHEDULE C

DESCRIPTION OF WAREHOUSE AND DISTRIBUTION SERVICES

The ENDO/LHSI Warehousing and Distribution Agreement services will include the
following:

1.   Endo, via e-mail, will provide LHSI notification of incoming purchase
     orders from contracted manufacturers according to established work
     instructions. LHSI will provide DEA Form 222 to contract manufacturer for
     purchase of CII pharmaceutical products.

2.   LHSI will create Purchase Order in LHSI computer system (LMS) and Customer
     Service at Memphis Distribution Center (MDC) will issue a DEA Form 222 to
     contract manufacturer (when applicable).

     Endo will make sure that LHSI is communicated to via e-mail by all
     manufacturing sites so that LHSI is aware of both international and
     domestic in-bound transportation from contract manufacturers to LHSI MDC
     (Memphis Distribution Center). Actual shipment appointments will be
     arranged between manufacturing site and LHSI. LHSI is not responsible for
     customs clearance. Dupont will have the ability to e-mail LHSI MDC with
     inbound shipment activities. Upon completion of receipt process, via e-
     mail, LHSI MDC to send receipt acknowledgement notice to Dupont so they can
     close shipments.

3.   LHSI performs receipt of incoming inventory from contract manufacturer.

        .  Receiver One sorts, segregates receipt by SKU and Lot Number,
           Expiration date, counts and enters receipt into LMS in a Quarantine
           (Q) status.
        .  Receiver Two re-checks entire receipts and validates both system
           entry and paper documents in compliance with DEA requirements.
        .  Receiver Two also performs RF Scanner put-away functions in
           Quarantine (Q) status and validates inventory quantity.
        .  Supervisor reviews and accepts or modifies any discrepancies in
           Purchase Order in LMS quantity and inventory received by completing
           system transaction. LMS quantity on hand is updated and a scheduled
           EDI inventory receipt will be transmitted to Endo.
        .  Supervisor provides copy receiver report to Endo Quality Assurance
           Associate personnel for review and Quality release. Once product is
           released, LMS is updated with scheduled updates to SAP.
        .  If inventory receipt has discrepancy LHSI is responsible for
           reporting to Endo Quality Assurance Associate as detailed in work
           instructions.

4.   Endo to perform QA functions:

        .  Endo Quality Assurance Associate personnel (2) will process all
           appropriate Endo paperwork and provide written approval for release
           of inventory to be transferred to Good Status. Lot sequence
           visibility is available via a COGNOS report that has been developed
           by LHSI. LHSI Supervisor to receive copy of Release Authorization.
        .  Endo Quality Assurance Associate personnel will identify inventory
           required for sample retention. LHSI Supervisor to receive copy of QA
           documentation.
        .  LHSI Supervisor performs LMS system update to record movement of
           sample retention inventory when required. LMS inventory adjustment is
           transmitted to SAP.
        .  LHSI to provide LMS training and visibility to Endo warehouse
           inventory within LMS.

5.   Endo Corporate will be responsible for communicating in writing the initial
     changeover to all Endo customers, including, but not limited to, the
     forwarding of all CII purchase orders and DEA Form 222 to LHSI MDC. The
     Endo Customer Service function that will be performed by LHSI as specified
     elsewhere in this Agreement, will proactively communicate all changes in
     distribution to customers as a follow-up to the initial communication.

                                      30
<PAGE>

6.   LHSI to process orders for CII products from LHSI Memphis Distribution
     Center (MDC) within Controlled Area:
          . LHSI Supervisor or designate will validate all data on DEA Form 222
            prior to processing order.
          . LHSI order entry personnel will enter order into SAP. To improve
            efficiencies a second check of all CII orders will be done, prior to
            being released through the interface to LMS per Work Instructions.
            SAP CII report can be utilized for this check.
          . SAP will process order and transmits order to LMS according to
            agreed upon schedule. LMS will accept electronic order and validate
            customer DEA information and product information, prior to
            transmitting to LMS Warehouse Management System for processing. If a
            change to an order is required, the change must be made manually
            according to Work Instructions, both in LMS and SAP.
          . LHSI Supervisor to compare pick document to original DEA Form 222.
          . LMS system to process order and allocate inventory based on Endo's
            FIFO requirements. The limited exceptions to this rule flow from the
            desire to never have more than two lots open at a given time while
            accommodating LHSI system limitations. Specifically, if successive
            lots arrive at MDC which expire before lots already received at MDC,
            the MDC will complete the lot it is currently shipping. Then the MDC
            will be permitted to select as the next lot to ship as the lot with
            the shortest shelf life. In addition, if Quality Assurance Associate
            puts a lot on Hold at any time, the MDC will be permitted to ship
            from the next lot with the shortest shelf life. If that same lot on
            Hold gets released, the MDC will complete the lot it is currently
            shipping from and then will be permitted to select the next lot to
            ship from with the shortest shelf life. Inventory allocation control
            will be achieved through the use of WMS hold reason codes and Cognos
            report.
          . Picker One - picks and stages order utilizing RF scanner.
          . Picker Two - rechecks the pick and validates the staged order to the
            original pick document.
          . Packer will package order per mutually agreed upon Work
            Instructions. Endo packing slip will be enclosed within carton for
            CII orders. The pack slip will be standard LHSI pack slip with Endo
            name appearing along the top of the document.
          . Shipper will process all orders through carrier shipment terminals.
            Initially, MDC authorized FTE will enter pertinent information
            directly into SAP. Future functionality will allow LHSI new
            Transportation Management System to electronically provide shipment
            data via EDI.
          . LHSI designate will perform dispatch function when carrier arrives
            for outbound pick-up.
          . LHSI will transmit sales order confirmation to LMS Order Management
            System - which will transmit agreed upon data to SAP. Scheduled
            transmission will be performed every hour.
          . Normal daily order cut-off times for same day processing and
            shipping is 3:00pm Central Standard Time (4:00pm Eastern Standard
            Time).All orders received after these cut-off times will be
            processed and shipped the very next business day. During peak times
            (i.e. promotions, backorder processing or unusual customer demands)
            order priorities will have to be reviewed and approved by Customer
            Service. All controlled substance orders should not be in transit
            for more than 2 days. At a minimum, all shipments to customers, with
            the exception of backorders, will be delivered within 8 business
            days from receipt of order. These requirements will be reviewed and
            revised if needed at the end of the 1st full quarter of shipments.
          . Carrier service levels to be determined (i.e. last Fed Ex pick-up
            11:30 PM CST)
          . Emergency orders must be shipped according to Work Instructions.
          . Federal Express/UPS labels will be provided to those customers that
            request them to send CII orders in to the MDC. The Customer Service
            Order Entry personnel at the MDC will be responsible for this
            service.

