Document:

<PAGE>

                                                                    Exhibit 10.1

                    THIRD AMENDMENT, CONSENT AND WAIVER OF
                        POST-PETITION CREDIT AGREEMENT

     THIS THIRD AMENDMENT, CONSENT AND WAIVER OF POST-PETITION CREDIT AGREEMENT
(this "Amendment"), dated as of August 13, 2001, is entered into among PILLOWTEX
CORPORATION, PILLOWTEX, INC., PTEX HOLDING COMPANY, PILLOWTEX MANAGEMENT
SERVICES COMPANY, BEACON MANUFACTURING COMPANY, MANETTA HOME FASHIONS, INC.,
TENNESSEE WOOLEN MILLS, INC., FIELDCREST CANNON, INC., CRESTFIELD COTTON
COMPANY, ENCEE, INC., FCC CANADA, INC., FIELDCREST CANNON FINANCING, INC.,
FIELDCREST CANNON LICENSING, INC., FIELDCREST CANNON INTERNATIONAL, INC.,
FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.),
FIELDCREST CANNON TRANSPORTATION, INC., ST. MARYS, INC., AMOSKEAG MANAGEMENT
CORPORATION, DOWNEAST SECURITIES CORPORATION, BANGOR INVESTMENT COMPANY, MOORE'S
FALLS CORPORATION, THE LESHNER CORPORATION, LESHNER OF CALIFORNIA, INC., and
OPELIKA INDUSTRIES, INC. (collectively, the "Borrowers"), the institutions
listed on the signature pages hereof that are parties to the Credit Agreement
defined below (collectively, the "Lenders"), and BANK OF AMERICA, N.A., as
Administrative Agent for itself and the Lenders (in said capacity, the
"Administrative Agent").

                                  BACKGROUND
                                  ----------

     A.  The Borrowers, the Lenders and the Administrative Agent are parties to
that certain Post-Petition Credit Agreement, dated as of November 14, 2000 (as
amended through the date hereof, the "Credit Agreement").  Terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement.

     B.  The Borrowers, the Lenders and the Administrative Agent desire to make
certain amendments to the Credit Agreement.

     NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrowers,
the Lenders and the Administrative Agent covenant and agree as follows:

     1.  AMENDMENTS TO CREDIT AGREEMENT.  The Credit Agreement is hereby amended
         ------------------------------
as follows:

         (a)   Section 1.1 is amended by amending the definition of "EBITDA" in
               -----------                                           ------
     its entirety, as follows:
<PAGE>

               "EBITDA":  for any period, determined in accordance with GAAP on
                ------
          a consolidated basis for the Borrowers and their Subsidiaries the sum
          of (a) Earnings From Operations plus (b) depreciation and amortization
          to the extent included in determining Earnings From Operations, plus
          (c) professional fees incurred outside the ordinary course of business
          including legal counsel, financial advisors, human resource
          consultants, manufacturing consultants, and cash management
          consultants to the extent included in determining Earnings From
          Operations, plus (d) non-cash charges associated with the permanent
          closure of a facility or facilities to the extent included in
          determining Earnings From Operations, plus, (e) cash charges
          associated with the permanent closure of a facility or facilities to
          the extent included in determining Earnings From Operations, plus (f)
          non-cash charges associated with the write-down or adjustment of net
          asset values including goodwill to the extent included in determining
          Earnings From Operations, plus (g) other non-cash charges (excluding
          any such non-cash charge to the extent it represents an accrual of or
          reserve for cash charges in any future period or amortization of a
          prepaid cash expense that was paid in a prior period except as noted
          in (d) and (e), above) to the extent included in determining Earnings
          From Operations, plus (h) payments or accruals related to a Bankruptcy
          Court approved key employee retention program, plus (i) payments for
          severance made prior to the Filing Date to the extent deducted in
          determining Earnings From Operations, plus (j) Earnings From
          Operations associated with the Borrowers' blankets division, to the
          extent included in determining consolidated Earnings From Operations.

          (b)  Section 4.12 is entirely amended, as follows:
               ------------

               4.12  [Intentionally deleted].
                     ----------------------

          (c)  Section 7.1(c) is entirely amended, as follows:
               --------------

               (c)   as soon as practical, but in any event within 20 Business
          Days after the end of each fiscal month of each fiscal year other than
          the last fiscal month of each fiscal quarter, and within 45 Business
          Days after the end of the last fiscal month of each fiscal quarter,
          commencing as of the fiscal month ending on December 2, 2000, the
          unaudited Consolidated balance sheet of the Parent Corporation and its
          Subsidiaries as at the end of such month and the related unaudited
          Consolidated statement of income and statement of cash flows of the
          Parent Corporation and its Subsidiaries for such month and for the
          portion of the fiscal year of the Parent Corporation and its
          Subsidiaries through such date in the form and detail similar to those
          customarily prepared by management of the Parent Corporation for
          internal use, setting forth in each case (a) detailed results of
          operations and cash flow, and (b) in comparative form the Consolidated
          figures for the corresponding month of, and year to date portion of,
          the previous year and the figures for such periods in the

                                      -2-
<PAGE>

          Budget, certified by the chief financial officer, controller or
          treasurer of the Parent Corporation as being fairly stated in all
          material respects, subject to year-end audit adjustments; provided
                                                                    --------
          that such financial information for the fiscal months ending December
          ----
          30, 2000 and February 2, 2001 will not be required to be delivered
          until the earlier of (i) five (5) days after the completion of the
          financial statement audit of the Parent Corporation for the fiscal
          year 2000 by the Parent Corporation's outside auditor, KPMG, and (ii)
          March 23, 2001.

