Document:

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                                                                   EXHIBIT 10.20

                  AGREEMENT BETWEEN ENDO PHARMACEUTICALS INC.

                                      AND

                          KUNITZ AND ASSOCIATES, INC.

                                     DATED

                                 June 1, 1999

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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This agreement ("Agreement") dated as of June 1, 1999 by and between Kunitz and
Associates, Inc., a Maryland corporation with its principal offices at 6001
Montrose Road, Suite 920, Rockville, Maryland 20852-4801 ("KAI") and Endo
Pharmaceuticals Inc., a Delaware corporation, with its principal offices at 223
Wilmington West Chester Pike, Chadds Ford, PA 19317  ("ENDO")

                             W I T N E S S E T H:

WHEREAS, KAI has certain expertise in providing pharmacovigilance, medical
communications, and other pharmaceutical regulatory services to the
pharmaceutical industry; and

WHEREAS, ENDO is an integrated pharmaceutical company which requires
pharmacovigilance, medical communications, and pharmaceutical regulatory
services for its pharmaceutical products; and

WHEREAS, KAI and ENDO desire to enter into an agreement for the provision of
such services for all ENDO products for the United States, its commonwealths,
possessions, and territories, and the District of Columbia;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, covenants and conditions contained herein, KAI and ENDO agree as
follows:

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

1.1  "Adverse Drug Experience" means all reported data, from all countries,
     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 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  "Adverse Drug Experience Database" means all data and derivative materials
     (in whatever format) concerning any Adverse Drug Experience which is stored
     and maintained in an electronic format in KAI's computer system.

1.3  "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.

1.4  "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
     in the pharmaceutical industry

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     devotes to providing pharmacovigilance, medical communications, and other
     regulatory services for its own pharmaceutical products.

1.5  "ENDO Operating Procedure" means all operating procedures and work
     instructions prepared by KAI, at the direction of and with input from ENDO,
     which are to be used by the Project Manager, Product Information
     Specialist, Staff Physician, and all other KAI personnel responsible for
     providing the Services to ENDO in the Territory. ENDO Operating Procedures
     shall not include KAI's proprietary standard operating procedures.

1.6  "FDA" means the Food and Drug Administration of the United States.

1.7  "Fee" means the compensation to be paid, on an annual basis, by ENDO to
     KAI, for Years 1 through 3 of the Initial Term, and if ENDO exercises its
     Option, for Years 4 and 5 of the Option Term, for the Services to be
     provided by KAI under this Agreement as set forth in Schedule A, attached
     hereto and made a part hereof, as the same may be amended from time to time
     by mutual consent of the parties. Such Fee shall be paid to KAI in
     accordance with the payment terms set forth in Article 6.2.

1.8  "Operating Committee" means the committee which will oversee and manage the
     day-to-day operations of KAI personnel, including, but not limited to, the
     Product Information Specialist, the Project Manager, and the Staff
     Physician, dedicated to providing the Services by KAI to ENDO in the
     Territory. The Committee shall be comprised of ENDO's Director of Medical
     Affairs, KAI's President, KAI's Vice President, and Project Manager, as
     well as other appropriate representatives from KAI and ENDO as mutually
     determined by the parties.

1.9  "Operating Phase" means the period from August 1, 1999 to July 31, 2002 for
     the Initial Term. If ENDO exercises its Option for Years 4 and 5 of the
     Option Term, the Operating Phase means the period August 1, 2002 to July
     31, 2003 and August 1, 2003 to July 31, 2004, respectively.

1.10 "Option" means, upon expiration of the Initial Term of this Agreement,
     ENDO, at its discretion, may extend the Agreement for a fourth year and if
     desired by ENDO, a fifth year for the Fees set forth in Schedule A for
     Years 4 and 5, respectively. If ENDO exercises the Option, all other terms
     of this Agreement shall remain the same for Year 4 and if the Option for
     Year 5 is exercised, Year 5 of the Option Term, unless the parties mutually
     agree otherwise.

1.11 "Option Term" means Years 4 and 5, individually and collectively, where
     applicable.

1.12 "Product" means all ENDO pharmaceutical products and all product extensions
     (including single and combination products), all product improvements,
     including, but not limited to, all dosage forms (including placebos),
     strengths, and package sizes of such Products, sold, at any time, by ENDO.
     Such Products are listed in Schedule B. ENDO may delete or add a Product to
     Schedule B and KAI shall provide Services for such Products at no
     additional cost or reduction in cost unless the Product additions or

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     deletions materially change the scope of Services to be provided by KAI to
     ENDO under this Agreement.

1.13 "Product Literature" means the medical, informative, and other written
     information concerning the Products provided to KAI by ENDO, at ENDO's
     expense.

1.14 "Product Information Database" means all data, including, without
     limitation, historical data and all derivative materials (in whatever
     format) regarding Product responses, including the Product response, and
     all information regarding inquiries from professional representatives,
     healthcare professionals, and consumers which is stored and maintained in
     an electronic format in KAI's computer database.

1.15 "Product Information Specialist" means an individual employed by KAI who is
     responsible for triaging and/or handling all inquiries regarding Adverse
     Drug Experiences and/or Products and providing Product responses, prepared
     by ENDO, to professional representatives, healthcare professionals, and
     consumers. The Product Information Specialist shall have the requisite
     skills, knowledge, a minimum of a Bachelor of Science degree, and a minimum
     of two (2) years of experience in connection with the provision of
     identical or similar Services to the pharmaceutical industry or
     alternatively, a minimum level of experience as mutually agreed to by the
     parties. The Product Information Specialist will be solely dedicated to
     ENDO in connection with the provision of Services by KAI to ENDO in the
     Territory. ENDO shall have the right to review the qualifications of any
     Product Information Specialist prior to hiring of such person (and any
     subsequent replacement) by KAI to provide Services to ENDO in the Territory
     under this Agreement.

1.16 "Project Manager" means an individual employed by KAI who is responsible
     for the management and supervision of the Product Information Specialist,
     Staff Physician, and any other KAI personnel responsible for providing
     Services to ENDO in the Territory, managing the day-to-day operations of
     the KAI personnel responsible for providing the Services to ENDO in the
     Territory, and the coordination and implementation of all support services
     provided by KAI to ENDO in the Territory. The Project Manager shall have
     the requisite skills, knowledge, a minimum of a Bachelor of Science degree,
     and a minimum of five (5) years experience in connection with the provision
     of identical or similar Services to the pharmaceutical industry or
     alternatively, a minimum level of experience as mutually agreed to by the
     parties. ENDO shall have the right to review the qualifications of any
     Project Manager prior to hiring of such person (and any subsequent
     replacement) by KAI to provide Services to ENDO in the Territory under this
     Agreement.

1.17 "Report" means a report, summary, or analysis, requested by ENDO, regarding
     Products and/or Services provided by KAI to ENDO in the Territory, as set
     forth in Schedule C. ENDO may delete or add a Report to Schedule C and KAI
     shall provide such Reports at no additional cost or reduction in cost
     unless the Report additions or deletions materially change the scope of
     Services to be provided by KAI to ENDO in the Territory under this
     Agreement.

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1.18 "Services" means the pharmacovigilance, product information support,
     medical communications, Adverse Drug Experience, medical literature search
     support, and pharmaceutical regulatory services to be provided by KAI to
     ENDO in the Territory as described in Schedule A.

1.19 "Staff Physician" means a healthcare professional with a medical degree who
     is employed by KAI to provide the Services set forth in Schedule A in the
     Territory. Such an individual shall have the requisite skills, knowledge, a
     minimum of a medical degree and a minimum of seven (7) years experience in
     connection with the provision of identical or similar Services to the
     pharmaceutical industry or alternatively, a minimum level of experience as
     mutually agreed to by the parties. ENDO shall have the right to review the
     qualifications of any Staff Physician prior to hiring of such person (and
     any subsequent replacement) by KAI to provide Services to ENDO under this
     Agreement.

1.20 "Start-Up Fee" means the compensation which ENDO shall pay to KAI for the
     initial planning and preparation activities performed by KAI during the
     Start-Up Phase as well as for the provision of Services by KAI in the
     Territory during the Test Phase as more fully described in Schedule A. Such
     Start-Up Fee shall not exceed ***.

1.21 "Start-Up Phase" means the period from March 22, 1999 to May 31, 1999
     during which KAI shall provide planning and preparation activities for
     Products in the Territory as more fully described in Schedule A.

1.22 "Term" means (a) for the Start-Up Phase, the period from March 22, 1999 to
     May 31,1999, (b) for the Test Phase, the period from June 1, 1999 to July
     31, 1999, and (c) for the Operating Phase, the period August 1, 1999 to
     July 31, 2002 (collectively "the Initial Term"), (d) for Years 4 and 5 of
     the Option Term, the period from August 1, 2002 to July 31, 2003 and August
     1, 2003 to July 31, 2004, respectively and (e) upon renewal of the
     Agreement, any subsequent one (1) year period(s) ("the Additional Term").
     The word Term shall refer, individually and collectively, where applicable,
     to the Initial, Option, and any Additional Terms.

1.23 "Territory" means the United States, its territories, commonwealths, and
     possessions and the District of Columbia.

1.24 "Test Phase" means the period from June 1, 1999 to July 31, 1999 during
     which KAI shall provide planning and preparation activities for ENDOCET,
     ENDODAN, PERCOCET, PERCODAN, PERCODAN-DEMI, and PERCOLONE in the Territory
     as more fully described in Schedule A.

1.25 "Year 1" means the period from August 1, 1999 to July 31, 2000.

1.26 "Year 2" means the period from August 1, 2000 to July 31, 2001.

1.27 "Year 3" means the period from August 1, 2001 to July 31, 2002.

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1.28 "Year 4" means the period from August 1, 2002 to July 31, 2003.

1.29 "Year 5" means the period from August 1, 2003 to July 31, 2004.

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

2.1  During the Term of this Agreement, ENDO shall appoint KAI exclusively to
     provide the Services, as set forth in Schedule A, in the Territory. KAI
     agrees to exclusively provide such Services to ENDO in the Territory.
     During the Initial Term, any Option Term, or if renewed, any Additional
     Term of this Agreement, it is understood that ENDO shall have the right to
     simultaneously provide such Services in-house.

2.2  (a) Personnel. KAI shall use its Best Efforts to recruit and retain skilled
         ---------
     and trained personnel to exclusively provide the Services to ENDO in the
     Territory. Specifically, KAI shall dedicate three and one-half full-time
     equivalents ("FTEs") to provide the Services to ENDO in the Territory. Such
     KAI FTEs shall consist of a minimum of one (1) Product Information
     Specialist, one (1) Project Manager, one (1) Staff Physician, and an
     apportioned amount of time, as mutually agreed by the parties, of
     appropriate staff personnel with a healthcare degree or relevant
     pharmacovigilance, clinical research, or product information experience. In
     addition, KAI shall provide supporting personnel, on an ongoing basis, to
     supplement the Services provided by the Product Information Specialist, the
     Project Manager, and the Staff Physician.

     (b) During the Term of this Agreement, if the Product Information
     Specialist, the Project Manager, and/or Staff Physician positions are
     vacant for greater than four (4) calendar weeks, at any point in time, KAI
     shall (a) notify ENDO within one (1) calendar week after such vacancy
     occurs and (b) provide a refund to ENDO, in an amount equal to KAI's fully
     allocated cost per individual less any actual expenses (noncancellable and
     nonreimburseable) incurred by KAI for any recruitment efforts expended to
     fill such vacancy, calculated from the start date of the vacancy for each
     vacant position which is vacant for greater than four (4) calendar weeks.
     KAI shall provide such a refund within thirty (30) days of the receipt of
     ENDO's written request for such a refund. This refund provision shall not
     be applicable if the vacancy is due to ENDO's recruitment and hiring of the
     Product Information Specialist, the Project Manager, and/or Staff Physician
     for an in-house Medical Affairs department.