                                      31
<PAGE>

7.   LHSI to process orders for CIII-CV at LHSI Memphis Distribution Center
     (MDC) within appropriate designated working stations within cage area:
          . SAP will process orders and transmits order to LMS. LMS will
            validate customer DEA information and product information prior to
            transmitting to LHSI's Warehouse Management System (WMS) for
            processing.
          . LMS system to process order and allocate inventory based on Endo's
            FIFO requirements. The limited exceptions to this rule flow from the
            desire to never have more than two lots open at a given time while
            accommodating LHSI system limitations. Specifically, if successive
            lots arrive at MDC which expire before lots already received at MDC,
            the MDC will complete the lot it is currently shipping. Then the MDC
            will be permitted to select as the next lot to ship as the lot with
            the shortest shelf life. In addition, if Quality Assurance Associate
            puts a lot on Hold at any time, the MDC will be permitted to ship
            from the next lot with the shortest shelf life. If that same lot on
            Hold gets released, the MDC will complete the lot it is currently
            shipping from and then will be permitted to select the next lot to
            ship from with the shortest shelf life. Inventory allocation control
            will be achieved through the use of WMS hold reason codes and Cognos
            report.
          . Picker One - picks and stages order utilizing RF scanner.
          . Picker Two - validates the staged order to the original pick
            document
          . Packer will package order per mutually agreed upon Work
            Instructions. Endo packing slip will be enclosed within carton for
            all CIII-CV orders.
          . Shipper will process all orders through carrier shipment terminals.
            Initially, MDC authorized FTE will enter pertinent information
            directly into SAP. Future functionality will allow LHSI new
            Transportation Management System to electronically provide shipment
            data via EDI.
          . LHSI designate will perform dispatch function when carrier arrives.
          . LHSI will transmit sales order confirmation to LHSI's Order
            Management System (OMS) and then transmitting agreed upon data to
            SAP Scheduled transmission would be performed every hour.
          . Normal daily order cut-off times for same day processing and
            shipping is 3:00pm Central Standard Time (4:00pm Eastern Standard
            Time). All orders received after these cut-off times will be
            processed and shipped the very next business day. During peak times
            (i.e. promotions, backorder processing or unusual customer demands)
            order priorities will have to be reviewed and approved by Customer
            Service. All controlled substance orders should not be in transit
            for more than 2 days. At a minimum, all shipments to customers, with
            the exception of backorders, will be delivered within 8 business
            days from receipt of order. These requirements will be reviewed and
            revised if needed at the end of the 1st full quarter of shipments.
          . Carrier service levels to be determined (i.e. last Fed Ex pick-up
            11:30 PM CST)
          . Emergency orders must be shipped according to Work Instructions.

8.   LHSI to process orders for Rx at LHSI Memphis Distribution Center (MDC)
     within appropriate designated working stations within warehouse area:
          . SAP will process order and transmits order to LMS. LMS will validate
            customer DEA information and product information prior to
            transmitting to WMS for processing.
          . LMS system to process order and allocate inventory based on Endo's
            FIFO requirements. The limited exceptions to this rule flow from the
            desire to never have more than two lots open at a given time while
            accommodating LHSI system limitations. Specifically, if successive
            lots arrive at MDC which expire before lots already received at MDC,
            the MDC will complete the lot it is currently shipping. Then the MDC
            will be permitted to select as the next lot to ship as the lot with
            the shortest shelf life. In addition, if Quality Assurance Associate
            puts a lot on Hold at any time, the MDC will be permitted to ship
            from the next lot with the shortest shelf life. If that same lot on
            Hold gets released, the MDC will complete the lot it is currently
            shipping from and then will be permitted to select the next lot to
            ship from with the shortest shelf life. Inventory allocation control
            will be achieved through the use of WMS hold reason codes and Cognos
            report. Picker One - picks and stages order utilizing RF scanner.

                                      32
<PAGE>

          . Picker Two - validates the staged order to the original pick
            document
          . Packer will package order per mutually agreed upon Work
            Instructions. Endo packing slip will be enclosed within carton for
            all Rx orders.
          . Shipper will process all orders through carrier shipment terminals.
            Initially, MDC authorized FTE will enter pertinent information
            directly into SAP. Future functionality will allow LHSI new
            Transportation Management System to electronically provide shipment
            data via EDI.
          . LHSI designate will perform dispatch function when carrier arrives.
          . LHSI will transmit sales order confirmation to LMS/OMS and then
            transmit agreed upon data to SAP Scheduled transmission will be
            performed every hour.
          . Normal daily order cut-off times for same day processing and
            shipping is 3:00pm Central Standard Time (4:00pm Eastern Standard
            Time).All orders received after these cut-off times will be
            processed and shipped the very next business day. During peak times
            (i.e. promotions, backorder processing or unusual customer demands)
            order priorities will have to be reviewed and approved by Customer
            Service. All controlled substance orders should not be in transit
            for more than 2 days. At a minimum, all shipments to customers, with
            the exception of backorders, will be delivered within 8 business
            days from receipt of order. These requirements will be reviewed and
            revised if needed at the end of the 1st full quarter of shipments.
          . Carrier service levels to be determined (i.e. last Fed Ex pick-up
            11:30 PM CST)
          . Emergency orders must be shipped according to Work Instructions.

