Document:

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                                                                    EXHIBIT 10.3
                             EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT, dated as of April 15, 2000 (the "Effective
Date"), is made by and between Jeffrey A. Dachis, residing at 14 Prince Street,
New York, New York, 10012 ("Executive") and Razorfish, Inc., a Delaware
corporation having its principal executive offices at 32 Mercer Street, New
York, New York 10013 (the "Company").

     WHEREAS, Executive has been serving the Company as President and Chief
Executive Officer pursuant to that employment agreement dated September 18, 1996
(the "Original Employment Agreement") a copy of which is attached hereto as
Exhibit A;

     WHEREAS, pursuant to the Original Employment Agreement, the Executive has
agreed to furnish services to the Company through and including December 31,
2001 (the "Original Expiration Date") as that period may be extended in
accordance with the terms and conditions of the Original Employment Agreement;

     WHEREAS, the Company, by it's Board of Directors (the "Board"), has
determined that it is advisable and in the best interests of the Company to
secure the continued service and employment of Executive on behalf of the
Company in accordance with the terms and conditions of this agreement (the
"Agreement") and Executive is willing to render such services to the Company on
the terms and conditions set forth herein; and

     WHEREAS, this Agreement shall serve as a mutual termination and release
with respect to the Original Employment Agreement;

     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:

     1.  Position and Responsibilities.
         ------------------------------

        1.01  Position.  Executive shall serve as President, Chief Executive
              --------
Officer and member of the Board of the Company.  In this capacity Executive
shall, subject to the bylaws of the Company and to the reasonable direction of
the Board, have all the authority and responsibility customarily associated with
such positions in a company of the size and nature of the Company.  Executive
shall report directly and solely to the Board.  The Board shall either vote or
recommend to the shareholders of the Company at each meeting of shareholders of
the Company held for the election of directors, as appropriate, that during the
Term (as defined in paragraph 2.01 below) Executive be elected as a director of
the Company.

        1.02  Responsibilities.  During the Term hereof, Executive shall devote
              ----------------
substantially all of his business time and his efforts, business judgment, skill
and
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knowledge exclusively to the advancement of the business and interests of
the Company and to the discharge of his duties and responsibilities hereunder
provided, however, that Executive may also engage in any or all of the following
activities so long as such engagement does not, in the aggregate, materially
interfere with the proper performance of his duties and responsibilities for the
Company:

             (a) serve as a member of the board of directors of a reasonable
number of other business entities, trade associations and/or charitable
organizations (consistent with the policies, if any, adopted by the Board and
after giving notice to the Company's General Counsel);

             (b) engage in charitable activities and community affairs;

             (c) accept and fulfill a reasonable number of speaking engagements;

             (d) manage his personal investments and affairs;

             (e) continue his involvement with Razorfish Studios, Inc.; and

             (f) devote time to other ventures in which the Company has a direct
or indirect equity interest.

     2.  Term, Termination and Expiration of Employment.
         ----------------------------------------------

        2.01  Term.  Subject to the terms of this Agreement, Executive's
              ----
employment under this Agreement shall commence as of the Effective Date and
continue through December 31, 2004, unless sooner terminated as provided for in
this Agreement (the "Initial Term"). Unless this Agreement shall have been
terminated earlier in accordance with the provisions hereof, at the end of the
Initial Term, and on each subsequent annual anniversary of that date thereafter,
the Agreement shall be extended automatically for an additional one (1) year
period unless either party hereto gives the other party written notice of non-
extension at least one hundred eighty (180) days prior to the otherwise
scheduled expiration of the term. The Initial Term together with any extended
periods shall be referred to herein as the "Term".

        2.02  Termination for Cause.
              ---------------------

             (a) The Company shall have the right to terminate the employment of
Executive for Cause (as defined in Section 2.02(b) below).  Effective as of the
date that the employment of Executive terminates by reason of Cause:

                 (i) this Agreement shall terminate and no further payments of
the compensation described in Section 3 (except for such remaining payments of
Minimum Annual Compensation under Section 3.01 relating to periods during which
Executive was employed by the Company, Benefits which are required by

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applicable law to be continued, a lump-sum payout for accrued, but unused,
vacation days and reimbursement of expenses incurred prior to the date of
termination under Section 3.03) shall be made; and

                 (ii) any stock options granted by the Company to Executive
during the Term hereof and during the term of the Original Employment Agreement,
which have not vested, shall be forfeited by Executive.