3.   TERM
     ----

3.1  Agreement Term.
     ----------------

(a)  Start-Up Phase. For the Start-Up Phase, this Agreement shall commence on
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     March 22,  1999 and shall remain in effect through and including May 31,
     1999.

(b)  Test Phase. For the Test Phase, this Agreement shall commence on June 1,
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     1999 and shall remain in effect through and including July 31, 1999.

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(c)  Operating Phase. For the Operating Phase for the Initial Term, this
     ---------------
     Agreement shall commence on August 1, 1999 and shall remain in effect
     through and including July 31, 2002.

(d)  Operating Phase for Any Option Term. Upon the exercise of the Option by
     -----------------------------------
     ENDO under Article 7, this Agreement shall commence, for Year 4 of the
     Option Term, on August 1, 2002 through July 31, 2003 and for Year 5 of the
     Option Term, on August 1, 2003 through July 31, 2004.

(e)  Additional Terms.  After the expiration of the Initial Term and if ENDO
     ----------------
     exercises its Option, any Option Terms, this Agreement may be renewed, for
     an Additional Term(s) upon ninety (90) days written notice by a party to
     the other party of its desire to renew this Agreement. Such renewal may be
     for identical, similar, or renegotiated terms mutually agreed to by the
     parties.

3.2  Commencement of Services.
     -------------------------

     (a) The Start-Up Phase. Services to be provided by KAI to ENDO during the
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     Start -Up Phase shall commence in the Territory on March 22, 1999.

     (b)  The Test Phase.  Services to be provided by KAI to ENDO during the
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     Test Phase shall commence for *** in the Territory on June 1, 1999.

     (c)  Operating Phase for Initial, Option, or Additional Terms. Services to
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     be provided by KAI to ENDO during the Operating Phase of such Terms shall
     commence in the Territory on the first day of August of the applicable
     Term.

4.   SERVICES
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     The Services to be provided by KAI to ENDO under this Agreement are set
     forth in Schedule A. Schedule A includes a detailed description of the
     pharmacovigilance, product information support, medical communications,
     Adverse Drug Experience, medical literature search support, and
     pharmaceutical regulatory Services to be provided by KAI to ENDO and the
     Fee for such Services.

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

     KAI shall use its Best Efforts to meet its obligations with respect to the
     provision of Services to ENDO in the Territory, including, but not limited
     to, its duties set forth in Article 11.1.

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

6.1  Compensation.
     ------------

(a)  The Start-Up  and Test Phases.  ENDO shall pay KAI a Start-Up Fee for the
     -----------------------------
     Services to be provided for the Start-Up and Test Phases. The Start-Up Fee
     for such Services, which are described in Schedule A, shall not exceed ***.
     For such Services, ENDO shall pay KAI only for actual work performed and
     expenses incurred for the preparation and planning activities included in
     the Start-Up and Test Phases. No Start-Up Fee shall be due and owing for
     any Option or any Additional Term of this Agreement.

(b)  Operating Phase for Initial and Option Terms.
     --------------------------------------------

     (1)  ENDO shall pay KAI, on an annual basis, the Fee for all Services
          provided by KAI for Years 1, 2, and 3 of the Initial Term of this
          Agreement as set forth in Schedule A. In no event shall such Fee
          exceed *** for Year 1, *** for Year 2, *** in Year 3. If ENDO
          exercises its Option for any Option Term, ENDO shall pay KAI
          compensation for all Services provided by KAI which in no event shall
          exceed *** for Year 4 and *** for Year 5.

     (2)  During the Initial and Option Term of this Agreement, if there is a
          material increase, change, or reduction in Services provided by KAI to
          ENDO under this Agreement, or if Services are discontinued in a
          material aspect, including, but not limited to, any material increase,
          reduction or change in the computer hardware and other related
          technology, the telephone system and or computer software and computer
          software licenses that may be required to provide the Services to ENDO
          in the Territory, the Fees as set forth in Article 6.1(b)(1) shall be
          adjusted accordingly, by mutual consent of the parties.

 (c) Additional Term(s). For any Additional Term, ENDO shall pay KAI for all
     ------------------
     Services provided by KAI in accordance with the terms negotiated by the
     parties for such Additional Term, which negotiations must be concluded at
     least ninety (90) days prior to the end of any Option Term or any
     Additional Term.

6.2  Payment Terms
     -------------

     Fees:  ENDO shall pay the Fee for the Initial, Option, or Additional Term
     ----
     in equal monthly installments. KAI shall provide an invoice by the fifth
     business day of each calendar month for the prior calendar month to ENDO
     and ENDO shall pay KAI within thirty (30) days of receipt of such invoice.

7.   OPTION
     ------

     ENDO, at its discretion, may extend this Agreement, for the same terms, for
     a fourth year and if desired by ENDO, a fifth year for an amount, on an
     annual basis, not to exceed the

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     Fees set forth in Article 6.1(b)(1). ENDO shall notify KAI of its intent to
     exercise this Option sixty (60) days prior to the expiration of the Initial
     or any Option Term.

8.   RECORDS AND INSPECTIONS
     -----------------------

     ENDO may inspect and audit any and all records, books, and documents
     related to KAI's performance of its obligations under this Agreement,
     during normal business hours, provided, however, that ENDO shall first
     provide KAI with reasonable notice of any such intended inspection and/or
     audit. Further, KAI shall permit, during normal business hours,
     representatives of the FDA, state, or local regulatory agency or their
     agents to visit and inspect and audit any and all records, documents, or
     facilities related to or used in the provision of Services to ENDO by KAI
     in the Territory.

9.   RETENTION OF RECORDS
     --------------------

     All documentation and records pertaining to this Agreement shall be held by
     KAI for the length of time specified by the applicable laws, rules, and
     regulations, including, but not limited to, FDA laws, rules and
     regulations.

10.  WARRANTIES AND REPRESENTATIONS
     ------------------------------

10.1 Legal Authority. 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 set forth herein.

10.2 No Conflicts. 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.

10.3 Each party currently has in force and shall maintain insurance policies
     with reputable, financially sound insurance carriers in the amounts and
     types of policies (with the deductibles or retentions) as set forth in
     Schedule D, attached hereto and made a part hereof, as the same may be
     amended from time to time, by mutual consent of the parties. ENDO shall be
     named as an additional insured on the applicable KAI insurance policies.

10.4 KAI further represents and warrants that it has the requisite expertise,
     experience and skill to render the Services set forth in Schedule A and
     that it shall use its Best Efforts to perform such Services in a competent,
     efficient and professional manner.

10.5 Survival. 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 either party.

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11.  DUTIES OF THE PARTIES
     ---------------------

11.1 KAI'S DUTIES
     ------------

     (a)  On or by June 1, 1999, KAI shall initiate and finalize the recruitment
          and hiring of a Product Information Specialist, Project Manager, and
          Staff Physician which have the pharmaceutical experience required by
          this Agreement to effectively and economically provide the Services to
          ENDO in the Territory.

     (b)  During the Term of this Agreement, KAI shall expeditiously and
          economically train all KAI personnel responsible for providing the
          Services to ENDO in the Territory, including, but not limited to, the
          Product Information Specialist, Project Manager, and Staff Physician,
          regarding Products. The initial training expenses for such personnel
          are included in the Start-Up Fee paid by ENDO to KAI. During the Term
          of this Agreement, KAI shall continue to train such personnel on a
          periodic basis. All expenses for subsequent training of such personnel
          for the Initial and Option Terms are included in the Fee for such
          Terms as set forth in Schedule A.

     (c)  KAI shall develop and maintain policies and procedures governing the
          day-to-day management of all KAI personnel who are responsible for
          providing the Services to ENDO in the Territory, including but not
          limited to policies and procedures regarding postmarketing Adverse
          Drug Experience reporting and recordkeeping for Adverse Drug
          Experiences as set forth in Schedule A.

     (d)  KAI shall ensure compliance by the Product Information Specialist,
          Project Manager, the Staff Physician, and any other KAI personnel
          involved in providing Services to ENDO in the Territory with the ENDO
          Operating Procedures, including, without limitation, the ENDO
          Operating Procedures entitled "Postmarketing Safety Surveillance of
          Human Drugs," "Product Information Call Center," "Quality Assurance
          for the Product Information Call Center," "Quality Assurance Post-
          Marketing Safety Surveillance of Human Drugs," and "Literature Search,
          Retrieval, and Review" which are attached hereto as Schedule E, as it
          may be amended from time to time, by ENDO.

     (e)  No adjustments to the ENDO Operating Procedures shall be made without
          the prior written consent of ENDO.

     (f)  KAI shall ensure that the Product Information Specialist, the Project
          Manager, the Staff Physician, and any other KAI personnel responsible
          for providing Services to ENDO in the Territory comply with all
          applicable federal, state, and local laws, rules, and regulations
          governing the provision of Services to ENDO in the Territory,
          including, but not limited to, the FDA's laws, rules, and regulations,
          governing the provision of Services to ENDO in the Territory.

     (g)  KAI shall only utilize the Product Literature provided by ENDO, at
          ENDO's expense, or written information, including new Product
          responses, regarding the

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          Products which have been prepared by KAI, at ENDO's direction and with
          ENDO's consent, for use in connection with the performance of KAI's
          obligations under this Agreement and the provision of Services to ENDO
          in the Territory.

     (h)  Federal, State, and Local Regulatory Agency Communications. KAI, at
          ------------------------------------------------------------
          ENDO's request and expense, shall provide assistance, including
          information, records, analyses, and reports, to ENDO so that ENDO may
          promptly and in a timely manner, respond to any federal, state, and/or
          local regulatory agency inquiry regarding the Products. KAI shall
          immediately notify ENDO of any significant regulatory action which
          impacts or may impact upon the ability of KAI and/or ENDO to provide
          Services to ENDO in the Territory or to perform KAI's obligations
          under this Agreement.

     (i)  At ENDO's request, and expense, KAI shall be responsible for
          preparation and completion of any written report, including, but not
          limited to, periodic and annual reports with respect to an Adverse
          Drug Experience, data, information, filing, and/or submission to the
          FDA and /or any other state or local regulatory agency, and retention
          of any forms and/or reports in accordance with any applicable federal,
          state, and/or local laws, rules, and regulations with respect to the
          provision of Services to ENDO in the Territory. Such expenses are
          included in the Fee for the Initial and Option Terms as set forth in
          Schedule A.

     (j)  KAI shall provide to ENDO all Reports on a monthly basis, via email in
          Word or Excel format, as set forth in Schedule C.

     (k)  KAI shall immediately investigate and take action, if necessary,
          against any and all KAI personnel involved in providing Services to
          ENDO in the Territory, including the Product Information Specialist,
          the Project Manager, and the Staff Physician, in connection with any
          violation or noncompliance with any federal, state, or local laws,
          rules and regulations, including but not limited to, any FDA laws,
          rules, and/or regulations, any ENDO Operating Procedure, and/or any
          KAI policy and/or procedure governing the provision of Services to
          ENDO in the Territory.

     (l)  Within fourteen (14) business days of such occurrence, KAI shall
          notify ENDO of any material violation, or act of noncompliance with
          any federal, state, or local laws, rules and regulations, including
          but not limited to, any FDA laws, rules, and/or regulations any ENDO
          Operating Procedure, and/or any KAI policy and/or procedure governing
          the provision of Services to ENDO in the Territory by any KAI
          personnel involved in providing Services to ENDO in the Territory,
          including the Product Information Specialist, the Project Manager, and
          the Staff Physician and the corrective action taken by KAI to prevent
          such reoccurrence.