9.   LHSI MDC to process all other types of orders (same classes as above)
     according to above and Work Instructions (i.e. promotions, clinical study
     orders, stock fulfillment orders, shortdated orders).

10.  All Endo backorders, when product is released, will be processed according
     to Work Instructions.

11.  Endo Pharmaceuticals will be adding new products to its portfolio and LHSI
     MDC will be responsible for providing all services described in this scope
     for any and all new products, provided that these products require same
     type of PDMA storage specifications as existing products.

12.  LHSI MDC must comply with special customer order requirements such as
     dating; ship requests will be passed through interface via customer notes.

13.  LHSI to perform transportation management for Endo for all outbound orders.

          . Carrier selection to be mutually agreed upon by Endo and LHSI
          . LHSI to perform random audit of freight invoices.
          . LHSI to manage freight payments and audits.
          . LHSI to conduct carrier performance audits.

14.  LHSI to perform the following Inventory Control functions utilizing
     segregation of duties:
          . Complete redundancy (double check) of receiving and picking
            functions for controlled substances (i.e. Receiver 1, Receiver 2 and
            Put Away checks). For ambient products Receiver 1 checks and then a
            Put Away check as well.
          . LHSI Supervisor will validate all inbound receipts and all internal
            product movement.
          . LMS to provide a previous workday ending inventory update to SAP by
            8:00 AM EST each morning.
          . LHSI to perform daily physical inventory count on all active
            controlled substance lots and locations.
          . LHSI to perform non-controlled inventory cycle counts 8% (1/12) of
            location per day.
          . LHSI MDC Managers (Director., Distribution Center Manager, Office
            Manager) is solely authorized to approve inventory adjustments of
            controlled substances.
          . LMS RF functionality electronically restricts warehouse personnel
            access to proper warehouse zones.

                                      33
<PAGE>

          . Control cage card access limits LHSI employees access to controlled
            areas.
          . If inventory receipt has discrepancy, LHSI is responsible for
            reporting to Endo Quality Assurance Associate as detailed in Work
            Instructions.
          . LHSI MDC is responsible for investigating shortages, incorrect
            shipments, and reporting to Customer Service according to Work
            Instructions.

15.  LHSI to perform DEA/ARCOS Compliance Validation and ARCOS Reporting:
          . All daily receiving and shipping documents to be maintained in a
            secured area outside of control cage.
          . DEA Daily Edit Report of LMS controlled substance transactions will
            be generated next business day. This report contains all LMS DEA
            transactions performed the previous day.
          . LHSI non-controlled substance Warehouse Associate will validate the
            official receiving and shipping documents to the DEA Daily Edit
            Report.
          . LHSI does perform a monthly product reconciliation for all classes
            of controlled substances comparing a report of monthly DEA
            transactions to the month end physical inventory. This ensures the
            DEA electronic file confirms the physical inventory.
          . LHSI will perform quarterly ARCOS transmissions of all activity.

16.  LHSI will manage the handling and processing of short-dated, damaged or
     expired inventory on behalf of Endo to be sold to Pharmacy Solutions, Inc:
          . LHSI to submit inventory report itemizing product, quantities and
            lot and category of product.
          . Endo Customer Service Manager or designate and Quality &Compliance
            to approve request for destruction. Order entry for destruction
            orders will be perform solely within LMS OMS/WMS processes. LMS will
            validate Pharmacy Solutions, Inc. as the customer, product
            information and quantity prior to transmitting to WMS for
            processing.
          . If CII product is involved, LHSI will contact Pharmacy Solutions,
            Inc. and request them to issue DEA Form 222. LHSI Supervisor will
            compare pick document to original DEA Form 222.
          . LHSI will process the order as outlined above.
          . LHSI will process all product destructions according to all DEA
            guidelines.
          . LHSI will provide Endo Quality Assurance Associate with copies of
            Pharmacy Solution acknowledgement documentation.
          . LHSI destruction process will be audited and reviewed from time to
            time by Endo Quality Assurance Associate.

17.  LHSI will manage receipt, handling and processing of all authorized
     returns.
          . Endo Customer Service and Distribution will process all
            authorization requests for return merchandise based on Endo Returns
            Policy and according to Customer Service Work Instructions.
          . If in-date product is returned (i.e. mis-shipment,), that product
            can be put back into inventory after Endo Quality Assurance
            Associate approves.
          . LHSI will receive and process return based on mutually agreed upon
            Work Instructions.
          . LHSI will store return merchandise in designated area under
            Quarantined status until authorized by Endo (Customer Service
            Manager or designate and on-site Quality Associate for destruction
            as detailed in Work Instructions.
          . If CII product is involved, LHSI warehouse operator will send
            customer a DEA Form 222 so that customer can return product.
          . Process for destruction is outlined above.
          . All returns should be processed within 5 working days from the
            date of receipt.
          . LHSI will be required to process all full container returns. Full
            container is defined, as original manufactures seal intact. In the
            event of a partial container receipt, LHSI will be required to
            perform manually regulatory reporting requirement. LHSI will be
            responsible for keying partial return credit in SAP system.

                                      34
<PAGE>

          . Returned Products to be received, handled and processed are
            specified on Schedule A-I and A-II.

18.  LHSI will provide a Shipping History Report by Lot Number, by customer
     should a Recall be issued by Endo. LHSI will assist in executing recall
     i.e. communication to customers, and receipt of product in controlled area
     according to Endo's Recall policy as a special project.