          (d)  New Sections 7.1(n) and (o) are added immediately following
                   ---------------     ---
     Section 7.1(m), as follows:
     --------------

               (n)  as soon as practical, but in any event no later than 20
          Business Days after the end of each fiscal month of the Parent
          Corporation, (i) a report on consummated asset sales and the status of
          proposed asset sales, (ii) a report on the status of the Subject
          Assets (as defined in the Financing Orders), including detail
          regarding collection of accounts relating to the Subject Assets, and
          (iii) a supplement, in electronic form, to the list of claims filed in
          the Bankruptcy Case provided to Administrative Agent on August _____,
          2001, all  in form and detail satisfactory to the Administrative
          Agent; and

               (o)  as soon as practical, but in any event no later than 20
          Business Days after the end of the last fiscal month of each fiscal
          quarter of the Parent Corporation, a draft of the financial statements
          required to be delivered under Section 7.1(c) above for such month;
                                         --------------
          provided that, the accompanying certificate may be qualified to the
          -------------
          effect that the financial information is based on preliminary
          estimates, may not reflect all accounting adjustments being considered
          by the Parent Corporation, and may be  subject to adjustment.

          (e)  Section 8.16 is entirely amended, as follows:
               ------------

               Section 8.16  Asset Coverage Ratio.  Permit, at any time,
                             --------------------
          determined in accordance with GAAP on a consolidated basis for the
          Borrowers and their Subsidiaries, the ratio of (a) the sum of (i) the
          net book value of accounts receivable, plus (ii) the net book value of
          inventory, plus (iii) the book value of owned land, real property,
          equipment, leasehold improvements and other fixed assets, net of
          depreciation, plus (iv) cash on hand, to (b) the outstanding principal
          amount of all Pre-Petition Indebtedness and the Obligations, to be
          less than the ratios set forth below during the periods set forth
          below, measured twice monthly pursuant to the reporting requirements
          set forth in Section 7.1:

                        Period                           Minimum Ratio
                        ------                           -------------

                                      -3-
<PAGE>

          June 30, 2001 through August 29, 2001          1.23 to 1.00
          August 30, 2001 through September 29, 2001     1.22 to 1.00
          September 30, 2001 through October 30, 2001    1.21 to 1.00
          October 31, 2001 through November 14, 2001     1.20 to 1.00

          (f)  Section 8.17 is entirely amended, as follows:
               ------------

               8.17  EBITDA.  Allow EBITDA for the periods set forth below to be
                     ------
          less than the amount set forth opposite each such period:

                     Period                         Amount
                     ------                         ------
               1 month ended 6/30/01             ($5,900,000)
               2 months ended 7/31/01            ($7,700,000)
               3 months ended 8/30/01            ($4,800,000)
               4 months ended 9/30/01            ($4,600,000)
               5 months ended 10/30/01           $0

     2.   CONSENT.  The Lenders hereby consent to any orders of the Bankruptcy
          -------
Court granting to (a) ARK CLO 2000-1 Limited ("ARK CLO") relief from the
automatic stay applicable under Section 362 of the Bankruptcy Code and allowing
ARK CLO to proceed to exercise its non-bankruptcy rights and remedies under the
documents relating to the Lease Agreement dated September 18, 1995, between the
predecessor-in-interest of ARK CLO, as lessor, and the Parent Corporation, as
lessee, and (b) The CIT Group/Equipment Financing, Inc. ("CIT") relief from the
automatic stay applicable under Section 362 of the Bankruptcy Code and allowing
CIT to proceed to exercise its non-bankruptcy rights and remedies under the
documents relating to the Loan and Security Agreement dated on or about June 26,
1996, between Opelika Industries, Inc., as borrower, and CIT, as lender.

     3.   WAIVER.  To the extent that an Event of Default will occur, pending
          ------
Bankruptcy Court approval of this Amendment, under Section 7.1(c), Section
                                                   --------------  -------
7.1(e) and Section 7.1(k) (solely with respect to the certificate of compliance
------     --------------
with Section 8.16) of the Credit Agreement, Section 7.2(b) of the Credit
     ------------                           --------------
Agreement (solely with respect to the certificate required to be delivered
concurrent with the foregoing), Section 7.1(l) of the Credit Agreement, Section
                                --------------                          -------
8.16 of the Credit Agreement, and Section 7.7(a) (solely with respect to notice
----                              --------------
of any Default or Event of Default arising from any of the foregoing) of the
Credit Agreement (collectively, the Specified Defaults'), the Lenders hereby
                                    ------------------
waive such Specified Defaults through the earlier of (a) September 15, 2001, or
(b) the date of the Bankruptcy Court order approving the terms of this
Amendment.

     4.   AMENDMENT FEE.  Borrowers shall pay to the Administrative Agent, for
          -------------
the pro rata benefit of the Lenders that execute and deliver this Amendment to
the Administrative Agent (or its counsel) not later than 5:00 p.m., Dallas time,
August 14, 2001, an amendment fee in an amount equal to the product of (a) 0.75%
multiplied by (b) an amount equal to such Lender's portion of the

                                      -4-
<PAGE>

Total Credit Commitment. Such amendment fee shall be paid in immediately
available funds and shall be payable only if the conditions set forth in Section
                                                                         -------
7 of this Amendment have been satisfied and shall be due and payable to each
-
Lender eligible for payment pursuant to the preceding sentence no later than two
Business Days after the conditions set forth in Section 7 of this Amendment have
                                                ---------
been satisfied. The Borrowers agree that the failure to pay the amendment fee
provided in this Section 4 shall, after the expiration of any applicable grace
                 ---------
period, be an Event of Default under Section 9.1(a)(ii) of the Credit Agreement.
                                     ------------------

     5.   ADDITIONAL EVENTS OF DEFAULT.  Notwithstanding anything in the DIP
          ----------------------------
Financing Documents to the contrary, it will constitute an immediate Event of
Default (with no grace or cure period) if the Parent Corporation shall fail to
deliver to Administrative Agent (a) on or before August 15, 2001, a report from
Interbrand Corporation, (b) on or before September 15, 2001, a draft term sheet
summarizing the Borrowers' proposed plan of reorganization, which draft term
sheet shall include classification of claims and proposed treatment for each
class of claims, which treatment may consist of ranges based on varying
assumptions, (c) on or before September 30, 2001, the Borrowers' three year
financial forecast, (d) on or before September 15, 2001, a report from Stern
Stewart, and (e) on or before October 15, 2001, a draft of the Borrowers'
proposed plan of reorganization and disclosure statement.