     (m)  KAI shall be responsible for the payment of any and all fines,
          penalties, and/or any other corrective actions which may be taken by
          federal, state, or local regulatory agencies, including but not
          limited to the FDA, in connection with and to the extent

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          of KAI and/or its personnel's failure to comply with any federal,
          state, or local laws, rules, and regulations.

     (n)  Commencing with the calendar quarter ending December 31, 1999,within
          sixty (60) days after June 30 and December 31 of each calendar year
          for the Term of this Agreement, KAI shall provide to ENDO its income
          statement, statement of cash flows, and balance statements, setting
          forth in comparative form the figures for the corresponding period of
          the previous calendar year, all certified by its Chief Financial
          Officer as presenting fairly in all material respects the financial
          condition and results of operations of KAI.

     (o)  During the Term of this Agreement, KAI shall grant ENDO the right to
          contact KAI's bank of record, on an annual basis and upon thirty (30)
          days prior written notice to KAI, to verify, the financial status of
          KAI.

     (p)  KAI shall purchase, at ENDO's expense, the computer software programs
          required for the provision of Services to ENDO in the Territory as
          described in Schedule A. In addition, KAI shall obtain, at ENDO's
          expense, the necessary licenses, subscriptions, consents, permits, and
          /or permissions for all computer software programs used by KAI in
          connection with the provision of Services to ENDO in the Territory and
          the performance of KAI's obligations under this Agreement, including
          all KAI-owned and third-party-owned computer software programs, in
          order that ENDO may have the right to use such computer software
          programs in connection with the Services provided by KAI to ENDO in
          the Territory. For the Term of this Agreement, KAI shall grant ENDO a
          non-exclusive, royalty-free license, where necessary, to use such
          computer software programs in connection with the Services provided by
          KAI to ENDO in the Territory. The cost of obtaining such rights to
          such computer software programs are included in the Fees for the
          Initial and any Option Terms set forth in Schedule A.

     (q)  KAI shall purchase, at ENDO's expense, the computer hardware and other
          equipment required for the provision of Services to ENDO in the
          Territory as described in Schedule A. Upon expiration or termination
          of this Agreement, KAI may retain such hardware and equipment.

     (r)  KAI shall be responsible for providing the Services to ENDO in the
          Territory for all Adverse Drug Experiences which occur anywhere in the
          world in order that ENDO may report such Adverse Drug Experiences to
          the FDA, state, and/or local regulatory agencies in the Territory. KAI
          shall not be responsible for providing any information, data,
          analyses, summaries, and/or reports regarding such Adverse Drug
          Experiences to any regulatory agency outside the Territory.

     (s)  KAI shall be responsible for modifying and/or repairing, at its
          expense and as expeditiously as possible, any problems with KAI
          computer software and/or hardware, including any third-party-owned
          computer software and/or hardware, which is used by KAI in connection
          with the performance of KAI's obligations

                                       12
<PAGE>

          under this Agreement and in the provision of Services by KAI to ENDO
          in the Territory. Notwithstanding the preceding sentence, ENDO shall
          be responsible for the cost of any material computer software
          modifications requested by ENDO. Further, ENDO shall be responsible
          for the cost of repairs for normal wear and tear and/or replacement of
          equipment, and for material computer hardware and software upgrades
          and updates requested by ENDO.

     (t)  During the Term of this Agreement, KAI shall maintain, at an off-site
          facility, backup files of all ENDO information and data obtained by
          KAI in the performance of Services under this Agreement in the
          Territory, including, without limitation, the Adverse Drug Experience
          and Product Information Databases. ENDO shall have the right to access
          such backup files, upon reasonable prior notice to KAI and at ENDO's
          discretion, at any time during the Term of this Agreement or upon
          expiration or termination of this Agreement.

11.2 ENDO'S DUTIES
     -------------

     (a)  ENDO shall pay for all expenses approved in advance and incurred in
          connection with the training of KAI personnel, including the Product
          Information Specialist, the Project Manager, and the Staff Physician
          and any other KAI personnel responsible for providing Services to ENDO
          in the Territory. Such expenses for the Initial and Option Terms of
          this Agreement are included in the Fees set forth in Schedule A.

     (b)  ENDO shall provide to KAI, at ENDO's expense, all Product Literature
          for each Product to be utilized by KAI personnel, including the
          Product Information Specialist, the Project Manager, and the Staff
          Physician and any other KAI personnel responsible for providing
          Services to ENDO in the Territory. Such expenses for the Initial and
          Option Terms are included in the Fees set forth in Schedule A.

     (c)  FDA Communications. Endo shall be responsible, with assistance from
          ------------------
          KAI, if requested by ENDO, for all written and/or verbal
          communications with the FDA regarding the marketing, promotion, sale,
          and/or use of Products, including, but not limited to, any action,
          request, order, instruction, communication, complaint, notice, public
          announcement or inquiry by the FDA or any submission, filing, letter,
          or other communication by ENDO with respect to the Products, which is
          received by KAI or which comes to KAI's attention or any
          communications regarding field actions, investigations, or recalls of
          Products in the Territory.

     (d)  ENDO shall be responsible for developing, with input from KAI, if
          requested by ENDO, written medical information, including, without
          limitation, new Product responses and Product Literature, regarding
          the use of Products in the Territory to be used in connection with the
          provision of Services by KAI to ENDO in the Territory.

                                       13
<PAGE>

     (e)  Adverse Drug Experiences and Field Alerts. ENDO, with the assistance
          ------------------------------------------
          of KAI, shall be responsible for submission to the FDA, state, or
          local regulatory agency 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.  JOINT DUTIES
     ------------

12.1 Within five (5) days of the execution of this Agreement, KAI and ENDO shall
     appoint members of the Operating Committee.

12.2 The Operating Committee will meet periodically but no less than once per
     calendar quarter at a location to be mutually agreed to by the parties.

12.3 During the Term of this Agreement, KAI and ENDO shall regularly provide
     input to the other party regarding the quality of and any issues related to
     their respective performance of this Agreement.

13.  CONFIDENTIALITY
     ---------------

13.1 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 writing 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

                                       14
<PAGE>

          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.

13.2  The receiving party shall not use Confidential Information for any purpose
      other than for the purposes set forth in this Agreement.

13.3  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 writing, 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.

13.4  Upon written request 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 General Counsel or
      an 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.

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

13.6  Publicity. ENDO and KAI agree not to make any public announcements
      ----------
      regarding the existence of this Agreement or its terms without the prior
      review and written consent of the other party, 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.

14.   INDEPENDENT CONTRACTOR
      ----------------------

14.1  KAI 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 KAI to perform Services shall not be deemed
      employees of ENDO. ENDO shall not be responsible for KAI's acts or the
      acts of its officers, agents and employees while performing the Services
      whether on ENDO premises or elsewhere.

                                       15
<PAGE>

14.2  KAI shall not be responsible for any cost, however, attributable to: (i)
      any actions by ENDO that caused a person(s) provided by KAI 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 KAI to perform Services under the Agreement based on their
      activities under this Agreement.

15.   INTELLECTUAL PROPERTY OWNERSHIP
      -------------------------------

15.1
      (a)  Assignment of Intellectual Property.
           -----------------------------------

           (1)  ENDO information in KAI computer databases. KAI agrees that all
                ------------------------------------------
                ENDO information contained in paper or electronic format in any
                KAI computer database, such as the information contained in the
                Adverse Drug Experience and Product Information Databases, which
                KAI may solely or jointly conceive or develop or reduce to
                practice, or cause to be conceived or developed or reduced to
                practice, in the performance of KAI's obligations under this
                Agreement shall be the property of ENDO.

           (2)  Inventions, discoveries, and improvements conceived or made by
                --------------------------------------------------------------
                KAI. KAI agrees that all inventions, if any, discoveries, and
                ---
                improvements conceived or made by KAI during the Term of this
                Agreement, which (1) result, to any extent, from the use of
                ENDO's premises, property, Confidential Information, or
                documents/materials shall be the property of ENDO.

           (3)  Original works of authorship. KAI agrees that all original works
                ----------------------------
                of authorship, such as ENDO Operating Procedures, which are (1)
                created by KAI (solely or jointly with others) during the Term
                of this Agreement, (2) in the performance of its obligations
                under this Agreement, (3) which are primarily related to
                Products, and (4) which are protectable by copyright and are
                "works made for hire" as that term is defined in the United
                States Copyright Act shall be the property of ENDO. However, to
                the extent that any such work may not, by operation of any
                applicable law, be a work made for hire, KAI hereby assigns,
                transfers and conveys to ENDO all of its worldwide right, title
                and interest in and to such work, including all intellectual
                property rights therein and appurtenant thereto.

           (4)  For purposes of this Agreement, the intellectual property
                described in subparagraphs 15.1(a) (1), (2), and (3) are
                collectively "ENDO Property."

     (b)   Notwithstanding subparagraph 15.1 (a), ENDO acknowledges that KAI
           possesses certain inventions, processes, know-how, trade secrets,
           improvements, other intellectual properties and other assets,
           including but not limited to business methods, clients, vendors,
           financial information, procedures, and techniques, procedure manuals,
           personnel data, computer technical expertise, customized

                                       16
<PAGE>

           computer software programs, computer software applications, computer
           software designs, computer software source codes and research methods
           which (1) directly and primarily relate to KAI's business or
           operations and (2) which do not primarily relate to the Products or
           ENDO's Confidential Information (collectively "KAI Property"). ENDO
           and KAI agree that any KAI Property or improvements thereto, which
           are used, improved, modified, or developed by KAI during the Term of
           this Agreement are the sole and exclusive property of KAI.
           Notwithstanding the preceding sentence, KAI Property does not include
           ENDO Property, including without limitation, ENDO Operating
           Procedures, the Adverse Drug Experience, or Product Information
           Databases.

15.2  Further Assurances.  Upon the request and at the expense of ENDO, KAI
      ------------------
      shall execute and deliver any and all instruments and documents and take
      such other acts as may be necessary or desirable to document the
      assignment and transfer described in Article 15.1 (a) above or to enable
      ENDO to secure its rights in the ENDO Property and any patents,
      trademarks, copyrights or other intellectual property rights relating
      thereto in any and all jurisdictions, or to apply for, prosecute and
      enforce patents, trademark registrations, copyrights or other
      intellectual property rights in any and all jurisdictions with respect to
      any ENDO Property, or to obtain any extension, validation, reissue,
      continuance or renewal of any such intellectual property rights. Without
      limiting the foregoing, KAI shall disclose to ENDO all pertinent
      information and data with respect thereto and shall execute all
      applications, specifications, oaths and all other instruments which ENDO
      shall deem necessary in order to apply for and obtain such rights and in
      order to assign and convey to ENDO the sole and exclusive right, title and
      interest in and to such ENDO Property and any patents, copyrights,
      trademarks or other intellectual property rights relating thereto. KAI
      further agrees that KAI's obligation to execute or cause to be executed,
      when it is in KAI's power to do so, any such instrument or papers shall
      continue after the expiration or termination of this Agreement.

15.3  Maintenance of Records. KAI agrees to keep and maintain adequate and
      ----------------------
      current records of all ENDO Property during the Term of this Agreement and
      unless otherwise required by law, for a period of not less than five (5)
      years from the effective date of termination or expiration of this
      Agreement and all such records shall be organized in such manner that they
      will be ready for immediate reference. Unless otherwise required by law,
      at the expiration of such five (5) year period, KAI shall dispose of such
      records in accordance with ENDO's instructions. If ENDO fails to give said
      instructions, KAI shall so notify ENDO; and if said instructions are still
      not forthcoming within thirty (30) days of said notification, then KAI
      shall immediately destroy such records.