DESCRIPTION OF LHSI WAREHOUSE FACILITY

1.   LHSI to provide PDMA/DEA compliant space for 800 pallet vault, 500 pallet
     cage and 1000 ambient pallet positions at 1910 Danielson Road, Memphis,
     Tennessee 38114.
2.   LHSI to provide security systems to include cameras located in the
     receiving, vault, cage and shipping areas; video, limited ID card access to
     controlled areas, and pocketless uniforms.
3.   LHSI to provide designated office space complete with furniture, telephones
     and Personal Computers for Endo Quality Assurance Associate and LHSI Order
     Entry personnel.
4.   LHSI to provide warehouse space and storage for 4 pallets of refrigerated
     CII, ambient control for remaining products.
5.   LHSI to provide warehouse equipment (forklifts, racking, RF scanners, pick
     lines, carrier terminals, communication lines, and terminal hardware).
6.   LHSI to provide secure trucking lounge for truckers.
7.   Upon completion of construction of MDC, Endo and LHSI should review and
     agree on location of security cameras and overall state of security in
     general.
8.   Emergency after hour on-call beeper is available. Emergency orders will be
     processed as per work instructions

DESCRIPTION OF INFORMATION TECHNOLOGY SERVICES
1.   LHSI will provide LMS2000 platform for warehouse management functions and
     train appropriate Endo QA personnel.
2.   LHSI will participate in the project management, design, and development of
     LMS2000 interface with SAP.
3.   LHSI will provide LMS2000 test environment and participating in interface
     validation.
4.   Endo will provide SAP test environment and participate in interface
     validation.
5.   LHSI will provide terminal hardware, software and connectivity for Endo
     Quality Assurance Associate personnel and LHSI order entry associate.
6.   This document contains many statements that refer to EDI Transmission and
     RF functionality. The following is a definition of these statements and how
     they will be applied through out LHSI applications and this document:
     .  EDI Inbound and Outbound transmissions will be scheduled every hour
        between the hours of 8:30AM to 11:30PM EST, or more often as agreed
        upon.
     .  RF is defined in many of LHSI day- to-day activities. In the event of
        system failure, LHSI will perform receipts, put away, stock move and
        picking utilizing workstation and paper. The workstation / paper mode is
        fully capable of performing the same task and providing the same
        results.

DESCRIPTION OF HUMAN RESOURCE SERVICES
1.   LHSI to recruit, hire and train appropriate LHSI personnel to provide the
     Services.
2.   LHSI will conduct background checks on new LHSI employees.
3.   LHSI will perform initial drug testing and conduct random drug testing of
     all active employees.
4.   Endo to provide LHSI Hold Harmless Agreement for Endo Quality Assurance
     Associate personnel stationed at LHSI Memphis Distribution Center.
5.   Endo Quality Assurance Associate personnel will adhere to all LHSI employee
     policies and have access to Memphis facility limited to standard business
     hours of operation.
6.   LHSI to assist Endo in the recruiting process for Quality Assurance
     Associate.
7.   LHSI to provide limited access to controlled areas (vault and cage) and
     only limited employees will be able to work those areas.
8.   LHSI will adhere to the required GMP, DEA, OSHA AND EPA regulations.

                                      35
<PAGE>

                            SCHEDULE C (continued)

      DESCRIPTION OF CUSTOMER SERVICE AND CHARGEBACK PROCESSING SERVICES
      -------------------------------------------------------------------
                       AND ACCOUNTS RECEIVABLE SERVICES
                       --------------------------------

The ENDO/LHSI Customer Service, Chargeback Processing and Accounts Receivable
implementation will include the following:

1.   Endo will provide LHSI access to SAP to perform Customer Service, the
     processing of chargebacks, returns and Accounts Receivable services.

2.   LHSI will supply the necessary phone lines to handle customer inquiries and
     process orders by phone or fax.

               -  seamless transfer of customer medical information calls to
                  appropriate Endo personnel
               -  seamless transfer of customer calls to Endo corporate
               -  seamless transfer of customer calls regarding customer
                  complaints to appropriate Endo personnel
               -  handle peak times

3.   LHSI will provide an address for mail orders and any other correspondence
     that should be directed to LHSI.

4.   Endo will handle all initial EDI setup, in conjunction with LHSI, using
     SAP. Current EDI transactions supported are purchase orders, chargebacks,
     chargeback reconciliation, invoicing and award notifications. All future
     EDI transactions and/or customer additions to existing accounts will be
     handled by ENDO in conjunction with LHSI. Initial EDI training for LHSI
     will be provided at Endo's expense and is included in the start-up fee.
     LHSI is responsible for the following:

               -  monitoring EDI error reports
               -  recording customer calls regarding EDI inquiries and/or
                  problems
               -  communicating on a daily basis to Endo any inquiries and/or
                  problems

5.   LHSI will be responsible for communicating the initial changeover to all
     Endo customers which will include changes such as telephone numbers,
     addresses, changes in returns processing, etc.

6.   Endo will establish protocols with LHSI's Memphis Distribution Center
     ("MDC") to handle CII narcotics orders (DEA form #222). LHSI's MDC Customer
     Service Representative will be responsible for entering all CII orders in
     SAP at the LHSI MDC. LHSI Customer Service will have access to all order
     information related to CII orders to be able to respond to customer
     inquiries.

                                      36
<PAGE>

7.   The MDC will provide ship confirmation and shipment tracking information to
     SAP so that LHSI can inform customers of order ship dates.

8.   The MDC will provide inventory information to SAP so that LHSI has access
     to on hand inventory, and product in quarantine.

9.   LHSI, in the absence of electronic invoicing, will mail invoices to Endo's
     customers. Postage costs will be passed on to Endo.

10.  LHSI will provide the staffing and training necessary to conduct the
     following customer service and chargeback functions:
     .    Call Management to include
          .  Primary contact for customers, responding to all customer inquiries
             within 24 hours. It is assumed that a LHSI customer service
             representative will answer all customer calls and handle according
             to established work procedures.
             .  Customer service hours to be from 8:00 am - 6:00 pm
             .  Emergency calls - Beeper coverage, numbers referenced.
                It is assumed that ENDO will require the MDC to have someone
                available to respond. Time spent for emergency response will be
                charged at the Agreed overtime rate.
             .  Order inquiries
             .  Shipping errors
             .  Product complaints
             .  Return authorizations (CIIs only) Forms faxed for others.
             .  Chargeback inquiries
             .  Invoice inquiries
             .  Pricing inquiries
             .  PODs
             .  Adverse Events forwarded to appropriate Endo personnel as
                detailed in work procedures.
             .  Emergency calls - Beeper coverage. It is assumed that ENDO will
                require the MDC to have someone available to respond