     6.   REPRESENTATIONS AND WARRANTIES.  By its execution and delivery hereof,
          ------------------------------
the Borrowers represent and warrant to the Lenders that, as of the date hereof:

          (a)  after giving effect hereto, the representations and warranties
     contained in the Credit Agreement and the other DIP Financing Documents are
     true and correct on and as of the date hereof as if made on and as of such
     date;

          (b) after giving effect hereto, no event has occurred and is
     continuing which constitutes an Event of Default;

          (c)  the Borrowers have legal power and authority to execute and
     deliver this Amendment, and this Amendment constitutes the legal, valid and
     binding obligation of the Borrowers, enforceable in accordance with its
     terms, except as enforceability may be limited by applicable bankruptcy or
     other debtor relief laws and by general principles of equity (regardless of
     whether enforcement is sought in a proceeding in equity or at law) and
     except as rights to indemnity may be limited by federal or state securities
     laws;

          (d)  neither the execution, delivery and performance of this Amendment
     nor the consummation of any transactions contemplated herein will conflict
     with any Requirement of Law or Contractual Obligation; and

          (e)  no authorization, approval, consent, or other action by, notice
     to, or filing with, any Governmental Authority or other Person (including
     the Board of Directors of any

                                      -5-
<PAGE>

     Borrower), is required for the execution, delivery or performance by the
     Borrowers of this Amendment.

     7.   CONDITIONS OF EFFECTIVENESS.  This Amendment shall be effective as of
          ---------------------------
August 13, 2001; provided, however, that Sections 1 and 5 hereof shall be
                                         ----------     -
effective as of such date only after each of the following conditions precedent
shall have been satisfied:

     (a)  the Administrative Agent shall receive counterparts of this Amendment
executed by the Required Lenders and the Borrowers;

     (b)  the Administrative Agent shall receive the following, in form and
detail satisfactory to the Administrative Agent:

          (i)   a full accounting of asset sales and proceeds received by the
          Borrowers since the Filing Date, and payment of 100% of the net
          proceeds received by the Borrowers from such sales for application in
          accordance with Financing Orders;

          (ii)  delivery of outstanding accounting and other information
          requested by PricewaterhouseCoopers in its letter of July 10, 2001 to
          Mike Harmon; and

          (iii) a list of all claims filed in the Bankruptcy Cases as of the
          bar date, in electronic form;

     (c)  Borrowers shall pay the Amendment Fee;

     (d)  the Bankruptcy Court shall approve this Amendment;

     (e)  the representations and warranties set forth in Section 6 of this
                                                          ---------
Amendment shall be true and correct; and

     (f)  the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.

     8.   REFERENCE TO CREDIT AGREEMENT.  Upon the effectiveness of this
          -----------------------------
Amendment, each reference in the Credit Agreement to "this Agreement,"
"hereunder," or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended by this Amendment.

     9.   COUNTERPARTS; EXECUTION VIA FACSIMILE.  This Amendment may be executed
          -------------------------------------
in one or more counterparts, each of which shall be deemed an original, but all
of which

                                      -6-
<PAGE>

together shall constitute one and the same instrument. This Amendment may be
validly executed and delivered by facsimile or other electronic transmission.

     10.  GOVERNING LAW: BINDING EFFECT.  This Amendment shall be governed by
          -----------------------------
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrowers, the Administrative Agent, each Lender and their
respective successors and assigns.

     11.  HEADINGS.  Section headings in this Amendment are included herein for
          --------
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

     12.  DIP FINANCING DOCUMENT.  This Amendment is a DIP Financing Document
          ----------------------
and is subject to all provisions of the Credit Agreement applicable to DIP
Financing Documents, all of which are incorporated in this Amendment by
reference the same as if set forth in this Amendment verbatim.

     13.  NO ORAL AGREEMENTS.  THIS WRITTEN AGREEMENT AND THE OTHER DIP
          ------------------
FINANCING DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

================================================================================
                  REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================

                                      -7-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.

BORROWERS:

PILLOWTEX CORPORATION
PILLOWTEX, INC.
PTEX HOLDING COMPANY
PILLOWTEX MANAGEMENT SERVICES COMPANY
BEACON MANUFACTURING COMPANY
MANETTA HOME FASHIONS, INC.
TENNESSEE WOOLEN MILLS, INC.
FIELDCREST CANNON, INC.
CRESTFIELD COTTON COMPANY
ENCEE, INC.
FCC CANADA, INC.
FIELDCREST CANNON FINANCING, INC.
FIELDCREST CANNON LICENSING, INC.
FIELDCREST CANNON INTERNATIONAL, INC.
FIELDCREST CANNON SF, INC. (formerly known as Fieldcrest Cannon Sure Fit, Inc.)
FIELDCREST CANNON TRANSPORTATION, INC.
ST. MARYS, INC.
AMOSKEAG MANAGEMENT CORPORATION
DOWNEAST SECURITIES CORPORATION
BANGOR INVESTMENT COMPANY
MOORE'S FALLS CORPORATION
THE LESHNER CORPORATION
LESHNER OF CALIFORNIA, INC.
OPELIKA INDUSTRIES, INC.

By:  __________________________
     Name:_____________________
     Title:____________________

     Third Amendment, Consent and Waiver of Post Petition Credit Agreement
                                Signature Page
<PAGE>

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A., as Administrative Agent, Issuing Bank and a Lender

By:  ________________________________
     William E. Livingstone, IV
     Managing Director

     Third Amendment, Consent and Waiver of Post Petition Credit Agreement
                                Signature Page
<PAGE>

LENDERS:

THE BANK OF NOVA SCOTIA

By:   _______________________________
Name:________________________________
Title:_______________________________

CREDIT LYONNAIS - NEW YORK BRANCH

By:   _______________________________
Name:________________________________
Title:_______________________________

BANK ONE, TEXAS, N.A.