15.4  Survival. The provisions of this Article 15 shall survive the expiration
      ---------
      or termination of this Agreement.

16.   NONCOMPETITION
      --------------

      During the Term of this Agreement, KAI shall not provide services
      identical to or similar to Services provided to ENDO in the Territory for
      any third party's products that directly

                                       17
<PAGE>

      compete with any Product in the prescription pain management therapeutic
      category. In addition, for thirty (30) days after the expiration or
      termination of this Agreement, KAI's Project Manager and Product
      Information Specialist shall not provide such Services.

17.   INDEMNIFICATION
      ---------------

17.1  KAI shall indemnify, defend, and hold harmless ENDO, its officers, agents,
      Affiliates, subsidiaries, parent companies, and employees, from and
      against any and all damage, claim, injury, cost or expenses, including
      reasonable attorneys' fees and expenses of litigation, by third parties,
      in connection with any illness or personal injury, including death, or
      property damage, that arises out of: (1) any negligent act or willful
      misconduct of KAI with respect to Services provided to ENDO in the
      Territory, including but not limited to any breach of any statutes, rules,
      and/or regulations applicable to the Services provided by KAI to ENDO in
      the Territory, or (2) KAI 's breach of the terms of this Agreement,
      provided, however, KAI shall, under no circumstances be obligated to
      indemnify ENDO where claims, causes of action, losses or liabilities arise
      out of ENDO's sole negligence, willful misconduct, breach of the Agreement
      or breach of any statutes or regulations applicable to the provision of
      Services by KAI to ENDO in the Territory.

17.2  ENDO shall indemnify, defend, and hold harmless KAI, 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, by third
      parties, in connection with any illness or personal injury, including
      death, or property damage, that arises out of: (1) any use, marketing,
      promotion, sale, or distribution of the Product; (2) the negligence or
      willful misconduct of ENDO with respect to ENDO's obligations under this
      Agreement; or (3) breach of the terms of this Agreement by ENDO, provided,
      however, ENDO shall not be obligated to indemnify KAI to the extent that
      any loss, damage, claim, injury, cost or expense arises out of KAI's sole
      negligence, willful misconduct, or breach of this Agreement or breach of
      any statutes or regulations applicable to the use, marketing, promotion,
      sale, and/or distribution of Products in the Territory.

17.3  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.

18.   TERMINATION
      -----------

18.1  This Agreement may be terminated by either KAI or ENDO for the following
      reasons:

      (a)  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 written notice of the breach by
           the terminating party.

                                       18
<PAGE>

      (b)  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 a bill of sale, deed of trust, or assignment for the
           benefit of creditors.

18.2  This Agreement may be terminated by ENDO for no cause upon ninety (90)
      days written notice to KAI. In the event of termination of this Agreement
      under this Article 18.2, the parties shall mutually determine how best to
      wind down the Services provided by KAI to ENDO in the Territory, including
      the timetable for the winding down and transfer of such activities, all
      ENDO Confidential Information, ENDO Property, and all relevant
      documentation to ENDO.

18.3  Effect Of Termination.
      ---------------------

      (a)  Termination of this Agreement shall have no effect on, or relieve any
           party from the obligation to make any payment for any monies due and
           owing one party from the other party prior to the effective date of
           termination and any actual costs and expenses incurred which are
           noncancellable or nonreimburseable up to the effective date of
           termination or 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.

      (b)  Upon termination or expiration of this Agreement, at ENDO's request,
           KAI shall provide all information, reports, data, summaries and
           analyses, including, but not limited to, the Adverse Drug Experience
           and Product Information Databases, prepared by KAI in connection with
           the provision of Services to ENDO in the Territory in an electronic,
           readily accessible format.

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

19.1  ASSIGNMENT
      ----------

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

                                       19
<PAGE>

19.2  INTEGRATION
      ------------

      This Agreement, including all attachments, schedules, or exhibits entered
      into hereunder, constitutes the complete agreement and understanding of
      the parties with respect to the subject matter hereof and supersedes all
      prior and/or contemporaneous arrangements and understandings between the
      parties hereto with regards to the subject matter hereof, including the
      letter agreement dated March 22, 1999.

19.3  FORCE MAJEURE
      -------------

      Noncompliance with the obligations of this Agreement due to a state of
      force majeure, the laws or regulations of any government, regulatory or
      judicial authority, war, civil commotion, destruction of facilities and
      materials, fire earthquake or storm, labor disturbances, shortage of
      materials, failure of public utilities or common carriers, and any other
      causes beyond the reasonable control of the applicable party, shall not
      constitute a breach of this Agreement; provided, however, that if one
      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 state of force majeure, 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  PUBLICATION
      -----------

      Reports, findings, conclusions, work papers, notebook records, raw data,
      analyses and any other information arising out of the performance of this
      Agreement by KAI will not be released, published, or otherwise disclosed
      by KAI without the express permission of ENDO. Neither party will use the
      name of the other in any advertisement, press release, or publicity which
      reference this Agreement, without the prior written approval of the other
      party.

19.6  AMENDMENT
      ---------

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

                                       20
<PAGE>

19.7  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 comprised of one (1) arbitrator
           appointed by KAI, 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 American Arbitration
           Association, shall be held in the Commonwealth of Pennsylvania,
           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 written
           notice to the other of its 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 written notice an Arbitration
           Panel has not been appointed with an arbitration schedule
           satisfactory to both parties, then either party may proceed with
           judicial remedies.

19.8  NOTICES
      -------

      All notices required under this Agreement shall be in writing 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.

      If to: Endo

               Endo Pharmaceuticals Inc.
               223 Wilmington West Chester Pike
               Chadds Ford, Pennsylvania  19317, U.S.A.
               Attn: David Lee, M.D., Ph.D., Senior Vice President, Research and
               Development

               with a copy to: Osagie Imasogie, General Counsel

      If to: KAI

               Kunitz and Associates, Inc.
               6001 Montrose Road, Suite 920
               Rockville, Maryland 20852-4801
               Attn: Selma Kunitz, President

                                       21
<PAGE>

19.9  TAXES
      -----

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

19.10 GOVERNING LAW
      -------------

      This Agreement shall be construed according to the laws of the
      Commonwealth of Pennsylvania, without reference to its conflict of law
      rules.

19.11 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.

19.12 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.

19.13 NONSOLICITATION
      ---------------

      Both parties agree that they shall not solicit or hire any employee of the
      other party, either directly or indirectly, during the Term of this
      Agreement.

19.14 YEAR 2000 COMPLIANCE
      --------------------

      (a)  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 agrees 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.

      (b)  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

                                       22
<PAGE>

           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.

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

KUNITZ AND ASSOCIATES, INC.           ENDO PHARMACEUTICALS INC.

By: /s/ SELMA KUNITZ                  By: /s/ DAVID LEE
    __________________________            ____________________________
Name:  Selma Kunitz                    Name:  David Lee
      ________________________              __________________________
Title: President                      Title: Senior Vice President, Research and
                                             Development

                                       23
<PAGE>

                                  SCHEDULE A
                                  ----------

                       FEES AND DESCRIPTION OF SERVICES
                       --------------------------------

APPROACH

This section outlines tasks, assumptions and our approach to conducting this
project. Tasks are grouped into three major activity areas: 1) preparation and
planning; 2) ongoing support; and 3) transfer of responsibilities. These three
task groups correspond to the budget projections.

Preparation and Planning (March 22, 1999 - May 31, 1999)

KAI will work with Endo to review current procedures, propose refinements, and
detail requirements. Figure 1 provides an overview of Endo's requirements.

Specifically, KAI will work with Endo to review activities and databases,
discussed below under operational activities. The review will serve to identify
needed refinements, detail Call Center and Adverse Event Tracking System
requirements, system validation procedures, Endo Operating Procedures (EOPs),
KAI's Standard Operating Procedures (SOPs), data transfer specifics, time line
projections, and the monthly administrative reports. We will provide
specifications for these products for approval by Endo. Once approved, we will
customize and/or develop applications and procedures for review by Endo.

Telephone Calls
---------------

Beginning in April, 1999, Livingston will receive Endo's Medical Affairs
telephone calls, respond to a small set of these queries, and triage product
information and Pharmacovigilance calls to KAI. Calls may come from health care
providers, detail or sales persons, or consumers. The current total load of
calls averages about 300 calls per month with potentially significant increases
after product launches and product changes.
Based on discussions with Endo staff, Livingston will triage telephone calls to
KAI's Product Information Desk. Calls pertaining to product information will be
answered by the Product Information staff. Calls related to possible adverse
events will be routed to the Medical Monitor, as necessary, to probe for and
identify potential safety issues.  To support telephone triage, KAI proposes
three dedicated lines.

KAI recognizes that telephone calls will increase during product launches and
introduction of new drugs. When we are notified of these events, we will
increase staffing, and, if needed, use additional lines to accommodate the
increased demand. During the phase-in period we will also determine whether a
separate line is needed to respond to professional representatives.

                                      24
<PAGE>

Product Information Inquiries
-----------------------------

KAI will respond to approximately 300 telephone inquiries monthly, triaged by
Livingston. The Call Center will utilize a script and the Product Information
database, where relevant, and will capture caller identifiers, product inquiry,
type of caller, response time and mode (e.g. answered on call), and response.
Features of our Product Information support include the following:

     .    Inquiry response service will be available 9:00 A.M. to 5:00 P.M.
          Eastern time during normal business work days. A voice mail service
          will be available on weekends, after hours, and holidays. Emergency
          paging service will be provided.

     .    Up to three simultaneous calls can be answered concurrently.  If more
          than three simultaneous calls are received, we can capture caller
          information in voice mail and call back within one (1) hour.  If the
          three lines are frequently utilized we will recommend increasing Endo
          lines.

     .    As necessary, KAI will respond to inquiries with a letter or other
          documentation that may be requested.  If requested by Endo, we can e-
          mail or fax responses to the Sir Speedy Print Center.

     .    KAI will also log and respond to faxes and e-mail inquiries.

     .    KAI anticipates that

          -    calls that may be related to an AE will be triaged to our medical
               monitor or other clinical staff member;

          -    with respect to generic products, we can respond to inquiries
               about bioavailability; other questions for these products will
               generally be referred to the innovator; and

          -    professional, courteous and timely responses are key "success
               factors"

     .    In the unlikely event of a power outage that would cause our computers
          to be unavailable, we would record information manually and enter the
          information into the computer when power is restored.

Currently, Endo's Product Information Database is maintained in Microsoft Word.
KAI will review the contents and will determine a cost-effective approach to
facilitating searches of the contents. KAI will periodically review responses
and recommend updates to Endo. We will also review the database responses
including poison control monographs, annually for accuracy and will recommend
changes or deletions as necessary. KAI will track changes to the database and
will maintain a history of responses to specific questions and drugs.

For the Call Center software, KAI will customize Microsoft Access to meet Endo's
requirements. This approach will require the addition of one server. To develop
and implement Pharmacovigilance Endo Call [Center] Software (PECS), KAI will
ensure that our software is validated and FDA compliant. To develop and
implement the system,
KAI will:

     .    develop user requirements and submit them to Endo for review and
          approval;

     .    design the system, developing specifications, for review by Endo;

                                      25

<PAGE>

     .    build and test system against the design document (verification);

     .    validate the system against user requirements and submit to Endo for
          review and written approval.

          .    put the system into production to support Endo's
               pharmacovigilance activities.