          .  Telephone Metrics
             .  Report customer calls outlined in work procedures daily.
             .  Inbound calls
                .  Number of calls
                .  Number of Abandoned calls
                .  Average speed of answer
                .  Duration of call
                .  Types of calls (i.e. medical affairs vs customer service)

                                      37
<PAGE>

                            SCHEDULE C (continued)

       .  Outbound calls
          .  Number of calls
          .  Average duration of call
          .  Hourly report (to monitor peak times for proper coverage)

..    Order Entry (except CIIs), Maintenance (except CIIs) and processing of all
    orders to include
    .  Customer number verification
    .  Validation of valid DEA license and schedule verification, valid state
       license, credit checks
    .  Order modifications
    .  Excessive order checks
    .  NDC and pricing checks
    .  New business checks (new item purchased)
    .  Trade Show orders
    .  Promotional orders
    .  Export orders
    .  Drop shipments
    .  Rush orders
    .  Re-work on orders (i.e. damages, order entry errors, etc)
    .  Shortdated orders, overstock orders
    .  Clinical study orders
    .  Product complaints - credit/product replacement
    .  PODs
    .  Physician personal use units according to Stock Fulfillment procedure
    .  Donations

..   LHSI will be responsible for backorder management and processing
       .  Handle backorders according to customers' request (customer's
          cancellation policies)
       .  Proactively advise customer of all backorders and expected delivery
          dates whether EDI or manual order (assuming SAP or Endo can provide
          this information)
       .  Work with MDC to prioritize backorder shipments
       .  Handle according to Endo's procedures and work instructions
       .  Participate in weekly backorder meetings with Endo

                                      38
<PAGE>

                            SCHEDULE C (continued)

..  LHSI will be responsible for Customer and Product Master file maintenance to
   include but not be limited to:
   .  Assistance with initial file loads of Customer Master profiles, including
      drop ships
   .  New account setups
   .  DEA updates
   .  Salesman updates
   .  Customer/Product eligibility

..  LHSI will be responsible for the preparation of letters to customers for DEA
   license 30 days before expiration. LHSI will also be responsible for
   maintaining copies of all applicable customer licenses, including DEA
   licenses.

..  Day end activity reporting (assumes SAP generated)

..  Customer invoicing (assume SAP generated) to include
   .  Processing of all Invoices
   .  Processing of price equalizations
   .  Processing of return credits, including electronic and manual processing
   .  Processing of all credits, including electronic and manual processing
   .  LHSI will work with Endo to have invoices printed

..  Chargeback validation, processing and reconciliation to include:
   .  72 hour turn around time (credit to customer) The assumption is that at
      least 90% of the transactions are via EDI
   .  Handle all inquiries from customers related to chargebacks
   .  Manual entry of chargebacks
   .  Assist in resolving all chargeback errors with wholesaler customers
   .  ENDO is responsible for Group membership and wholesaler updates
   .  Primary conduit for National Account Executives for all customer inquiries
      or requests regarding chargebacks

..  Return Authorizations
   .  Handled return authorizations according to Endo Returns Policy and
      Procedures

..  Promotions
   .  LHSI will be responsible for mailings/fax explosions for new product
      launches and promotions. This activity will be on an accessorial basis.

                                      39
<PAGE>

                             SCHEDULE C (continued)

       .    LHSI will proactively call accounts to build an awareness of
            promotions/new product launches. This activity will be on an
            accessorial basis.

11.  LHSI will be responsible for Accounts Receivable for Endo which includes:
     . Deposits
     . Cash Management and Application
     . Adjustments
       . Short Payments
       . Cash Discounts
       . Payments on Accounts
       . Credits/Debits
       . Chargebacks
       . Write Offs
       . Slow Payer's
     . Collections Management and Deductions/Dispute Resolution
     . Reporting
     . ENDO is responsible for credit management (e.g., establishing customer
       credit limits, placing and releasing customer orders on credit hold).

12.  MDC will be responsible for all ARCOS reporting and tracking.

13.  LHSI will allow Endo to do random checks on how customer calls are handled.

14.  Endo will be responsible for all contracts, pricing and rebate
administration, including Medicaid (assumes on SAP).

15.  LHSI will be responsible for Record Retention for all services Agreed upon
in accordance with the Work Instructions as well as those Record Retention
services described in the Agreement.

KEY ASSUMPTIONS:

..  LHSI does not provide support for SAP.

..  ENDO will provide help desk support for SAP.

..  ENDO's customer base will contain only customers holding current state and
   federal licenses to distribute pharmaceuticals (e.g. DEA license,
   wholesaler distribution license).

                                      40
<PAGE>

                             SCHEDULE C (continued)

..  Endo will allow LHSI personnel to access these customer files, current
   policies and procedures for the purpose of conducting business according to
   the work procedures established.

..  Endo will pay for all SAP licenses agreements for LHSI.

..  Endo to assist in training for all customer service, accounts receivable and
   chargeback personnel to meet their requirements. LHSI will be responsible for
   identifying Super Users for ongoing internal training needs.

..  Endo will own the dedicated 800 phone number (s) and fax number (s)

   Endo, with input from LHSI, will be responsible for producing the Work
   Instructions that will be necessary to conduct business for Endo.  LHSI will
   be responsible for ensuring that work procedures are followed when performing
   the above services.

..  LHSI will participate in any system validation of SAP that pertains to work
   processes.

..  LHSI, with input from Endo, will be responsible for interviewing and hiring
   staff needed to perform such services.  Initial staffing of resources is as
   follows:

     .  Customer Service
          . 1 Supervisor
          . 5 CMAs
     . Accounts Receivable
          . 2 A/R Administrators
          . .25 Supervisor
     .         Chargebacks
          . 2 full time chargeback administrators
     Future staff requirements will be determined by LHSI and Endo.

LHSI will ensure that it is in compliance with all DEA, PDMA, FDA, local/state
regulatory requirements at all times, as it relates to services being provided.