By:   _______________________________
Name:________________________________
Title:_______________________________

FLEET NATIONAL BANK, (formerly known as Fleet Bank, N.A.)

By:   _______________________________
Name:________________________________
Title:_______________________________

FRANKLIN FLOATING RATE TRUST

By:   _______________________________
Name:________________________________
Title:_______________________________

     Third Amendment, Consent and Waiver of Post Petition Credit Agreement
                                Signature Page
<PAGE>

GOLDMAN SACHS CREDIT PARTNERS L.P.

By:   _______________________________
Name:________________________________
Title:_______________________________

ING BARING (U.S.) CAPITAL, LLC

By:   _______________________________
Name:________________________________
Title:_______________________________

MARINER LDC

By:   _______________________________
Name:________________________________
Title:_______________________________

BHF (USA) CAPITAL CORPORATION

By:   _______________________________
Name:________________________________
Title:_______________________________

By:   _______________________________
Name:________________________________
Title:_______________________________

GENERAL ELECTRIC CAPITAL CORPORATION         By:
                                             Name:
                                             Title:

     Third Amendment, Consent and Waiver of Post Petition Credit Agreement
                                Signature Page
<PAGE>

GUARANTY BUSINESS CREDIT CORPORATION

By:   _______________________________
Name:________________________________
Title:_______________________________

WELLS FARGO BANK TEXAS, NATIONAL
ASSOCIATION, successor by consolidation to Wells
Fargo Bank (Texas), National Association

By:   _______________________________
Name:________________________________
Title:_______________________________

BANK OF AMERICA, N.A. (Trading)

By:   _______________________________
Name:________________________________
Title:_______________________________

FOOTHILL INCOME TRUST II, L.P.

By:   _______________________________
Name:________________________________
Title:_______________________________

     Third Amendment, Consent and Waiver of Post Petition Credit Agreement
                                Signature Page<PAGE>

                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT

     This Agreement (this "Agreement"), dated as of April 26, 2001, is entered
into between Kos Pharmaceuticals, Inc., a Florida corporation (the "Company"),
and Adrian Adams (the "Executive").

                                    Recitals

     The Company wishes to employ Executive, and Executive wishes to be employed
by the Company, as a senior executive officer and as an integral part of the
Company's management team.  The Board of Directors of the Company has approved
the terms and conditions of the employment of Executive as set forth in this
Agreement and has authorized the execution and delivery of this Agreement.

                                   Agreement

     For and in consideration of the foregoing and of the mutual covenants of
the parties herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

1.  EMPLOYMENT. Effective as of  June 11, 2001 (the "Employment Date"), the
Company hereby employs Executive to serve in the capacities described in this
Agreement and Executive hereby accepts such employment and agrees to perform the
services described in this Agreement upon the terms and conditions set forth in
this Agreement.

2.  TERM. The term of Executive's employment pursuant to this Agreement shall
commence as of the Employment Date and shall terminate at the close of business
on June 10, 2006, subject to earlier termination in accordance with Section 7
and the other terms, provisions, and conditions set forth in this Agreement (the
"Initial Term").  Six months prior to the end of the Initial Term or any Renewal
Term, either the Company or Executive may give notice to the other of its
determination not to renew this Agreement.  If a notice of non-renewal is not
delivered prior to such date, this Agreement will automatically continue in
effect for successive one year renewal terms (each a "Renewal Term," and
together with the Initial Term, the "Term").  If such notice of non-renewal is
given by any party, then Executive's employment will terminate at the end of
such Initial Term or Renewal Term (or on such other date as the parties mutually
agree).

3.  DUTIES; TITLE AND BOARD MEMBERSHIP.

                                       1
<PAGE>

    (a) Duties and Title. Initially, Executive shall serve as and have the title
of President and Chief Operating Officer of the Company. On or before the first
anniversary of the Employment Date, provided that Executive has not been
Disabled (as such term is defined in Section 7(c)) prior to such date, Executive
shall serve as and be given the title of President and Chief Executive Officer
of the Company. Executive agrees to devote substantially his entire time,
energy, and skills to such employment while so employed, and Executive will not
accept any directorship or engage in any other business activities without the
prior approval of the Board of Directors.

    (b) Board Membership. The Company agrees to cause its Board of Directors to
appoint Executive to serve as a member of the Company's Board of Directors
effective as of the date that Executive's title is changed to "Chief Executive
Officer."

    (c) Company Policies. Executive agrees to abide by all of the Company
policies implemented by the Company and generally applicable to senior officers
of the Company, including without limitation the Company's insider trading
policy and the Company's Electronic and Telephonic Communication System Policy.

4.  COMPENSATION.

    (a) Base Compensation. The Company shall pay Executive, and Executive agrees
to accept, base compensation at the rate of not less than $325,000 per year in
equal installments in accordance with the Company's standard payroll practices
for officers, subject to all required tax withholding, commencing as of the
Employment Date through the term of this Agreement; provided that such base
compensation amount shall automatically be increased to $375,000 per year upon
Executive's title being changed to "Chief Executive Officer" ("Base
Compensation"). The Base Compensation specified in this Section 4(a) may be
increased at any time during the term of this Agreement in the discretion of the
Board of Directors and will be reviewed no less frequently than during the first
quarter of each calendar year beginning in 2003.

    (b) Bonus Compensation. The Company shall pay Executive an annual bonus
("Bonus Compensation") within 90 days following the end of each fiscal year of
the Company during the Term. The amount of Executive's Bonus Compensation shall
be determined by the Board of Directors of the Company, after consideration of
any recommendations made by the Compensation Committee of the Board of
Directors, based upon Executive's performance and the performance of the Company
during such year; provided that in no event will Executive's Bonus Compensation
be less than $150,000 for any full fiscal year of the Company, or a pro rata
portion of such amount for any partial fiscal year of the Company.