KAI will customize its SOPs to provide an Endo specific Validation Plan,
including scope, staff, methods, inputs and outputs, required reports, deviation
policy and anomaly reporting and resolution; a Test Plan including items/tools
required for testing, features to be tested, procedure, pass/fail criteria,
deliverables, testing roles and responsibilities, risks and contingencies; and
KAI SOPs that specify document and records control, configuration management,
system and change control, security, backup, archive and retrieval, disaster
recovery, operations, training plan and program, software development life
cycle, software control, audit plan. We will write test scripts, create a test
environment, and execute the plan. KAI will also develop and implement a
Training Plan and associated KAI SOPs for the pharmacovigilance system and
operations.

KAI will write a test summary report and a verification summary report that
summarizes the results of the testing.

Adverse Events
--------------

KAI's goals in identifying and reporting AEs are to:

     .    meet FDA requirements for reporting;

     .    perform a clinical and scientific assessment of the data for clusters
          and trends; and

     .    effectively communicate the safety information.

KAI will document AEs and SAEs in a timely manner for Endo's submission to the
Food and Drug Administration (FDA), in accordance with ICH Guidance, FDA
Guidelines, and Endo's requirements including Endo's Operating Procedures
(EOPs). Currently there are approximately 35 AEs and 6 SAEs reported per month.
AEs may be communicated to KAI via telephone or some other transmission
mechanism. KAI will also identify such events through literature searches for
all products but not via searches of the internet.

AEs Reported to KAI
-------------------

Potential AE telephone calls triaged from Livingston will be routed to KAI's
medical monitor. In receiving calls, KAI will provide professional, courteous
responses and will follow an approach, documented in an EOP, that probes the
caller for details regarding the problem.

Using a prepared script, the KAI medical monitor or clinical staff member will
solicit information about the AE being reported, including scope of the problem,
start and stop date, relatedness to drug, and severity. The mechanism of drug
action and pharmacokinetic and

                                      26

<PAGE>

pharmacodynamic considerations will be included in the assessment. KAI will
insure that the following is captured:

     .    administrative and identifying information including identification of
          the case safety report, source of information, and information on
          sender and receiver of case safety report for follow-up, if necessary;
          and

     .    case information including patient characteristics, reaction/event,
          results of tests and procedures relevant to the evaluation of the
          event, drug information, and narrative case summary.

This information, along with information compiled by comparing this AE to other
reported AEs, review of the literature, consultation with others familiar with
this drug, and any other information provided by the reporter, will allow the
KAI medical monitor to determine if the event is serious. If the event is not
serious, then the information will be recorded and maintained for submission in
the required periodic report (quarterly for three years, and annually
thereafter).

If a serious or unexpected AE is suspected, information will be captured on an
electronic form that conforms to MedWatch 3500A. All information will be
collected in an iterative process that includes telephone follow-up and
assessment of the temporal relationship of event and drug therapy, dose related
effect, biological plausibility, known class effect, previous animal findings,
and pharmacodynamic and pharmacokinetic mechanism. Specifically, KAI will:

     .    code AEs using MedDRA 2.1;

     .    implement software to store AE information;

     .    comply with E2B and M2 standards when operationally defined and
          implemented by the FDA.

                                      27

<PAGE>

Once the form is complete, and within seven calendar days, it will be forwarded
to Endo Medical Affairs. If the form is complete, it will be forwarded to the
FDA within 15 calendar days of the AE. If additional information is needed, Endo
will notify KAI within one working day, and KAI will complete the form as
necessary within 10 days of the initial report. KAI will track the status of the
report and will document sign-off at each phase.

For those products for which Endo does not own the (A)NDA, KAI will send the
source information to the appropriate sponsor. For the current drugs for which
Endo owns the NDA and has an obligation to share AEs with another company, KAI
will send the AE information to Endo for filing and will send the source
documents to the appropriate sponsor, at Endo's request, within five calendar
days as per FDA guidance.

Literature Searches
-------------------

Additionally, KAI will perform literature searches to identify AEs and
toxicology information. Currently, literature searches yield about 575 abstracts
per year of which 168 articles are retrieved and reviewed. About 24 SAEs are
identified during the literature review.

KAI recognizes that the comprehensiveness of a search is dependent on the skill
of the person doing the search. KAI's staff members are highly skilled in
conducting routine as well as extremely complex literature searches.

Continuous monitoring of the literature is essential in the Pharmacovigilance
process to identify potential safety issues. In order to obtain information on
scientific articles in the literature, the National Library of Medicine's
MEDLARS biomedical databases will be searched. GratefulMed, a microcomputer
based software package made available to KAI, provides the interface to these
databases. With this package, the user is able to establish search strategies
before going "on line" which minimizes the cost of conducting a search.

Although there are more than 25 databases on the NLM system, MEDLINE is the one
most often used by KAI staff for literature searches. The database is the
computerized counterpart of Index Medicus. Articles on mechanism of action,
preclinical studies, Phase I, II, and III clinical trials, investigational
agents, immunologic or biochemical mechanisms, pharmacology, and toxicity
associated with these agents can be identified and reprints retrieved.

Other databases, including EMBASE and TOXLINE, will be used to identify
potential adverse events or when specialized information on the chemistry or
toxicity of a given agent is required.

KAI staff members will search MEDLINE and TOXLINE data bases via Grateful Med
using the Internet and will search EMBASE via Dialog, a commercial online
information service. In addition, we access relevant bulletin board services
such as those available from the FDA which are available online, free of charge.
As information needs arise, we will assess the requirement and the most cost and
time-effective means of acquiring necessary materials.

                                      28

<PAGE>

Depending on the goals of the search, the following are generally retrieved:
author(s), publication title, source of the publication, abstract, and key
words. Currently, KAI staff members download the literature search to their
personal computer where they then print the list, review it, and decide which
articles may be of interest. Once articles are identified for retrieval, a
request is sent to a technical support staff member who will retrieve the
requested reprints.

Reports, Bibliographies, and Other Tasks
----------------------------------------

KAI will prepare monthly administrative reports, the contents of which will be
structured during the planning phase; and quarterly and annual reports for Endo
regulatory reporting. We will also:

    .     prepare clinical bibliographies, based on our literature searches, for
          each (A)NDA Endo has the responsibility to maintain; toxicology
          bibliographies will be prepared after Year 1 of the project.

    .     perform requested literature searches and retrieve and transmit the
          articles to the requester.

    .     perform special projects, e.g. report preparation, synthesis of
          articles, etc. as requested.

KAI will provide the above services and will respond to additional requirements,
as requested, for a mutually agreed upon fee.

Test Phase (June 1, 1999 - July 31, 1999)

In June, KAI will begin to assume responsibility for certain Endo's products
such as PERCOCET, ENDOCET, ENDODAN, PERCODAN, PERCODAN-DEMI, and PERCOLONE.
During June and July, telephone calls, and triage can be monitored to assure
that calls are handled according to the EOPs. Additionally, AE handling and
report preparation will also be reviewed to ensure operations are progressing
smoothly.

Operating Phase (August 1, 1999-July 31, 2002)

As of August 1, 1999, KAI will take over full responsibility for Endo's Medical
Affairs services in conjunction with Endo.

Transfer of Responsibilities

KAI believes that we can provide the highest quality of service available and
that importantly, we will respond to changing needs and demands. Nevertheless,
it is prudent for us to provide a plan for smooth transfer of responsibilities
should this be necessary. KAI will provide Endo with its data base contents,
should they request it.

                                      29

<PAGE>

================================================================================
                    ENDO BUDGET  - MEDICAL AFFAIRS SUPPORT
                            START-UP AND TEST PHASE
                         YEAR 1- (3/22/99 - 7/31//99)
================================================================================
                                     TASK                                 AMOUNT
--------------------------------------------------------------------------------
1. Conduct detailed requirements analysis, client meetings;
customize SOPs, develop management and operational procedures;
develop data transfer and validation plan; detail validation
procedures; develop procedures for transfer of responsibilities;
test transfer with ***                                                   ***
--------------------------------------------------------------------------------
2. Design, develop, validate KAI Clinical Information System
Software, prepare routine reports with metrics; develop Technical
Operating Procedures (TOPs); load Product Information files and
validate contents in compliance with FDA guidelines                      ***
--------------------------------------------------------------------------------
3. Design, develop, test, and validate AE software system and
production of 3500A forms according to 21CFR314.80; design
includes screens for entry of worksheet data, integrity of data
base, and editing of data fields. Validation will be FDA
compliant.                                                               ***
--------------------------------------------------------------------------------
4. Data migration planning, execution and quality assurance.             ***
--------------------------------------------------------------------------------
5. Develop training materials and train all staff; also
participate in ENDO training on products                                 ***
--------------------------------------------------------------------------------
6. Assuming FDA mandates MEDRA 2.1, E2b, PDF format, etc.,
perform required programming changes.                                    ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - PLANNING AND PREPARATIONS             ***
================================================================================
OTHER DIRECT COSTS - Computers (Server) 1, UPS; Windows NT
(***), SQL Server (***) Licenses; Telephone System
Upgrade; high speed full featured scanner                                ***
================================================================================
TOTAL - PLANNING AND PREPARATIONS                                        ***
================================================================================

                                      30
<PAGE>

================================================================================
                    ENDO BUDGET  - MEDICAL AFFAIRS SUPPORT
                 OPERATIONS PHASE- YEAR 1 (08/01/99-07/31/00)
================================================================================
                                     TASK                                 AMOUNT
--------------------------------------------------------------------------------
1. Project management and administration; conduct call center
operations - respond to product information calls and follow-up
as necessary (*** calls/month); triage AE calls; conduct
literature searches (clinical and toxicology bibliographies for
*** (A)NDA Annual Reports and respond to Endo literature
requests); retrieve articles; prepare routine reports                   ***
--------------------------------------------------------------------------------
2. Handle AEs - gather information, code, and produce reports;
enter worksheets into system and produce 3500A reports and 15-day
alert follow-up reports according to 21CFR314.80; estimates are
as follows: *** AE calls/month; *** SAE calls/month; *** quarterly
and annual safety reports; *** abstract reviews; *** articles to
review; bibliography preparation.                                       ***
--------------------------------------------------------------------------------
3. Maintain, modify, upgrade computer system as necessary;
computer programming for software modifications, reports, etc.          ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - IMPLEMENTATION/ OPERATIONS           ***
================================================================================
OTHER DIRECT COSTS - Long Distance Travel (PA: 3 trips*3
persons*1 day/trip; FDA and/or other required software (annual
subscription); Reproduction; Telephone Charges; Computer Usage
Costs; Postage/Delivery; Direct Supplies, etc.                          ***
================================================================================
TOTAL COSTS - YEAR 1                                                    ***
================================================================================

                                      31
<PAGE>

================================================================================
                  OPERATIONS - YEAR 2 (08/01/00) - 07/31/01)
================================================================================
                                     TASK                                 AMOUNT
--------------------------------------------------------------------------------
1. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
2. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
3. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - OPERATIONS                              ***
================================================================================
Other Direct Costs                                                         ***
================================================================================
TOTAL COSTS - YEAR 2 - OPERATIONS                                          ***
================================================================================
                   OPERATIONS - YEAR 3 (08/01/01 - 7/31/02)
--------------------------------------------------------------------------------
1. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
2. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
3. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - OPERATIONS                              ***
--------------------------------------------------------------------------------
Other Direct Costs                                                         ***
================================================================================
TOTAL COSTS - YEAR 3 - OPERATIONS                                          ***
================================================================================
                  OPERATIONS - YEAR 4  (08/01/02 - 07/31/03)
--------------------------------------------------------------------------------
1. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
2. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
3. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - OPERATIONS                              ***
--------------------------------------------------------------------------------
Other Direct Costs                                                         ***
================================================================================
TOTAL COSTS - YEAR 4 - OPERATIONS                                          ***
================================================================================

                                      32
<PAGE>

--------------------------------------------------------------------------------
                   OPERATIONS - YEAR 5 (08/01/03 - 07/31/04)
--------------------------------------------------------------------------------
1. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
2. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
3. Same as year 1.                                                         ***
--------------------------------------------------------------------------------
SUBTOTAL - PROFESSIONAL SERVICES - OPERATIONS                              ***
================================================================================
Other Direct Costs                                                         ***
================================================================================
TOTAL COSTS - YEAR 5 - OPERATIONS                                          ***
================================================================================

                                      33
<PAGE>

                                  SCHEDULE B

                                   PRODUCTS
                                   --------

                                      ***

                                      34
<PAGE>

                            SCHEDULE B (continued)

                                   PRODUCTS
                                   --------

                                      ***

                                      35
<PAGE>

                                  SCHEDULE C

                                TYPE OF REPORTS

                                      ***

                                      36

<PAGE>

                                  SCHEDULE D

                           CERTIFICATES OF INSURANCE

                                      37
<PAGE>

                                  SCHEDULE E

                           ENDO OPERATING PROCEDURES

Postmarketing Safety Surveillance of Human Drugs

Product Information Call Center

Quality Assurance for the Product Information  Call Center

Quality Assurance Post Marketing Strategy Surveillance of Human Drugs

Literature Search, Retrieval and Review

All other ENDO Operating Procedures

                                      38<PAGE>

                                                                   EXHIBIT 10.21

                      ENDO PHARMACEUTICALS HOLDINGS INC.