             (b) "Cause" for termination shall mean:

                 (i) The Executive's repeated failure or refusal to materially
perform his duties and responsibilities as set forth in this Agreement, or,
subject to the engagement of the activities set forth in Section 1.02 above, the
failure of the Executive to devote substantially all of his business time and
attention to the business and affairs of the Company in accordance with the
terms hereof;

                 (ii) The willful misappropriation of the funds or property of
the Company;

                 (iii)  Conviction in a court of law of, or entering a plea of
guilty or no contest to, any felony involving moral turpitude; and

                 (iv) The commission by the Executive of any willful or
intentional act which substantially injures the reputation, business or business
relationships of the Company, including without limitation, a willful or
intentional breach of the provisions of Section 5 of this Agreement.

             (c) Notwithstanding the foregoing, there shall be no termination
for Cause without:

                 (i) Executive first being given written notice by the Board, an
opportunity to be heard before the Board and an opportunity to cure the actions
or omissions giving rise to "Cause" (to the extent such cure is reasonably
possible) within a reasonable time period; and

                 (ii) a determination, by vote of a number of the members of the
Board representing not less than two-thirds (2/3) of the total number of Board
members that such Cause exists, which determination shall be reviewable de novo
                                                                        -------
in arbitration in accordance with Section 7.05 below.

        2.03  Termination Without Cause or by Executive for Good Reason.
              ---------------------------------------------------------

             (a) If during the Term hereof the Company terminates the employment
of Executive and such termination is not for Cause or due to a notice of non-
renewal pursuant to Section 2.01, or Executive terminates his employment
hereunder for "Good Reason" (defined in Section 2.03(d) below), then:

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                 (i) The Company shall pay to Executive pursuant to Section
2.03(b) below an amount equal to the monthly portion of Executive's Minimum
Annual Compensation as in effect on the date of such termination for the greater
of thirty-six (36) months and the number of months remaining in the then-
scheduled term of this Agreement (the "Severance Period") plus a lump-sum payout
in respect of accrued, but unused, vacation days;

                 (ii) The Company shall pay to the Executive the Termination
Bonus (as defined in Section 2.03(c) below);

                 (iii)   All stock options granted by the Company to Executive
during the Term hereof and during the term of the Original Employment Agreement
shall accelerate and become immediately exercisable and shall remain exercisable
pursuant to the terms of the applicable stock option plans;

                 (iv) Executive shall be entitled to continue his participation
in all medical, dental, vision, prescription drug, hospitalization and life
insurance coverages and in all other employee welfare plans, programs and
arrangements (collectively, "Health Benefit Plans") in which he was
participating on the date termination in accordance with 2.03(a) until the
sooner of the expiration of the Severance Period and the date (or dates) that
Executive receives equivalent coverages and benefits under the plans and
programs of any subsequent employer. In the event that any Health Benefit Plans
do not permit his continued participation, the Company shall provide to
Executive, on a quarterly basis, the economic equivalent of such Health Benefit
Plans in which Executive may not participate on an after-tax basis; and

                 (v) The Company shall pay to the Executive an amount equal to
the unused vacation days which have accrued (regardless of the Company's policy
regarding unused vacation day roll over) during any year up to the date of such
termination.

             (b) Payments to be made to Executive pursuant to Section
2.03(a)(i), 2.03(a)(ii) and 2.03(a)(v) shall be payable promptly following
termination pursuant to Section 2.03(a).

             (c) As used in this Agreement, "Termination Bonus" shall mean an
amount equal to the greater of (i) Executive's actual bonus earned for the year
preceding the year in which such termination occurs, and (ii) the Executive's
target bonus for the year of such termination multiplied by two (2).

             (d) For purposes of this Agreement, Executive shall be deemed to
have "Good Reason" to terminate this Agreement following the occurrence without
Executive's consent of any of the events enumerated in this Section 2.03(d)
provided that Executive first deliver to the Company twenty (20) days written
notice of such intended termination and provided further that the Company fails
to cure any such events indicated

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in such notice (to the extent such cure is reasonably possible) within a
reasonable time period:

                 (i) any reduction in Executive's Minimum Annual Compensation,
target percentage of Executive's Annual Bonus or any other material employee
benefit or perquisite enjoyed by Executive other than as part of an overall
reduction in such benefits or perquisites applying to the Company's senior
executives generally;

                 (ii) any failure to continue Executive as President, Chief
Executive Officer and member of the Board;

                 (iii) any material diminution in Executive's duties or the
assignment to Executive of duties that are materially inconsistent with
Executive's then current duties;

                 (iv) any other material breach by the Company of any of the
provisions described in this Agreement;

                 (v) the occurrence of a Change in Control (provided that
Executive remains employed with the Company for six (6) months thereafter); or

                 (vi) failure to obtain the assumption of Executive's employment
agreement by any successor to all or substantially all of the business or assets
of the Company.