                                       2
<PAGE>

    (c) Initial Stock Options. On the date hereof, the Company shall award to
Executive the option to purchase up to 100,000 shares of the Company's common
stock on the terms set forth in and in accordance with the Stock Option
Agreement attached hereto as Attachment 1.

    (d) Annual Stock Options. The Company shall grant Executive an annual stock
option award (the "Annual Stock Options") following each fiscal year of the
Company in amounts, at such exercise prices, and on such terms as the Board of
Directors determines, based upon the performance of Executive and the Company
during such fiscal year; provided that in no event will the award of Annual
Stock Options to Executive be for less than 50,000 shares for any full fiscal
year of the Company, or a pro rata portion of such amount for any partial fiscal
year of the Company.

    (e)  Restricted Stock Grant.

         (i) Simultaneously with the execution and delivery of this Agreement,
     the Company is issuing to Executive 66,668 shares of fully paid and non-
     assessable common stock of the Company (the "Restricted Stock Shares"),
     subject to the Company's right to cancel such issuance as described in the
     following sentence. Subject to the vesting provisions set forth in Section
     9, Executive hereby agrees that the Company has the right to cancel the
     issuance of all of the unvested Restricted Stock Shares in the event that
     Executive's employment with the Company is terminated prior to the fourth
     anniversary of the Employment Date.

         (ii) The termination of the Company's right to cancel the issuance of
     Restricted Stock Shares shall be referred to as the "vesting" of such
     Restricted Stock Shares. Subject to Section 9, Executive agrees that 25% of
     the Restricted Stock Shares shall vest on each of the first 4 anniversary
     dates of the Employment Date, so that 100% of the Restricted Stock Shares
     shall be vested on the fourth anniversary of the Employment Date.

         (iii) Executive agrees that the certificates representing the
     Restricted Stock Shares shall bear a legend indicating the Company's right
     to cancel the issuance of such shares to Executive and that the Company has
     instructed the transfer agent for the Company's common stock to record the
     cancellation of the Restricted Stock Shares upon receipt of notice to that
     effect from the Company.

5.  FRINGE BENEFITS.

    (a) Generally. Executive shall be eligible for fringe benefits pursuant to
any insurance, pension or other employee fringe benefit plan approved by the
Board of Directors that now or hereafter may be made available to officers of
the Company

                                       3
<PAGE>

and for which Executive will qualify according to his eligibility under the
provisions thereof; provided, however, that such eligibility specifically does
not apply to matters relating to Executive's vacation, disability benefits,
automobile allowance, relocation and housing expenses and compensation, which
matters shall be governed exclusively by the terms of this Agreement.

    (b) Vacation. During the term of this Agreement, Executive shall be entitled
to 5 weeks paid vacation per calendar year. Any vacation time not taken during
any calendar year shall be subject to the Company's standard practices for other
officers.

    (c) Automobile. The Company shall provide Executive with full use of an
automobile with a retail value of up to $75,000 for Executive's business and
personal use, which automobile shall be replaced every 3 years. The Company
agrees to provide insurance for the automobile and occupants and to pay all
maintenance and operating costs (including fuel costs) appropriate to maintain
such automobile.

    (d) Tax Services. The Company agrees to engage Arthur Andersen LLP, or such
other nationally recognized independent certified public accounting firm as the
Company may select, to prepare Executive's United States and foreign personal
income tax returns for the 2001 calendar year at the Company's expense.

    (e) Life Insurance. During the Term, the Company shall provide Executive
with and shall pay the premiums on one or more term life insurance policies with
a death benefit in the aggregate amount of $1,000,000.

6.  EXPENSES.

    (a) General. During the period of his employment, Executive shall be
reimbursed for his business-related expenses incurred on behalf of the Company
in accordance with the travel and entertainment expense policy of the Company as
adopted by the Board of Directors from time to time and in effect at the time
the expense was incurred. Executive agrees to maintain such records and
documentation of all such expenses to be reimbursed by the Company hereunder as
the Company shall require and in such detail as the Company may reasonably
request.

    (b) Relocation. The Company agrees to pay Executive's reasonable relocation
expenses from London to Philadelphia, Pennsylvania, including a gross-up amount
for applicable tax liabilities, if any, arising out of the reimbursement of such
relocation expenses.

                                       4
<PAGE>

    (c) Local Housing. The Company agrees to pay the expenses associated with a
suitable apartment for Executive in Miami, Florida for as long as Executive
shall reasonably require such apartment, and shall pay Executive a gross-up
amount for applicable tax liabilities, if any, arising out of the provision of
such apartment.

    (d) Commuting Expenses. For the period reasonably required by Executive, the
Company agrees to pay Executive's reasonable commuting expenses between
Philadelphia and the Company's Miami, Florida offices.

7.  TERMINATION.  The term of Executive's employment under this Agreement may be
terminated prior to expiration of the Term provided in Section 2 hereof in
accordance with the following paragraphs.  Any termination of Executive's
employment by the Company for Cause or otherwise shall be communicated by notice
of termination to Executive given in accordance with Section 14 hereof.

    (a) Mutual. Executive's employment under this Agreement may be terminated
upon the mutual written agreement (which may include, if so agreed to by the
Board of Directors and Executive, severance payments and/or benefits) of the
Company and Executive.

    (b) Death. In the event of the death of Executive, Executive's employment
under this Agreement shall be automatically terminated.

    (c) Disability. If, during Executive's employment under this Agreement,
Executive shall become disabled and unable to perform his duties as required
herein ("Disability") for a consecutive period of 120 days, then the Company
may, upon 60 days' written notice to Executive, terminate Executive's employment
under this Agreement.

    (d) Cause. Executive's employment under this Agreement may be terminated by
the Company, with or without Cause as herein defined, upon giving Executive 60
days written notice. For purposes of this Agreement, the term "Cause" shall mean
the termination of Executive by the Board of Directors of the Company as a
result of the existence or occurrence of one or more of the following conditions
or events:

        (i) An act or acts of fraud, misappropriation, or embezzlement by
    Executive.