                        1997 Employee Stock Option Plan
                        -------------------------------

          1.   Purpose. The purpose of this 1997 Employee Stock Option Plan
               -------
(the "Plan") is to advance the interests of Endo Pharmaceuticals Holdings Inc.,
a Delaware corporation (the "Company"), by affording certain directors,
officers, employees, consultants and agents of the Company and its subsidiaries
an opportunity to acquire a proprietary interest in the Company and thus to
stimulate in such persons increased personal interest in the success and future
growth of the Company.

          2.   Definitions.
               -----------

          "Acquiring Person" shall mean, with reference to the transactions
           ----------------
referred to in Section 12(a), (i) the continuing or surviving entity of a
consolidation or merger with the Company (if other than the Company), (ii) the
transferee of all or substantially all of the assets of the Company, (iii) the
parent entity of any corporation consolidating with or merging into the Company
in a consolidation or merger in connection with which the Class A Common Stock
is changed into or exchanged for stock or other securities of any other Person
(including such parent entity) or cash or any other property if the Company
becomes a subsidiary of such entity, or (iv) in the case of a capital
reorganization or reclassification or in any case in which the Company is a
surviving corporation in a merger not described in clause (i) or (iii) above,
the Company.

          "Affiliate" shall mean, with respect to a specified person, a person
           ---------
that directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.

          "Board" shall mean the Board of Directors of the Company.
           -----

          "Business Day" shall mean any day other than a Saturday or a Sunday or
           ------------
a day on which commercial banking institutions in the City of New York are
authorized by
<PAGE>

law to be closed. Any reference herein to "days" (unless Business Days are
specified) shall mean calendar days.

          "Class A Common Stock" shall mean the Class A Common Stock, par value
           --------------------
$0.01 per share, of the Company, such term to include any stock into which such
Class A Common Stock shall have been changed or any stock resulting from any
reclassification of such Class A Common Stock.

          "Class A Option" shall mean an option to purchase a number of shares
           --------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class A Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(a) hereof.

          "Class B Option" shall mean an option to purchase a number of shares
           --------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class B Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(b) hereof.

          "Class C Options" shall mean, collectively, Class C1 Options, Class C2
           ---------------
Options, Class C3 Options, Class C4 Options, Class C5 Options and Class C6
Options.

          "Class C1 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class C1 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.

          "Class C2 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class C2 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.

          "Class C3 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class C3 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.

          "Class C4 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class

                                       2
<PAGE>

C4 Option," which shall be subject to the exercise and termination provisions
set forth in Section 8(c) hereof.

          "Class C5 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class C5 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.

          "Class C6 Option" shall mean an option to purchase a number of shares
           ---------------
of Class A Common Stock, as specified in an option agreement, identified as a
"Class C6 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.

          "Closing Date" shall mean the closing date of the asset purchase
           ------------
transaction contemplated by the Asset Purchase Agreement, dated as of June 27,
1997, by and among The DuPont Merck Pharmaceutical Company, a Delaware general
partnership, DuPont Merck Pharma, a Delaware general partnership, Endo
Laboratories, L.L.C., a Delaware limited liability company and Endo
Pharmaceuticals Inc., a Delaware Corporation ("Endo Pharmaceuticals").

          "Common Stock" shall mean the Common Stock, par value $0.01 per share,
           ------------
of the Company, and the Class A Common Stock, such terms to include any stock
into which such Common Stock shall have been changed or any stock resulting from
any reclassification of such Common Stock.

          "Company" shall have the meaning ascribed to it in Section 1 hereof.
           -------

          "Compelled Sale" shall have the meaning ascribed to such term in
           --------------
Section 12(b) hereof.

          "Credit Agreement" shall mean the Credit Agreement, dated as of
           ----------------
August 26, 1997, among Endo Pharmaceuticals, Chase Manhattan Bank, as
Administrative Agent, Chase Securities Inc., as Arranger and the Lenders party
thereto.

          "EBITDA" shall have the meaning ascribed to "Consolidated EBITDA" in
           ------
the Credit Agreement.

          "Eligible Person" shall have the meaning ascribed to such term in
           ---------------
Section 5 hereof.

                                       3
<PAGE>

          "Employee Stockholders Agreement" shall mean the Employee Stockholders
           -------------------------------
Agreement, dated as of December 1, 1997, by and among the Company and the
Employee Stockholders (as such term is defined therein).

          "Exercise Notice" shall have the meaning ascribed to such term in
           ---------------
Section 8(a) hereof.

          "Exit Event" shall mean a sale, disposition or transfer (collectively,
           ----------
a "sale") of Common Stock, after which Kelso & Company no longer holds any
shares of Common Stock.

          "Exit Value" shall mean, with respect to each share of Common Stock,
           ----------
the value, on the date of an Exit Event, equal to the aggregate value of the
consideration received by the holders of the Common Stock (including shares
issued as a result of the exercise of Options upon such Exit Event) solely in
consideration for the sale or transfer of such shares of Common Stock divided by
the total number of shares of Common Stock (including shares issued as a result
of the exercise of Options upon such Exit Event) sold (or otherwise transferred)
by such holders. The "aggregate value of the consideration" referred to in the
preceding sentence shall be determined in good faith by the Board prior to the
Exit Event. Subject to the foregoing criteria, any determination made in good
faith by the Board as to the Exit Value of each share of Common Stock shall be
binding on the Company and all Holders.

          "Fair Market Value" shall have the meaning ascribed to such term in
           -----------------
Section 4.1 of the Employee Stockholders Agreement.

          "Holder" shall mean a person to whom an Option is granted pursuant to
           ------
the Plan.

          "Investor Return" shall mean the aggregate amount in cash which has
           ---------------
been received by Kelso & Company (i) as dividends on the Common Stock and (ii)
in consideration for the sale or transfer of the Common Stock (which amount
shall exclude any fees that Kelso & Company may receive from the Company) held
by Kelso & Company necessary to make the following equation true (after giving
effect to any dilution pursuant to the Options):

                                       4
<PAGE>

     cash distributed in year X following August 26, 1997 greater than or equal
                                  to $94,000,000
     --------------------------------------------------------------------------
                                     1.20x

the sum being taken of x years, as x varies from the first year following the
Closing Date through the year of the Exit Event.

          "Kelso & Company" shall mean, collectively, KIA V, KEP V and their
           ---------------
permitted transferees.

          "KEP V" shall mean Kelso Equity Partners V, L.P., a Delaware limited
           -----
partnership.

          "KIA V" shall mean Kelso Investment Associates V, L.P., a Delaware
           -----
limited partnership.

          "Options" shall mean, collectively, Class A Options, Class B Options
           -------
and Class C Options.

          "Option Price" shall mean, with respect to any Option, the price per
           ------------
share for which shares of Class A Common Stock may be purchased pursuant to such
Option, which initially shall be $100.00 per share, except for the Class C1
Options as to which the Option Price shall be $141.587 per share.

          "Other Securities" shall mean any stock (other than Common Stock) and
           ----------------
other securities of the Company or any other Person (corporate or otherwise)
which the Holders of the Options at any time shall be entitled to receive, or
shall have received, upon the exercise of the Options, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities.

          "Permitted Transferee" of a Holder shall mean the Company and (A) the
           --------------------
spouses, family members, heirs, executors, administrators, testamentary trustees
or legatees or beneficiaries of the Holder and (B) any trust, the beneficiaries
of which, or a corporation or partnership, the stockholders or general or
limited partners of which, include only the Holder or the spouse or family
members of the Holder; provided that each such transferor has obtained the prior
                       --------
written consent of the Company; provided further that the transfer to any such
                                -------- -------

                                       5
<PAGE>

person is in compliance with all applicable federal, state and foreign
securities laws.

          "Person" shall mean a corporation, an association, a partnership, an
           ------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.

          "Plan" shall have the meaning ascribed to such term in Section 1
           ----
hereof.

          3.   Options Available for Grant Pursuant to the Plan. The Options
               ------------------------------------------------
available for grant pursuant to the Plan shall in no case exceed, in the
aggregate, the following quantities:

          (a)  in the case of Class A Options, options to purchase 20,842 shares
of Class A Common Stock;

          (b)  in the case of Class B Options, options to purchase 23,157 shares
of Class A Common Stock;

          (c)  in the case of Class C1 Options, options to purchase 17,313
shares of Class A Common Stock;

          (d)  in the case of Class C2 Options, options to purchase 18,715
shares of Class A Common Stock;

          (e)  in the case of Class C3 Options, options to purchase 20,294
shares of Class A Common Stock;

          (f)  in the case of Class C4 Options, options to purchase 22,082
shares of Class A Common Stock;

          (g)  in the case of Class C5 Options, options to purchase 24,118
shares of Class A Common Stock;

          (h)  in the case of Class C6 Options, options to purchase 26,448
shares of Class A Common Stock.

          4.   Reservation of Shares. The Company has reserved, solely for
               ---------------------
issuance and delivery upon exercise of the Options pursuant to this Plan 172,969
shares of Class A Common Stock. All shares of Class A Common Stock (or other
Securities) issuable upon exercise of any Options shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case

                                       6
<PAGE>

of shares, fully paid and nonassessable with no liability on the part of the
Holders thereof.

          5.   Grant of Options. Options may be granted to directors, officers,
               ----------------
employees, consultants and agents of the Company and its subsidiaries, from time
to time, as determined by the Board (each, an "Eligible Person"). In determining
(i) who shall be an Eligible Person or (ii) grants under the Plan, the Board
shall take into account such factors as it shall deem relevant in connection
with accomplishing the purposes of the Plan.

          6.   No Right to Employment or Continued Service. Nothing in the Plan
               -------------------------------------------
or in any Option shall confer any right on any Eligible Person to continue in
the employ or service of the Company or any of its subsidiaries or shall
interfere in any way with the right of the stockholders of the Company to
terminate such Eligible Person's employment or service at any time.