LHSI will participate in weekly operational discussions with Endo to review any
exceptions, issues or changes in service standards.

Endo will handle all initial and on-going EDI setup in conjunction with LHSI
using SAP. Current EDI transactions supported are purchase orders, chargebacks,
chargeback reconciliation, invoicing and award notifications.

                                      41
<PAGE>

                             SCHEDULE C (continued)

LHSI and Endo will be responsible for ensuring that the network connectivity
works; ENDO will pay for all one time and on-going costs associated with the
connectivity for SAP.

LHSI workstations will be used and Endo will supply the SAP ENDO for each
workstation.

                                      42
<PAGE>

                             SCHEDULE C (continued)

               DESCRIPTION OF WAREHOUSE AND DISTRIBUTION SERVICES
               --------------------------------------------------

The ENDO/LHSI Warehousing and Distribution Agreement services will include the
following:

1.   Endo, via e-mail, will provide LHSI notification of incoming purchase
     orders from contracted manufacturers according to established work
     instructions. LHSI will provide DEA Form 222 to contract manufacturer for
     purchase of CII pharmaceutical products.

2.   LHSI will create Purchase Order in LHSI's computer system (LMS) and
     Customer Service at Memphis Distribution Center (MDC) will issue a DEA Form
     222 to contract manufacturer (when applicable).

     Endo will make sure that LHSI is communicated to via e-mail by all
     manufacturing sites so that LHSI is aware of both international and
     domestic in-bound transportation from contract manufacturers to LHSI MDC.
     Actual shipment appointments will be arranged between manufacturing site
     and LHSI . LHSI is not responsible for customs clearance. Dupont may be
     able to send ASN and then LHSI will need to send receipt notice so that
     Dupont can close shipments.

3.   LHSI performs receipt of incoming inventory from contract manufacturer. -

          .    Receiver One sorts, segregates receipt by SKU and Lot Number,
             Expiration date, counts and enters receipt into LMS in a Quarantine
             status. If the lot number and/or expiration date is not in sequence
             the LMS System will trigger a flag.
          .    Receiver Two re-checks entire receipt and validates both system
             entry and paper documents in compliance with DEA requirements.
          .    Warehouse Associate prepares RF Scanner put-away functions in Q
             status and validates inventory quantity.
          .    Supervisor reviews and accepts or modifies any discrepancies in
             Purchase Order in LMS quantity and inventory received by completing
             system transaction. LMS is updated with scheduled updates to SAP.
          .    Supervisor provides copy receiver report to Endo Quality
             Assurance Associate personnel for review and Quality release. Once
             product is released LMS is updated with scheduled updates to SAP.
          .    If inventory receipt has discrepancy LHSI is responsible for
             reporting to Endo Quality Assurance Associate as detailed in work
             instructions.

4.   Endo to perform QA functions:

          .  Endo Quality Assurance Associate personnel (2) will process all
             appropriate Endo paperwork and provide written approval for release
             to Good Status. LHSI Supervisor to receive copy of Release
             Authorization.

          .  Endo Quality Assurance Associate personnel will identify
             inventory required  for sample retention. LHSI Supervisor
             to receive copy of QA documentation.

          .  LHSI Supervisor performs LMS system update to record movement of
             sample retention inventory when required. LMS inventory adjustment
             is transmitted to SAP.

          .  LHSI to provide LMS training and visibility to Endo warehouse
             inventory within LMS.

5.   Endo Corporate will be responsible for communicating in writing the initial
     changeover to all Endo customers, including, but not limited to, the
     forwarding of all CII purchase orders and DEA Form 222 to LHSI MDC. The
     Endo Customer Service function (which will be performed by LHSI as
     specified elsewhere in this Agreement) will proactively communicate all
     changes in distribution to customers as a follow to the initial
     communication.

                                      43
<PAGE>

6.   LHSI to process orders for CII products from LHSI Memphis Distribution
     Center (MDC) within Controlled Area:
          .  LHSI Supervisor or designate will validate all data on DEA Form 222
             prior to processing order.
          .  LHSI order entry personnel will enter order into SAP. To improve
             efficiencies a second check of all CII orders will be done, prior
             to being released through the interface to LMS per Work
             Instructions. SAP CII report can be utilized for this check.
          .  SAP will process order and transmits order to LMS according to
             agreed upon schedule. LMS will accept electronic order and validate
             customer DEA information and product information prior to
             transmitting to LMS Warehouse Management System for processing. If
             a change to an order is required, the change must be made manually
             according to Work Instructions, both in LMS and SAP.
          .  LHSI Supervisor to compare order pick document to original DEA Form
             222.
          .  LMS system to process order and allocate inventory based on Endo's
             requirement that lots of a given Product which expire first be
             shipped first. The limited exceptions to this rule flow from the
             desire to minimize the number of lots from which shipments are
             being made at any one time, and are as follows: First, if
             successive lots arrive at MDC with expiration dating showing that
             they expire sooner than a lot already received at MDC and from
             which shipments are already being made, the MDC will continue to
             ship the remainder of the lot it is currently shipping, but then
             select as the next lot to ship that lot which has the least time
             remaining until its expiration date. Second, if Quality Assurance
             Associate puts a lot on hold at any time, the MDC should select
             from the remaining lots the lot which will expire first and ship
             from it. If the lot on hold then gets released, the MDC should
             complete shipments from the lot it is currently shipping,and then
             select the lot which was on hold as the lot to ship from if it will
             expire before any of the then-remaining lots. However, if other
             lots will expire before the lot which was on hold, those lots
             should be shipped first, and the lot which was on hold will be
             shipped when its turn comes up in the sequence of expiration dates.
          .  Picker One - picks and stages order utilizing RF scanner.
          .  Picker Two - rechecks the pick and validates the staged order to
             the original pick document.
          .  Packer will package order per mutually agreed upon Work
             Instructions. Endo packing slip will be enclosed within carton for
             CII orders
          .  Shipper will process all order through carrier shipment terminals.
             Shipper will enter tracking number into Warehouse Management System
             Bill of Lading maintenance function.
          .  LHSI designate will perform dispatch function when carrier arrives
             for outbound pick-up.
          .  LHSI will transmit sales order confirmation to LMS Order Management
             System -which will transmit agreed upon data to SAP. (real-time)
          .  Daily Order Cut-off times for same day processing are to be
             determined (i.e. end of month peak processing). Order turn around
             times need to be determined as well. (Today order is guaranteed for
             2-day delivery.)
          .  Carrier service levels to be determined (i.e. last Fed Ex pull
             11:30 PM)
          .  Emergency orders must be shipped according to Work Instructions.
          .  Federal Express labels will be provided to those customers that
             request them to send CII orders in to the MDC. The Customer Service
             Order Entry personnel at the MDC will be responsible for this
             service.