        (ii) Commission of a felony that arises in connection with the
    Company's business.

                                       5
<PAGE>

        (iii) A good faith determination by the Board of Directors that
    Executive has engaged in conduct or activities materially damaging to the
    Company or any affiliate of the Company (it being understood that neither
    conduct or activities pursuant to Executive's exercise of his good faith
    business judgment nor unintentional physical damage to properties by
    Executive shall be a ground for such a determination).

        (iv) Executive performs any act or makes any oral or written statement
    which places the Company or its products, services, employees or agents in
    public ridicule, false light, controversy or contempt.

        (v) A serious violation of any of the Company's policies to which
    officers of the Company are subject, including without limitation the
    Company's insider trading policy or the Company's Electronic and Telephonic
    Communication System Policy.

        (vi) Any material act or omission by Executive involving malfeasance or
    negligence in performance of Executive's duties to the Company to the
    material detriment of the Company, as determined by the Board of Directors
    in good faith; provided that, if the Board of Directors determines that
    such act or omission can be corrected, Executive shall have 30 days after
    Executive's receipt of written notice from the Board of Directors to
    correct such act or omission.

    (e) Voluntary Resignation. Executive may voluntarily resign from his
position with the Company at any time.

    (f) Resignation for Non-promotion. Executives' voluntary resignation
following the failure of the Company to award Executive the title of " Chief
Executive Officer" on or before the first anniversary of the Employment Date as
required in Section 3(a) shall be deemed a termination by the Company without
Cause.

    (g) Change in Control. In the event of a "Change in Control," Executive may
elect, at any time during the 180-day period immediately following such Change
in Control, to deliver 60 days' written notice to the Company of his termination
of employment hereunder. For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred when:

        (i) any person, including a "group" as defined in Section 13(d)(3) of
    the Securities Exchange Act of 1934, as amended, other than Michael Jaharis
    or any of his family members or affiliates, becomes the beneficial owner of
    fifty percent or more of the capital stock of the Company;

                                       6
<PAGE>

        (ii) the Company is merged with or into any other company where members
    of the Board of Directors of the Company immediately prior to such
    transaction do not constitute a majority of the Board of Directors of the
    Company or the surviving entity immediately following such transaction; or

        (iii) substantially all of the Company's assets are acquired by any
    third party not an affiliate of the Company or of Michael Jaharis, or any of
    his family members or affiliates.

8.  DEATH AND DISABILITY.

    (a) Death. In the event of the death of Executive, Executive's employment
shall be deemed immediately terminated and the Company shall pay Executive (or
his heirs and/or personal representatives): (i) Executive's Base Compensation,
unused vacation entitlement, and other benefits through the date of termination;
and (ii) Executive's Bonus Compensation payable under Section 4(b) and
Executive's Annual Stock Options for the fiscal year in which Executive's
termination occurred, in each case pro rated through the date of such
termination.

    (b) Disability. In the event of the termination of Executive's employment
under this Agreement by reason of Executive's Disability, the Company shall pay
Executive (or his heirs and/or personal representatives): (i) Executive's Base
Compensation at the then current rate through the earlier to occur of (A) the
expiration of the Initial Term or the then current Renewal Term, (B) the date
Executive obtains employment with a third party, and (C) the date Executive
returns to full-time employment with the Company; (ii) unused vacation
entitlement, and other benefits through the date of such termination; and (iii)
Executive's Bonus Compensation payable under Section 4(b) and Executive's Annual
Stock Options for the fiscal year in which Executive's termination occurred, in
each case pro rated through the date of such termination.

9.  SEVERANCE.  In the event of the termination of Executive's employment under
this Agreement for any reason other than Executive's death or Disability, the
Company shall provide the payments and benefits to Executive as indicated below:

    (a) With Cause or Voluntary Resignation. If Executive is terminated for
Cause (as defined in Section 7(d) of this Agreement), or if Executive
voluntarily terminates his employment by the Company other than as provided in
Section 9(b) or Section 9(c), the Company shall pay Executive the Base
Compensation, unused vacation entitlement and all expenses in connection with
Executive's use of the automobile under Section 5(c) through such date of
termination, and the Company shall have no further obligation to provide
compensation or benefits to Executive under this Agreement; except that, to the
extent that the Company's insurance, stock option and other benefit plans
provide certain rights and benefits after an

                                       7
<PAGE>

employee's termination, Executive may continue to receive such rights and
benefits in accordance with the terms of such plans.

    (b) Without Cause or Resignation for Non-promotion. If Executive is
terminated by the Company without Cause (including a termination pursuant to
Section 7(f)), Executive shall receive the following:

        (i) Executive shall receive the Base Compensation, Bonus Compensation,
    life insurance, health insurance and automobile benefits under this
    Agreement until the earlier to occur of (x) the date 24 months from the date
    of such termination and (y) the date on which Executive obtains new
    employment with a third party.

        (ii) A pro rata portion of the stock options previously awarded to
    Executive shall automatically vest at a rate of 25% of such options per
    calendar year of employment by Executive prior to termination.

        (iii) The Restricted Stock Shares shall continue to vest in accordance
    with the vesting schedule set forth in Section 4(e) until the earlier to
    occur of (x) the date 24 months from the date of such termination and (y)
    the date on which Executive obtains new employment with a third party, at
    which time such shares of common stock shall be 100% vested.

    (c) Following a Change in Control. In the event of a "Change in Control" (as
defined in this Section 9(c)), Executive may elect, at any time during the 180-
day period immediately following such Change in Control, to deliver 60 days'
written notice to the Company of his termination of employment hereunder. In the
event of such termination, Executive shall receive the following (collectively,
the "Change in Control Severance Payment"):

        (i) A lump-sum cash payment payable within 30 days of the effective date
    of such termination in an amount equal to 2 times the sum of (A) Executive's
    Base Compensation then in effect and (B) the Bonus Compensation paid or
    payable to Executive for the most recently completed fiscal year of the
    Company.