          7.   Administration of the Plan. The Plan shall be administered by the
               --------------------------
Board. The Board shall have full power to construe and interpret the Plan, to
establish rules for its administration and to grant Options to Eligible
Persons, in each case in accordance with the provisions of the Plan. In
addition, the Board may delegate such of its duties under the Plan as may be
deemed by the Board to be clerical or ministerial to such delegates as the
Board deems appropriate. All actions taken and decisions made by the Board
pursuant to the Plan shall be binding and conclusive on all persons interested
in the Plan.

          8.   Exercisability of Options.
               -------------------------

          (a)  Class A Options.
               ---------------

               (i)   Subject to the acceleration and forfeiture provisions set
     forth in this Section 8(a), Class A Options shall become exercisable with
     respect to an equal proportion of the Class A Common Stock subject thereto
     on each anniversary of the Closing Date, through and until the end of the
     fifth anniversary of the Closing Date.

               (ii)  Subject to Section 10 hereof, Class A Options shall become
     exercisable in full upon the

                                       7
<PAGE>

     occurrence of an Exit Event and the right to exercise such Option shall
     terminate at 12:00 p.m. on the date of the Exit Event. In the event that
     any Exit Event is contemplated, the Company will mail or deliver to each
     Holder of such Option at least ten days prior to the date of such Exit
     Event a notice (an "Exercise Notice") specifying that (x) an Exit Event is
     contemplated and that upon such Exit Event such Option will become
     exercisable pursuant to its terms, (y) the date of the contemplated Exit
     Event and the terms thereof, and (z) such Option shall expire at 12:00
     p.m., New York City time, on the date of the Exit Event if not exercised
     prior thereto.

               (iii)  Notwithstanding anything to the contrary herein, in the
     event that a Holder's employment with the Company or any of its
     subsidiaries is terminated for any reason, with or without cause, initiated
     either by the Company or subsidiary or by the Holder, any unexercisable
     portion of any Class A Option held by such Holder shall expire immediately
     upon termination. Any portion of any Class A Option exercisable upon
     termination shall expire on the 90th day after termination of employment of
     the Holder if unexercised.

               (iv)   Notwithstanding anything to the contrary herein, the
     Board may accelerate the exercisability or delay or postpone the expiration
     of any outstanding Class A Option at such time and under such circumstances
     as the Board, in its sole discretion, deems appropriate.

          (b)  Class B Options.
               ---------------

               (i)    Subject to the acceleration and forfeiture provisions of
     set forth in this Section 8(b), Class B Options shall become exercisable
     after the ninth full fiscal year of the Company after the Closing Date;
     provided, however, that, in the event that the EBITDA targets set forth on
     Schedule I are achieved for a particular fiscal year by Endo
     Pharmaceuticals, a portion of such Class B Option equal to the fraction,
     the numerator of which is one and the denominator of which is the number of
     fiscal years ending between the date of the grant of such

                                       8
<PAGE>

     Class B Option and end of the fifth full fiscal year of the Company after
     the Closing date, inclusive, shall become exercisable at the end of such
     fiscal year of the Company. Notwithstanding the foregoing, in the event
     that Endo Pharmaceuticals fails to achieve the EBITDA target for a fiscal
     year, and the portion of a Class B Option with respect to such fiscal year
     therefore does not become exercisable on an accelerated basis, such portion
     of such Class B Option will nevertheless become exercisable at the end of a
     subsequent fiscal year, if Endo Pharmaceuticals exceeds such fiscal year's
     EBITDA target by a margin which equals or exceeds the shortfall amount for
     the year in which the EBITDA target was not achieved. Endo Pharmaceuticals'
     excess over the EBITDA target for subsequent years, for purposes of the
     Class B Options, shall be treated on a cumulative basis, and applied to
     portions of the Class B Options in chronological order, such that the
     portion of Class B Options with respect to the earliest fiscal year in
     which Endo Pharmaceuticals failed to achieve the EBITDA target would become
     exercisable first. The Board of Directors of the Company may, in its
     discretion, delay the acceleration of the exercisability of any fiscal
     year's portion of Class B Options, or any portion thereof, until the
     completion of the audited financial statements for the applicable fiscal
     year, in order to verify the satisfaction of the preceding exercisability
     requirements.

               (ii)   Subject to Section 10 hereof, Class B Options shall become
     exercisable in full upon the occurrence of an Exit Event and the right to
     exercise such Option shall terminate at 12:00 p.m. on the date of the Exit
     Event, provided, however, that in order for such Class B Options to become
     exercisable pursuant to this clause (ii), either (A) the EBITDA targets
     for all previous fiscal years must have been achieved by Endo
     Pharmaceuticals by the date of the Exit Event, either in the
     contemporaneous fiscal year or in a subsequent fiscal year, or (B) any of
     the Class C1 Options have become exercisable. In the event that any Exit
     Event is contemplated, the Company will mail or deliver to each Holder of
     such Option at least ten days prior to the date of such Exit Event an
     Exercise Notice

                                       9
<PAGE>

     specifying that (x) an Exit Event is contemplated and whether such Option
     will become exercisable pursuant to its terms upon such Exit Event, (y) the
     date of the contemplated Exit Event and the terms thereof, and (z) such
     Option shall expire at 12:00 p.m., New York City time, on the date of the
     Exit Event if not exercised prior thereto.

               (iii)  Notwithstanding anything to the contrary herein, in the
     event that a Holder's employment with the Company or any of its
     subsidiaries is terminated for any reason, with or without cause, initiated
     either by the Company or subsidiary or by the Holder, any unexercisable
     portion of any Class B Option held by such Holder shall expire immediately
     upon termination. Any portion of any Class B Option exercisable upon
     termination shall expire on the 90th day after termination of employment of
     the Holder if unexercised.

               (iv)   Notwithstanding anything to the contrary herein, the Board
     may accelerate the exercisability or delay or postpone the expiration of
     any outstanding Class B Option at such time and under such circumstances as
     the Board, in its sole discretion, deems appropriate.

          (c)  Class C Options.
               ---------------

               (i)    Class C Options shall be exercisable at any time prior to
     the expiration of such Option; provided, that, and as a condition to such
                                    --------  ----
     exercise, (w) an Exit Event shall have occurred, (x) the Exit Value of each
     share of Class A Common Stock shall exceed the amount per share for such
     Option Class as set forth in Schedule II, (y) Kelso & Company and their
     Affiliates who own capital stock of the Company shall have achieved the
     Investor Return and (z) the Holder is a director, officer or employee of
     the Company or any of its subsidiaries on the date of the Exit Event.

               (ii)   Subject to Section 10 hereof, Class C Options shall be
     exercisable upon the occurrence of an Exit Event and the right to exercise
     such Options shall terminate at 12:00 p.m. on the date of the Exit Event.
     In the event that any Exit Event is

                                       10
<PAGE>

     contemplated and that the conditions in clauses (y) and (z) of the previous
     paragraph will be satisfied, the Company will mail or deliver to each
     Holder of such Option at least ten days prior to the date of such Exit
     Event an Exercise Notice specifying that (i) an Exit Event is contemplated
     and that upon such Exit Event such Option will become exercisable pursuant
     to its terms, (ii) the date of the contemplated Exit Event and the terms
     thereof, and (iii) such Option shall expire at 12:00 p.m., New York City
     time, on the date of the Exit Event if not exercised prior thereto.

               (iii)  Notwithstanding anything to the contrary herein, in the
     event that a Holder's employment with the Company or any of its
     subsidiaries is terminated prior to an Exit Event for any reason, with or
     without cause, initiated either by the Company or subsidiary or by the
     Holder, any Class C Option held by such Holder shall expire immediately
     upon termination.

          9.   Manner of Exercise.
               ------------------

          (a)  Each Option shall further state the terms and conditions of the
Option (including the conditions to exercisability thereof) and the Option
Price. An Option may be exercised, subject to this Section 9, for any or all
whole number of shares which have become purchasable under such Option. To the
extent necessary upon the exercise of an Option, the Company shall round each
fractional share issuable upon such exercise up to the next whole number.

          (b)  Subject to the terms and conditions set forth in this Plan
(including the conditions to exercisability thereof), an Option may be exercised
by the Holder during normal business hours on any Business Day, by surrender of
the Option to the Company at its principal office, accompanied by a
subscription, in cash or by certified or official bank check payable to the
order of the Company, in the amount obtained by multiplying (x) the number of
shares of Class A Common Stock designated in such subscription (up to the amount
of shares which such Holder is entitled to receive at such time upon exercise of
the Option) by (y) the Option Price. A Holder may elect to pay all or a portion
of the

                                       11
<PAGE>

aggregate subscription price by tendering shares of Class A Common Stock with a
Fair Market Value equal to aggregate subscription price; provided, however,
                                                         --------  -------
that such Holder must have owned such tendered shares of Class A Common Stock
continuously through such exercise date for a period of a least six months. With
respect to Class C Options, a Holder may elect to pay all or a portion of the
aggregate subscription price by having shares of Class A Common Stock with a
Fair Market Value equal to aggregate subscription price withheld by the Company.

          (c)  Each exercise of an Option shall be deemed to have been effected
immediately prior to the close of business on the Business Day on which an
Option shall have been surrendered to the Company, and at such time the Person
or Persons in whose name or names any certificate or certificates for shares of
Class A Common Stock (or Other Securities) shall be issuable upon such exercise
shall be deemed to have become the Holder or Holders of record thereof.

          (d)  The Company at its expense shall deliver to the relevant Holder
(or as such Holder may direct pursuant to the Option) a certificate or
certificates representing shares of the Class A Common Stock so purchased as
soon as reasonably practicable, but in any event within five Business Days,
after receipt of such notice. Each such certificate shall bear the legend
required by the Employee Stockholders Agreement to the effect that there are
restrictions on the transfer of shares of Class A Common Stock.

          (e)  In the event that such exercise is in part only, the Company
shall deliver a new Option of the same Class and tenor, calling in the aggregate
on the face thereof for the number of shares of Class A Common Stock equal to
the number of such shares which such Holder would be entitled to receive at such
time upon exercise of this Option, after giving effect to such recent exercise.

          (f)  Notwithstanding anything to the contrary in the Plan, in no event
may any Option be exercised prior to the time at which the Option becomes
exercisable (as set forth in the Option) or after the expiration of such Option,
and each Option shall terminate upon the terms set forth in Sections 8 and 10
hereof.

                                       12
<PAGE>

          (g)  If, at any time, the Board shall determine, in its sole
discretion, that the listing, registration or qualification of the shares of
Class A Common Stock upon any securities exchange or under any applicable
securities laws, or the consent or approval of any governmental or self-
regulatory agency or body, is necessary or reasonably desirable as a condition
of, or in connection with, the issue or purchase of the shares of Class A Common
Stock under any Option, such Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions unacceptable to the Board.

          10.  Expiration of Options. Notwithstanding the provisions of Section
               ---------------------
8 above, the Options will expire no later than the end of the fifteenth fiscal
year of the Company; provided, however, that in the event that any shares of
Class A Common Stock have been sold to the public pursuant to an effective
registration statement, other than a registration statement on Form S-4 or S-8
or any successor forms under the Securities Act of 1933, as amended, the Options
will expire no later than on the tenth anniversary of the Closing Date. Any
outstanding unexercised Option, or portion thereof, shall be forfeited, whether
or not exercisable, upon the expiration of such Option.