        2.04  Expiration or Voluntary Termination.
              -----------------------------------

             (a) In the event that this Agreement shall expire in accordance
with the terms of Section 2.01:

                 (i) no further payments of the compensation described in
Section 3 shall be due to the Executive by the Company (except for such
remaining payments of Minimum Annual Compensation under Section 3.01 relating to
periods during which Executive was employed by the Company, Benefits which are
required by applicable law to be continued, a lump-sum payout for accrued, but
unused, vacation days and reimbursement of expenses incurred prior to the date
of expiration of the Term under Section 3.03);

                 (ii) any vested stock options granted by the Company to
Executive during the Term hereof and during the term of the Original Employment
Agreement shall remain exercisable for a period of no less than two (2) years
following the date of expiration of the Term;

                 (iii) if the Term hereof expires pursuant to notice given by
the Company to Executive in accordance with Section 2.01, any unvested stock
option granted

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granted by the Company to Executive during the Term hereof and during the
term of the Original Employment Agreement shall accelerate and become
immediately exercisable, as of the date of such termination, to the extent the
same was scheduled to become vested on or before the first anniversary of the
date of such termination; and

                 (iv) the Executive shall have a period (the "Cause Exercise
Period") of no less than the number of days reasonably required to permit the
sale of shares of the Company's stock acquired by Executive upon the exercise of
options due to the status of Executive as an "affiliate" of the Company as such
term is used under the Securities Act of 1933, as amended, together with all
rules and regulations promulgated pursuant thereto provided, however, that such
Cause Exercise Period shall in no event be less than thirty (30) days.

             (b) In the event that Executive voluntarily terminates this
Agreement, Executive shall have the same rights as are set forth in Section
2.02(a) above. Notwithstanding anything set forth in this Agreement to the
contrary, voluntary termination of this Agreement by Executive shall not be
deemed a breach of this Agreement.

        2.05  Death.
              -----

             (a) In the event of Executive's death during the Term hereof:

                 (i) This Agreement shall terminate except as provided in
this Section 2.05;

                 (ii) The Company shall pay promptly in one lump sum by wire
transfer of same day funds to Executive's beneficiary or beneficiaries (or to
his estate if he fails to make such designation):

                      (A) one fourth ( 1/4) of Executive's Minimum Annual
Compensation (as defined in paragraph 3.01 below) as in effect on the date of
his death;

                      (B) a Pro Rata Annual Bonus (as defined in Section 2.05(c)
below; and

                      (C) a lump-sum payout in respect of accrued, but unused,
vacation days;

                 (iii) All stock options granted by the Company to Executive
during the Term hereof and during the term of the Original Employment Agreement
shall accelerate and become immediately exercisable and shall remain exercisable
for a period no less than two (2) years following the date of Executive's death.

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             (b) Executive may designate one or more beneficiaries for the
purposes of this Section by making a written designation and delivering such
designation to the Chief Financial Officer or Treasurer of the Company. If
Executive makes more than one such written designation, the designation last
received before Executive's death shall control for purposes of determining
payments made pursuant to this Section 2.05.

             (c) As used in this Agreement, "Pro Rata Bonus" shall mean the
greater of the Executive's target Annual Bonus (as defined in Section 3.02
below) for the year of termination and the amount of Executive's actual Annual
Bonus earned for the year preceding the year of such termination.