        (ii) Executive shall receive the life insurance, health insurance and
    automobile benefits under this Agreement until the earlier to occur of (x)
    the date 24 months from the date of such termination and (y) the date on
    which Executive obtains new employment with a third party.

        (iii) All unvested stock options previously awarded to Executive shall
    vest in accordance with the Company's stock option plan pursuant to which
    such options were vested.

                                       8
<PAGE>

        (iv) The Restricted Stock Shares shall be 100% vested effective as of
    the date of such termination.

        (v) (A) In the event that all or any portion of the Change in Control
    Severance Payment, other than pursuant to clause 9(c)(iii), payable to
    Executive shall (1) constitute "parachute payments" within the meaning of
    Section 280G (as it may be amended or replaced) of the U.S. Internal Revenue
    Code (the "Code") ("Parachute Payments") and (2) be subject to the excise
    tax imposed by Section 4999 (as it may be amended or replaced) of the Code
    ("the Excise Tax"), then the Company shall pay to Executive an additional
    amount (the "Gross-Up Amount") such that the net benefits retained by
    Executive after the deduction of the Excise Tax (including interest and
    penalties) excluding any federal, state or local income taxes (including
    interest and penalties) upon the Gross-Up Amount shall be equal to the
    benefits that would have been payable as a Change in Control Severance
    Payment, other than pursuant to clause 9(c)(iii), had the Excise Tax not
    been applicable.

            (B) The determination of whether the Excise Tax is payable, the
    amount thereof, and the amount of any Gross-Up Amount shall be made in
    writing in good faith by the Company's nationally recognized independent
    certified public accounting firm (the "Accounting Firm"). If such
    determination is not finally accepted by the Internal Revenue Service on
    audit, then appropriate adjustments shall be computed based upon the amount
    of Excise tax and any interest or penalties so determined; provided,
    however, that Executive in no event shall owe the Company any interest on
    any portion of the Gross-Up Amount that is returned to the Company. For
    purposes of making the calculations required by this Section 9(c)(v), to the
    extent not otherwise specified herein, reasonable assumptions and
    approximations may be made with respect to applicable taxes and reasonable,
    good faith interpretations of the Code may be relied upon. The Company and
    Executive shall furnish such information and documents as may be reasonably
    requested in connection with the performance of the calculations under this
    Section 9(c)(v). The Company shall bear all costs incurred in connection
    with the performance of the calculations contemplated by this Section
    9(c)(v). The Company shall pay the Gross-Up Amount to Executive no later
    than 60 days following receipt of the Accounting Firm's determination of the
    Gross-Up Amount.

10. CONFIDENTIAL INFORMATION.  Executive recognizes and acknowledges that he
will have access to certain confidential information of the Company and of
corporations with whom the Company does business, and that such information
constitutes valuable, special and unique property of the Company and such other
corporations.  During the term of this Agreement and for a period of 5 years
immediately following the date of termination of this Agreement, Executive
agrees not to disclose or use any confidential information, including without
limitation,

                                       9
<PAGE>

information regarding research, developments, "know-how," prices, suppliers,
customers, costs or any knowledge or information with respect to confidential or
trade secrets of the Company, it being understood that such confidential
information does not include information that is publicly available unless such
information became publicly available as a result of a breach of this Agreement.
Executive acknowledges and agrees that all notes, records, reports, sketches,
plans, unpublished memoranda or other documents belonging to the Company, but
held by Executive, concerning any information relating to the Company's
business, whether confidential or not, are the property of the Company and will
be promptly delivered to it upon Executive's leaving the employ of the Company.
Executive also agrees to execute such confidentiality agreements that the Board
may adopt, and may modify from time to time, as a standard form to be executed
by all employees of the Company.

11. INTELLECTUAL PROPERTY. Executive acknowledges and agrees that all
discoveries, inventions, designs, improvements, ideas, writings, copyrights,
publications, study protocols, study results, computer data or programs, or
other intellectual property, whether or not subject to patent or copyright laws,
which Executive shall conceive solely or jointly with others, in the course or
scope of his employment with the Company or in any way related to the Company's
business, whether during or after working hours, or with the use of the
Company's equipment, materials or facilities (collectively referred to herein as
"Intellectual Property"), shall be the sole and exclusive property of the
Company without further compensation to Executive.  As used in this Section 11
and the following Section 12, it is understood that the Company's principal
"business" is the research, development, manufacturing, marketing and sale of
pharmaceutical products and devices.  Executive shall take such steps as are
necessary or appropriate to maintain complete and current records of the
Intellectual Property conceived by Executive, and Executive shall assign to the
Company or its designees, the entire right, title and interest in said
Intellectual Property.

12. NON-COMPETITION. Executive acknowledges that his services to be rendered
hereunder are of a special and unusual character that have a unique value to the
Company and the conduct of its business, the loss of which cannot adequately be
compensated by damages in an action at law. In view of the unique value to the
Company of the services of Executive for which the Company has contracted
hereunder, and because of the confidential information to be obtained by or
disclosed to Executive as herein above set forth, and as a material inducement
to the Company to enter into this Agreement and to pay and make available to
Executive the compensation and other benefits referred to herein, Executive
covenants and agrees that Executive will not, anywhere in the world, directly or
indirectly, whether as principal, agent, trustee or through the agency of any
corporation, partnership, association or agent (other than as the holder of not
more

                                       10
<PAGE>

than 5% of the total outstanding stock of any company the securities of which
are traded on a regular basis on recognized securities exchanges):

    (a) while employed under this Agreement and for any period during which
Executive is receiving payments from the Company (pursuant to Section 8 hereof)
following a termination as a result of Employee's Disability, (i) work for (in
any capacity, including without limitation, whether or not for compensation, as
a director, officer, employee, consultant or advisor) any other business or
pharmaceutical company that competes with the Company or (ii) recruit, or
otherwise influence or attempt to induce employees of the Company to leave the
employment of the Company; and