7.   LHSI to process orders for CIII-CV at LHSI Memphis Distribution Center
     (MDC) within appropriate designated working stations within cage area:
          .  SAP will process order and transmits order to LMS. LMS will
             validate customer DEA information and product information prior to
             transmitting to the WMS portion of LHSI's LMS for processing.
          .  LMS system to process order and allocate inventory based on Endo's
             FIFO requirement. (i.e.. If successive lots arrive at MDC with
             less expiration dating than lots already received at MDC the MDC
             will complete the lot it is currently shipping and then select the
             next lot to ship utilizing the least expiration date. In addition,
             if Quality Assurance Associate puts a lot on hold at any time, the
             MDC should ship from the next lot with the lowest expiration date.
             If that same lot on hold gets released the MDC should complete the
             lot it is currently shipping from and then select the next lot to
             ship from utilizing the least expiration date.

                                      44
<PAGE>

          .  Picker One - picks and stages order utilizing RF scanner.
          .  Picker Two - validates the staged order to the original pick
             document
          .  Packer will package order per mutually agreed upon Work
             Instructions. Endo packing slip will be enclosed within carton for
             all CIII-CV orders.
          .  Shipper will process all order through carrier shipment terminals.
             Shipper will enter tracking number into WMS Bill of Lading
             maintenance function.
          .  LHSI designate will perform dispatch function when carrier arrives.
          .  LHSI will transmit sales order confirmation to the OMS portion of
             LHSI's LMS and then transmitting agreed upon data to SAP. (real-
             time)
          .  Daily Order Cut-off to be determined (i.e. end of month peak
             processing). Order turn around times need to be determined as well.
          .  Carrier service levels to be determined (i.e. last Fed Ex pull
             11:30 PM)
          .  Emergency orders must be shipped according to Work Instructions.

8.   LHSI to process orders for Rx at LHSI Memphis Distribution Center (MDC)
     within appropriate designated working stations within warehouse area :
          .  SAP will process order and transmits order to LMS. LMS will
             validate customer DEA information and product information prior to
             transmitting to WMS for processing.

          .  LMS system to process order and allocate inventory based on Endo's
             FIFO requirement. (i.e. . If successive lots arrive at MDC with
             less expiration dating than lots already received at MDC the MDC
             will complete the lot it is currently shipping and then select the
             next lot to ship utilizing the least expiration date. In addition,
             if Quality Assurance Associate puts a lot on hold at any time, the
             MDC should ship from the next lot with the lowest expiration date.
             If that same lot on hold gets released the MDC should complete the
             lot it is currently shipping from and then select the next lot to
             ship from utilizing the least expiration date.)

          .  Picker One - picks and stages order utilizing RF scanner.
          .  Picker Two - validates the staged order to the original pick
             document
          .  Packer will package order per mutually agreed upon Work
             Instructions. Endo packing slip will be enclosed within carton for
             all Rx orders.
          .  Shipper will process all order through carrier shipment terminals.
             Shipper will enter tracking number into WMS Bill of Lading
             maintenance function.
          .  LHSI designate will perform dispatch function when carrier arrives.
          .  LHSI will transmit sales order confirmation to LMS/OMS and then
             transmit agreed upon data to SAP. (real-time)
          .  Daily Order Cut-off to be determined (i.e. end of month peak
             processing). Order turn around times need to be determined as well.
          .  Carrier service levels to be determined (i.e. last Fed Ex pull
             11:30 PM)
          .  Emergency orders must be shipped according to Work Instructions.

9.   LHSI MDC to process all other types of orders (same classes as above)
     according to above and Work Instructions (i.e. promotions, clinical study
     orders, stock fulfillment orders, shortdated orders).

10.  All Endo backorders, when product is released, will be processed according
     to Work Instructions.

11.  Endo Pharmaceuticals will be adding new products to its portfolio and LHSI
     MDC will be responsible for providing all services described in this scope
     for any and all new products.

12.  LHSI MDC must comply with special customer order requirements such as
     dating, ship requests will be passed through interface via customer notes.

13.  LHSI to perform transportation management for Endo for all outbound orders.
          .  LHSI to perform carrier selection based on Endo guidelines.

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          .  LHSI to perform random audit of freight invoices.
          .  LHSI to manage freight payments and audits.
          .  LHSI to conduct carrier performance audits.

14.  LHSI to perform the following Inventory Control functions utilizing
     segregation of duties:

          .  Complete redundancy (double check) of receiving and picking
             functions for controlled substances (i.e. Receiver 1, Receiver 2
             and Put Away checks) For ambient products Receiver 1 checks and
             then there is a Put Away check as well.
          .  LHSI Supervisor will validate all inbound receipts and all internal
             product movement.
          .  LMS to provide day end inventory update to SAP.
          .  LHSI to perform daily physical inventory count on all active
             controlled substance lots and locations.
          .  LHSI to perform non-controlled inventory cycle counts 8% (1/12) of
             location per day.
          .  LHSI MDC Manager is solely authorized to approve inventory
             adjustments of controlled substances.
          .  LMS RF functionality electronically restricts warehouse personnel
             access to proper warehouse zones.
          .  Control cage card access limits LHSI employees access to controlled
             areas.
          .  If inventory receipt has discrepancy, LHSI is responsible for
             reporting to Endo Quality Assurance Associate as detailed in Work
             Instructions.
          .  LHSI MDC is responsible for investigating shortages, incorrect
             shipments, and reporting to Customer Service according to Work
             Instructions.