        2.06  Disability.
              ----------

             (a) In the event Executive shall sustain a Disability (as defined
in Section 2.06(b) below) during the Term hereof:

                 (i) This Agreement shall terminate as of the date of
certification of Executive's Disability except as provided in this Section 2.06;

                 (ii) The Company shall pay to Executive:

                      (A) for the period commencing as of the date of
certification of Executive's Disability (as more particularly described in
Section 2.06(b)) and continuing until the earliest of (i) the cessation of
Executive's Disability; (ii) Executive's death; or (iii) attainment of the age
of sixty-five (65) disability benefits in accordance with the Company's
applicable long-term disability program then in effect but in no event less than
sixty percent (60%) of Executive's Minimum Annual Compensation as in effect on
the date of such certification, subject to annual adjustment based upon
increases in the Consumer Price Index; and

                      (B) a Pro Rata Annual Bonus promptly in one lump sum by
wire transfer of same day funds; and

                      (C) a lump-sum payout in respect of accrued, but unused,
vacation days; and

                 (iii) All stock options granted by the Company to Executive
during the Term hereof and during the term of the Original Employment Agreement
shall accelerate and become immediately exercisable and shall remain exercisable
for a period no less than two (2) years following the date of certification of
Executive's Disability; and

                 (iv) Executive shall be entitled to continue his participation
in all Health Benefit Plans in which he was participating on the date
termination in accordance with 2.06(a)(i) until the earliest of (i) the
cessation of Executive's Disability; (ii) Executive's death; or (iii) attainment
of the age of sixty-five

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(65). In the event that any Health Benefit Plans do not permit his continued
participation, the Company shall provide to Executive, on a quarterly basis, the
economic equivalent of such Health Benefit Plans in which Executive may not
participate on an after-tax basis.

             (b) As used in this Agreement, "Disability" means the inability of
Executive to perform his duties for the Company because of mental or physical
incapacity for one hundred eighty (180) days in any two hundred seventy (270)
day period as shall have been certified by a licensed and qualified physician
selected by the Company.

        2.07 Change of Control.
             -----------------

             (a)  If at any time during the term of this Agreement there is a
     "Change in Control" (defined below):

                 (i)  All stock options granted by the Company to Executive
     during the Term hereof and during the term of the Original Employment
     Agreement shall accelerate and become immediately exercisable and shall
     remain exercisable for the balance of any such option's stated term
     pursuant to applicable stock option plans;

                 (ii) All perquisites more particularly set forth in Sections
     3.03(b), 3.03(d), 3.03(e)(if any) and Benefits, if any, provided in
     accordance with 3.04 below shall become immediately vested; and

                 (iii)  Executive shall be entitled to receive other benefits,
if any, that apply in the event of a Change of Control in accordance with
applicable written plans, programs and arrangements of the Company; provided
that no such benefit is duplicative of the type of benefit provided for under
this Agreement.

             (b)  For purposes of this Agreement, "Change in Control" shall mean
     the occurrence of one or more of the following three events:

                 (i)  After the Effective Date, any Person becomes a beneficial
     owner (as such term is defined in Rule 13d-3 promulgated under the
     Securities Exchange Act of 1934, as amended) of a percentage of the voting
     securities of the Company, measured either by number of voting securities
     or by number of votes entitled to be cast, that is thirty-five percent
     (35%) more than the percentage (if any) of the voting securities of the
     Company, measured in either fashion, that such Person beneficially owned on
     the Effective Date. For purposes of this Agreement, "Person" shall mean any
     natural person, incorporated entity, limited or general partnership,
     business trust, association, agency (governmental or private), division,
     political sovereign, or subdivision or instrumentality, including those
     groups identified as "persons" in Sections 13(d)(3) and 14(d)(2) of the
     Securities Exchange Act of 1934, as amended;

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                 (ii) a majority of the Board consists of individuals other than
Incumbent Directors, which term means the members of the Board on the Effective
Date; provided, however, that any individual becoming a director subsequent to
such date whose election or nomination for election was supported by a two-
thirds of the directors who then comprised the Incumbent Directors shall be
considered to be an Incumbent Director; or

                 (iii)  (x) the Company merges or otherwise combines with
another entity, or (y) all or substantially all of the assets or business of the
Company is disposed of pursuant to a sale, merger, consolidation, liquidation or
other transaction or series of transactions (collectively, a "Triggering
                                                              ----------
Event"), unless the holders of voting securities of the Company immediately
-----    ------
prior to such Triggering Event own, directly or indirectly, by reason of their
ownership of voting securities of the Company immediately prior to such
Triggering Event, more than 66 2/3% of the voting securities of: (A) in the case
of a merger or other combination involving the Company, the surviving
corporation therein, and (B) in any other case, the entity or entities, if any,
that succeed to the business of the Company.

            2.08  No Mitigation or Offset. In the event of any termination of
Executive's employment hereunder, Executive shall be under no obligation to seek
other employment and the Company shall not be entitled to offset against any
amounts due to Executive (other than as expressly provided in Sections
2.03(a)(iv)) on account of any remuneration attributable to any subsequent
employment that Executive may obtain or any claims the Company may have against
Executive.