          11.  Adjustment of Number of Shares of Class A Common Stock Issuable
               ---------------------------------------------------------------
Upon Exercise. The number and kind of shares of Class A Common Stock purchasable
-------------
upon the exercise of Options shall be subject to adjustment from time to time as
follows:

          (a)  Stock Dividends; Stock Splits; Reverse Stock Splits. In case the
               ---------------------------------------------------
Company shall (i) pay a dividend or make any other distribution with respect to
its Class A Common Stock in shares of its capital stock, (ii) subdivide its
outstanding Class A Common Stock, or (iii) combine its outstanding Class A
Common Stock into a smaller number of shares, the number of shares of Class A
Common Stock issuable upon exercise of the Options immediately prior to the
record date for such dividend or distribution or the effective date of such
subdivision or combination shall be adjusted so that the Holder of the Options
shall thereafter be entitled to receive the kind and number of shares of Class A
Common Stock or other

                                       13
<PAGE>

securities of the Company that such Holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Options been exercised immediately prior to the happening of such event
or any record date with respect thereto. An adjustment made pursuant to this
Section 11 shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.

          (b)  No Adjustment for Dividends; No Adjustment of Option Price.
               ----------------------------------------------------------
Except as otherwise provided in this Section 11, no adjustment in respect of any
dividends declared and paid on Class A Common Stock, or on any other capital
stock of the Company, shall be made during the term of an Option or upon the
exercise of an Option. Notwithstanding anything to the contrary contained in
this Plan, in the event of any adjustments to Options pursuant to this Section
11, adjustments shall be made solely to the number and kind of securities
purchasable upon the exercise of Options and no adjustments shall be made to the
Option Price.

          (c)  Other Adjustments. In the event that at any time, as a result of
               -----------------
an adjustment made pursuant to this Section 11, the registered Holders shall
become entitled to receive any securities of the Company other than shares of
Class A Common Stock, thereafter the number of such other securities so
receivable upon exercise of the Options shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the shares of Class A Common Stock contained in
this Section 11.

          (d)  Notice of Adjustment. Whenever the number of shares of Class A
               --------------------
Common Stock purchasable upon the exercise of an Option is adjusted, as herein
provided, the Company shall give Notice to each Holder of such adjustment or
adjustments.

          12.  Purchase Rights Upon Merger, Consolidation, etc.
               -----------------------------------------------

          (a)  In the event of any consolidation of the Company with or merger
of the Company with or into another corporation or in case of any sale, transfer
or lease

                                       14
<PAGE>

to another corporation of all or substantially all the assets of the Company,
the Acquiring Person shall execute an agreement that each Holder shall have the
right thereafter (whether or not the Option is then exercisable by its terms)
upon payment of the Option Price in effect immediately prior to such action to
purchase upon exercise of the Option the kind and amount of securities, cash or
other assets which such Holder would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale, transfer or lease had
such Option been exercised immediately prior to such action; provided that no
                                                             --------
adjustment in respect of dividends, interest or other income on or from such
shares or other securities and property shall be made during the term of an
Option or upon the exercise of an Option. The Company shall mail by first class
mail, postage prepaid, to each Holder, notice of the execution of any such
agreement (including a copy thereof). Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 12. The provisions of this Section 12
shall similarly apply to successive consolidations, mergers, sales, transfers
or leases. The Acquiring Person shall mail to Holders a notice describing any
supplemental Option Agreement. In the event that this Section 12 shall be
applicable, the provisions of Section 11(a) shall not be applicable.

          (b)  The Company shall have the right to compel the Holder of an
Option to sell such Option in the event of a sale of all or substantially all of
the Company to a third party, whether pursuant to a sale of capital stock of the
Company, merger, consolidation, sale of assets or similar transaction (any such
sale, a "Compelled Sale"). In the event that the Company determines to exercise
its right to a Compelled Sale, it shall mail to Holders written notice of such
event, and Holders shall be entitled to receive from the Company an amount
equal to (i) the then Exit Value (or, if inapplicable, the fair market value as
determined by the Board of Directors of the Company acting in good faith) per
share of Class A Common Stock minus the Option Price, multiplied by the number
of shares of Class A Common Stock issuable upon the exercise of the Option, plus
(ii) the fair market value (as determined by the Board of Directors of the
Company acting in good faith) of any Other Securities issuable upon the exercise
of the Option, if any.

                                       15
<PAGE>

                  13. Employee Stockholders Agreement. Notwithstanding anything
                      -------------------------------
in the Plan to the contrary, all shares of Class A Common Stock issued upon the
exercise of Options shall be subject to all terms and conditions set forth in
the Employee Stockholders Agreement. As a condition to the exercise of any
Option, each Holder shall be required to execute and deliver to the Company (i)
an executed copy of the Employee Stockholders Agreement, in the form in effect
at the time of such exercise, if such Holder had not previously done so and (ii)
such written representations and other documents as may be necessary or
reasonably desirable, in the opinion of the Board, for purposes of compliance
with federal or state securities or other laws. For purposes of the Employee
Stockholders Agreement, each Holder shall be deemed to be a "Employee
Stockholder."

                  14. Restrictions on Transfer.
                      ------------------------

                  (a)  Restrictive Legend. Except as otherwise permitted by this
Section 14 each Option (including each Option issued upon the transfer of any
option) shall be stamped or otherwise imprinted with a legend in substantially
the following form:

         "This Option and any shares acquired upon the exercise of this option
         have not been registered under the Securities Act of 1933, as amended,
         and may not be transferred, sold or otherwise disposed of except while
         a registration under such Act is in effect or pursuant to an exemption
         therefrom under such Act and in all cases in compliance with all
         applicable state securities laws, and in any event may not be
         transferred to any party other than a Permitted Transferee as defined
         in this Option."

                  (b)  Restrictions on Transfer. Each Holder, by acceptance of
an Option, shall acknowledge and agree that such Option may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or granted a security
interest in, or otherwise disposed of or encumbered by or to any party other
than by or to a Permitted Transferee.

                  15. Registration and Transfer of Options, etc.
                      -----------------------------------------

                                       16
<PAGE>

                  (a)  Option Register; Ownership of Options. The Company will
                       -------------------------------------
keep at its principal office a register in which the Company will provide for
the registration of Options and the registration of transfers of Options. The
Company may treat the Person in whose name any Option is registered on such
register as the owner thereof for all other purposes, and the Company shall not
be affected by any notice to the contrary, except that, if and when any Option
is accompanied by an instrument of assignment in a form acceptable to the
Company, the Company may (but shall not be obligated to) treat the bearer
thereof as the owner of such Option for all purposes. Subject to Section 14(b)
hereof, an Option, if properly assigned, may be exercised by a new Holder
without a new Option first having been issued.

                  (b)  Transfer and Exchange of Options. Upon surrender of any
                       --------------------------------
Option for registration of transfer or for exchange to the Company at its
principal office, the Company at its expense will (subject to compliance with
Section 14(b) hereof, if applicable) execute and deliver in exchange therefor a
new Option or Options of the same Class and tenor, in the name of such Holder or
as such Holder (upon payment by such holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the number
of shares of Class A Common Stock called for on the face or faces of the Option
or Options so surrendered.

                  (c)  Replacement of Options. Upon receipt of evidence
                       ----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Option and, in the case of any such loss, theft or destruction
of any Option, upon delivery of an indemnity bond in such reasonable amount as
the Company may determine (or, at the sole option of the Company, of an
indemnity agreement reasonably satisfactory to the Company), or, in the case of
any such mutilation, upon the surrender of such Option for cancellation to the
Company at its principal office, the Company at its expense will execute and
deliver, in lieu thereof, a new Option of the same Class and tenor.

                  16. Rights as Option Holders of Shares. Neither the Holder of
                      ----------------------------------
an Option nor any Permitted Transferees shall have any rights as a stockholder
of the Company (including, without limitation, any right to vote or to receive
dividends or to consent or to receive

                                       17
<PAGE>

notice as a stockholder in respect of any meeting of stockholders for the
election of directors of the Company or any other matter, or any right
whatsoever as a stock holder of the Company (except for those notices and other
matters expressly set forth under the Plan or in the Option)). An Option does
not impose any obligation on a Holder or any of its Permitted Transferees to
purchase any securities or impose any liabilities on a Holder as a stockholder
of the Company, whether such obligation or liabilities are asserted by the
Company or by creditors of the Company.

                  17. Withholding. The Company shall have the right to require a
                      -----------
Holder or other person entitled to receive shares of Class A Common Stock upon
the exercise of Options under the Plan to pay to the Company the amount which
the Company is or will be required to with hold with respect to the issuance of
such shares in order for the Company to pay taxes or to claim an income tax
deduction with respect to the issuance of such shares. In lieu of a portion of
such payment equal to the amount of the minimum tax withholding, the Company may
retain, at the discretion of the Board, a sufficient number of such shares
(valued at the Fair Market Value thereof) to cover the amount equal to the
minimum tax withholding. A Holder, however, may elect to pay to the Company all
or a portion of the total amount the Company is required to withhold by
tendering shares of Class A Common Stock with a Fair Market Value equal to the
amount the Company is required to withhold; provided, however, that such Holder
must have owned such tendered shares of Class A Common Stock continuously
through the date of issuance (or lapse) for a period of a least six months. With
respect to Class C Options, a Holder may elect to pay to the Company all or a
portion of the total amount the Company is required to withhold by having shares
of Class A Common Stock with a Fair Market Value equal to the amount the Company
is required to withhold withheld by the Company.

                  18. Liability. The Company, and not the Board, or any member
                      ---------
thereof, shall be liable for any and all claims made against the Company or the
Board in connection with the Plan or any Option.

                  19. Legal Requirements.  (a) The Company shall be responsible
                      ------------------
and shall pay for any transfer,

                                       18
<PAGE>

revenue or documentary stamps with respect to shares of Class A Common Stock
issued upon the exercise of Options granted under the Plan (other than any
transfer tax applicable to a transfer to a Permitted Transferee which shall be
payable by a Holder).

                  (b)  The Company shall not be required to issue a certificate
or certificates for shares upon the exercise of any Option if such issuance
would result in a violation of any federal or state securities or other laws.
The Company agrees to use its reasonable efforts to clear the legal impediment
as soon as possible.

                  20. Amendment and Termination of the Plan. The Board may at
                      -------------------------------------
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part. Notwithstanding the foregoing, no amendment, suspension or
termination shall affect adversely any of the rights of any Holder, without such
Holder's consent, under any Option theretofore granted under the Plan.

                  21. Nonqualified Stock Options. Options granted hereby shall
                      --------------------------
be treated as nonqualified stock options under the Internal Revenue Code.

                  22. Effective Date. The Plan shall take effect upon its
                      --------------
adoption by the Board.

                  23. Interpretations. Except as otherwise expressly provided in
                      ---------------
the Plan, the following rules of interpretation apply to the Plan and each
Option: (i) the singular includes the plural and the plural includes the
singular; (ii) "include" and "including" are not limiting and "or" is not
exclusive; (iii) a reference to any agreement or other contract includes
permitted supplements and amendments; (iv) a reference to a law includes any
amendment or modification to such law and any rules or regulations issued
thereunder; and (v) a reference to any person, corporation or other entity
includes its permitted successors and assigns.

                  24. GOVERNING LAW. THE PLAN AND ANY AND ALL OPTIONS SHALL BE
                      -------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.

                                       19
<PAGE>

                                  SCHEDULE I

            ENDO PHARMACEUTICALS EBITDA TARGETS FOR CLASS B OPTIONS

Fiscal Year                       EBITDA Target

   1998                          $ 43.0 million
   1999                          $ 60.0 million
   2000                          $ 80.0 million
   2001                          $100.0 million
   2002                          $120.0 million
<PAGE>

                                  SCHEDULE II

                    EXIT VALUE TRIGGERS FOR CLASS C OPTIONS

                                             Exit Value
Option Class                                  per Share
------------                                 -----------
    C1                                           $300
    C2                                           $400
    C3                                           $500
    C4                                           $600
    C5                                           $700
    C6                                           $800

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00075-of-00352.parquet"}]]