15.  LHSI to perform DEA/ARCOS Compliance Validation and ARCOS Reporting:
          .  All daily receiving and shipping documents to be maintained in a
             secured area outside of control cage.
          .  DEA Daily Edit Report of LMS controlled substance transactions will
             be generated next business day. This report contains all LMS DEA
             transactions performed the previous day.
          .  LHSI non-controlled substance Warehouse Associate will validate the
             official receiving and shipping documents to the DEA Daily Edit
             Report.
          .  LHSI does perform a monthly product reconciliation for all classes
             of controlled substances comparing a report of monthly DEA
             transactions to the month end physical inventory. This ensures the
             DEA electronic file confirms the physical inventory.
          .  LHSI will perform quarterly ARCOS transmissions of all activity.

16.  LHSI will manage the handling and processing of short-dated, damaged or
     expired inventory on behalf of Endo to be sold to Pharmacy Solutions, Inc
          .  LHSI to submit inventory report itemizing product, quantities and
             lot and category of product.
          .  Endo Customer service and Quality &Compliance to approve request
             for destruction.
          .  LHSI order entry personnel will enter order into SAP.
          .  SAP will process order and transmits order to LMS. LMS will
             validate Pharmacy Solutions, Inc. as the customer, product
             information and quantity prior to transmitting to WMS for
             processing.
          .  If CII product is involved, LHSI will contact Pharmacy Solutions,
             Inc. and request them to issue DEA Form 222. LHSI Supervisor will
             compare pick document to original DEA Form 222.
          .  LHSI will process the order as outlined above.
          .  LHSI will process all product destructions according to all DEA
             guidelines.
          .  LHSI destruction process will be audited and reviewed from time to
             time by Endo Quality Assurance Associate.

17.  LHSI will manage receipt, handling and processing of all authorized
     returns.

          .  Endo's Customer Service function (which will at least initially be
             performed by LHSI pursuant to the Agreement) will process all
             authorization requests for return merchandise based on existing
             Endo Returns Policy and according to Customer Service Work
             Instructions
          .  If indate product is returned (i.e. mis-shipment,), that product
             can be put back into inventory after Endo Quality Assurance
             Associate approves.

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          .  LHSI will receive and process return based on mutually agreed upon
             Work Instructions.
          .  LHSI will store return merchandise in designated area under
             Quarantined status until authorized by Endo (Customer service and
             Quality) for destruction as detailed in Work Instructions.
          .  If CII product is involved, LHSI warehouse operator will send
             customer a DEA Form 222 so that customer can return product.
          .  Process for destruction is outlined above.
          .  All returns should be processed within 2 days from the date of
             receipt.
          .  Partial returns received by LHSI will have to be handled manually
             by LHSI.

18.  LHSI will provide a Shipping History Report by Lot Number, by customer
should a Recall be issued by Endo. LHSI will assist in executing recall
i.e. communication to customers, and receipt of product in controlled area
according to Endo's Recall policy.

DESCRIPTION OF LHSI WAREHOUSE FACILITY

1.  LHSI to provide PDMA/DEA compliant space for 800 pallet vault, 500 pallet
    cage and 1000 ambient pallet positions at 1910 Danielson Road, Memphis,
    Tennessee  38114.
2.  LHSI to provide security systems to include cameras located in the
    receiving, vault, cage and shipping areas; video, limited ID card access to
    controlled areas, and pocketless uniforms.
3.  LHSI to provide designated office space (complete with furniture and phones)
    for Endo Quality Assurance Associate personnel.
4.  LHSI to provide warehouse space for storage of refrigerated and ambient
    control and non-controlled sample retention inventory.
5.  LHSI to provide warehouse equipment (forklifts, racking, RF scanners, pick
    lines, carrier terminals, communication lines, and terminal hardware).
6.  LHSI to provide secure trucking lounge for truckers.
7.  Upon completion of construction of MDC, Endo and LHSI should review and
agree on location of security cameras and overall state of security in general.

DESCRIPTION OF INFORMATION TECHNOLOGY SERVICES

1.  LHSI will provide LMS2000 platform for warehouse management functions and
    train appropriate Endo QA personnel.
2.  LHSI will participate in the project management, design, and development of
    LMS2000 interface with SAP.
3.  LHSI will provide LMS2000 test environment and participating in interface
    validation.
4.  Endo will provide SAP test environment and participate in interface
    validation.
5.  LHSI will provide terminal hardware, software and connectivity for Endo
    Quality Assurance Associate personnel and LHSI order entry associate.

DESCRIPTION OF HUMAN RESOURCE SERVICES

1.  LHSI to recruit, hire and train appropriate LHSI personnel to provide the
    Services (as defined in the Agreement).
2.  LHSI will conduct background checks on new LHSI employees.
3.  LHSI will perform initial drug testing and conduct random drug testing of
    all active employees.
4.  Endo to provide LHSI Hold Harmless Agreement for Endo Quality Assurance
    Associate personnel stationed at LHSI Memphis Distribution Center.
5.  Endo Quality Assurance Associate personnel will adhere to all LHSI employee
    policies and have access to Memphis facility limited to standard business
    hours of operation.
6.  LHSI to assist Endo in the recruiting process for Quality Assurance
    Associate.

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7.  LHSI to provide limited access to controlled areas (vault and cage) and only
    limited employees will be able to work those areas.
8.  LHSI will adhere to the required GMP, DEA, OSHA AND EPA regulations.

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                                   SCHEDULE D

                             LOGISTICS ASSUMPTIONS
                             ---------------------

For purposes of this Agreement, a "line of business" is one line on an order
representing one product transaction between ENDO and one customer of ENDO.  The
fees to be paid to LHSI by ENDO for each line of business processed are set
forth in Schedule B.

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