    (b) for the two year period immediately following the last date on which
Employee shall receive payments from the Company pursuant to Section 8 hereof
following a termination of employment as a result of Employee's Disability, and
for the longer of (i) the period during which Executive receives any payment
under this Agreement, and (ii) the two-year period immediately following the
termination of this Agreement due to the expiration of the Term of this
Agreement, work for a company or business (in any capacity, including without
limitation, whether or not for compensation, as a director, officer, employee,
consultant or advisor) that is in the business of developing any products or
projects which, as of the date of such termination, are or would be materially
competitive with any product the Company sells or which were undergoing research
and development or feasibility consideration by the Company; provided that for
purposes of this Section 12(b), products or projects under "feasibility
consideration" will consist of potential products or projects known and
identified in writing at the time of termination but not yet in active
development or specifically scheduled to enter active development at the time of
termination that have either undergone active formulation efforts and/or in vivo
study within 3 months prior to termination or do undergo active formulation
efforts and/or in vivo study within the 6 months following such termination.

    Executive has carefully read and considered the provisions of Sections 10,
11 and 12 hereof and agrees that the restrictions set forth in such sections are
fair and reasonable and are reasonably required for the protection of the
interests of the Company, its officers, directors, shareholders, and other
employees, for the protection of the business of the Company, and to ensure that
Executive devotes his full-time and efforts to the business of the Company.
Executive acknowledges that he is qualified to engage in businesses other than
those that are subject to this Section 12.  It is the belief of the parties,
therefore, that the best protection that can be given to the Company that does
not in any way infringe upon the rights of Executive to engage in any unrelated
businesses is to provide for the restrictions described above.  In view of the
substantial harm which would result from a breach

                                       11
<PAGE>

by Executive of Sections 10, 11 and 12, the parties agree that the restrictions
contained therein shall be enforced to the maximum extent permitted by law. In
the event that any of said restrictions shall be held unenforceable by any court
of competent jurisdiction, the parties hereto agree that it is their desire that
such court shall substitute a reasonable judicially enforceable limitation in
place of any limitation deemed unenforceable and that as so modified, the
covenant shall be as fully enforceable as if it had been set forth herein by the
parties.

13. REMEDIES. The provisions of Sections 10, 11 and 12  of this Agreement
shall survive the termination of this Agreement as set forth therein, regardless
of the circumstances or reasons for such termination, and inure to the benefit
of the Company.  The restrictions set forth in Sections 10, 11 and 12  are
considered to be reasonable for the purposes of protecting the business of the
Company.  The Company and Executive acknowledge that the Company would be
irreparably harmed and that monetary damages would not provide an adequate
remedy to the Company if the covenants contained in Sections 10, 11 and 12 were
not complied with in accordance with their terms.  Accordingly, Executive agrees
that the Company shall be entitled to injunctive and other equitable relief to
secure the enforcement of these provisions, in addition to any other remedy
which may be available to the Company, and that the Company shall be entitled to
receive from Executive reimbursement for reasonable attorneys' fees and expenses
incurred by the Company in enforcing these provisions.

14. NOTICES.  Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by registered mail to the
addresses below or to such other address as either party shall designate by
written notice to the other:

     If to Executive:  To the address set forth below his signature on the
signature page hereof.

     If to the Company:    Kos Pharmaceuticals, Inc.
                           1001 Brickell Bay Drive
                           25th Floor
                           Miami, FL  33131
                           Attention:  Chairman of the Board

15. MISCELLANEOUS.

    (a) For purposes of determining the amount of any gross-up payment by the
Company for applicable tax liabilities arising out of payments required to be
made by the Company under this Agreement, Executive shall be deemed to pay U.S.
federal income taxes at the highest marginal rate of U.S. federal income
taxation in the calendar year in which such gross-up payment is to be paid

                                       12
<PAGE>

    (b) This Agreement contains the entire agreement of the Company and
Executive, and the Company and Executive hereby acknowledge and agree that this
Agreement supersedes any prior statements, writings, promises, understandings or
commitments.

    (c) No future oral statements, promises or commitments with respect to the
subject matter hereof, or other purported modification hereof, shall be binding
upon the parties hereto unless the same is reduced to writing and signed by each
party hereto.

    (d) The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company. Executive may not assign his rights and obligations under this
Agreement. This Agreement shall be subject to and governed by the laws of the
State of Florida, without regard to the conflicts of laws principles thereof.

    (e) The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or the interpretation of this
Agreement.

    (f) The failure of any party to enforce any provision of this Agreement
shall in no manner affect the right to enforce the same, and the waiver by any
party of any breach of any provision of this Agreement shall not be construed to
be a waiver by such party of any succeeding breach of such provision or a waiver
by such party of any breach of any other provision.

    (g) All written notices required in this Agreement shall be sent postage
prepaid by certified or registered mail, return receipt requested.

    (h) In the event any one or more of the provisions of this Agreement shall
for any reason be held invalid, illegal or unenforceable, the remaining
provisions of this Agreement shall be unimpaired, and the invalid, illegal or
unenforceable provision shall be replaced by a mutually acceptable valid, and
enforceable provision which comes closest to the intent of the parties.

    (i) This Agreement may be executed in any number of counterparts, each of
which shall constitute an original and all of which together shall constitute
one and the same instrument.

                                       13
<PAGE>

    NOW THEREFORE, the parties have executed this Employment Agreement as of
the day and year first above written.

                                  KOS PHARMACEUTICALS, INC.

                                  By:  /s/ Daniel M. Bell
                                     --------------------
                                  Name: Daniel M. Bell
                                  Title:  Chief Executive Officer

                                  EXECUTIVE

                                  /s/ Adrian Adams
                                  ------------------
                                  Adrian Adams

                                  Address:

                                       14
<PAGE>

                                  Attachment 1
                            (Stock Option Agreement)

                                       15

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