        3. Compensation and Benefits.
           -------------------------

           3.01  Salary.  During the period of this Agreement, the Company shall
                 ------
pay to Executive a base salary at an annual rate of Four Hundred Fifty-Thousand
($450,000) ("Minimum Annual Compensation") and shall be payable in installments
in accordance with Company policy. The Board shall review the base salary
annually, and may in its sole discretion increase it to reflect performance,
appropriate industry guideline data and other factors. At no time during the
Term shall Executive's annual base salary fall below the Minimum Annual
Compensation without the prior written consent of Executive.

          3.02  Bonus.  (a) Executive shall receive an annual bonus in a target
                -----
amount equal to One Hundred Percent (100%) (the "Target Percentage") of the
Minimum Annual Compensation (the "Annual Bonus"), as the same may be increased
during the Term upon the attainment by the Company of certain goals as
determined by mutual agreement of the Executive and the Compensation Committee
of the Board at the commencement of each year (the "Annual Targets"). In the
event that no Annual Targets are set in any year, the Annual Bonus for such year
shall be determined by the Compensation Committee of the Board based on
Executive's work performance and contribution to the Company and the Company's
performance, as evaluated by the Compensation Committee. The Company shall
conduct Executive performance reviews

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in accordance with the Company policy. Annual bonuses shall be paid to Executive
no later than ninety (90) days following the conclusion of the preceding annual
period (the "Bonus Payment Date").

             (b) (i) Executive shall receive options (each an "Initial
Option") to acquire one million seven hundred fifty thousand (1,750,000) shares
of the common stock of the Company (the "Common Stock") at the closing market
price of each such share as of the date of grant on the following dates: (A)
seven hundred fifty thousand (750,000) shares on or about April 15, 2000, (B)
five hundred thousand (500,000) shares on February 15, 2001,  and (C) five
hundred thousand (500,000) shares on February 15, 2002 (each such grant being
hereafter referred to as a "Tranche").  In addition to the Initial Options,
Executive shall receive an annual grant of bonus options (each a "Bonus Option")
consisting of a minimum of twenty-five percent (25%) of the amount of shares
subject to the Initial Option granted in the preceding annual period, as
determined by the Board in its sole discretion.  The actual percentage of the
Bonus Options to be granted shall be determined as a part of a review process
conducted by the Compensation Committee of the Board during which the Board
shall, in its discretion, consider Executive's work performance and contribution
to the Company and the Company's performance for the immediately preceding
annual period, and such Bonus Option shall be granted no later than the Bonus
Payment Date following such annual period.

 .                (ii) (A) Any Initial or Bonus Option shall become exercisable
as to one-thirty sixth (1/36) of such option each month, beginning on the date
of the grant of such option.

                      (B) Notwithstanding the provisions of Section
3.02(b)(ii)(A) to the contrary, Initial and Bonus Options shall become fully
exercisable (if not already fully exercisable) and thereafter remain fully
exercisable for the balance of their ten-year term irrespective of any
subsequent termination of Executive's employment, on the first day on which the
twenty-trading-day-average closing market price of a share of Common Stock
equals, or exceeds two hundred percent (200%) of its market value on the date of
the grant of such option.

                      (C) Initial Options and Bonus Options granted to Executive
hereunder together with stock options granted to Executive during the term of
Executive's employment under the Original Employment Agreement shall be referred
to herein as Options.

                 (iii) Options may be transferred by Executive, in whole or in
part:

                      (A) gratuitously to any "family member" as such term is
currently defined in Section (A)(1)(a)(5) of the General Instructions to
Securities Exchange Commission Form S-8 (the "S8 Section");

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                      (B) in any transfer described in clause (ii) of such S8
Section;

                      (C) by will; and

                      (D) by the laws of descent and distribution.

             (iv) Executive may elect, on six (6) month's notice to the
Company, to defer gains realized upon (or in connection with) exercise of any
Option, consistent with limitations necessary to avoid any charge to the
Company's earnings or to defer taxation.

             (v) Securities received on exercise of any Option shall be, and
shall remain fully registered on Form S-8 or qualified (both for issuance and
resale) under applicable federal and state securities laws to the extent such
securities are listed, or qualified for trading, on a national securities
exchange or national market system.

             (vi) On any merger, consolidation, reorganization,
recapitalization, spin-off, combination, share exchange, liquidation,
distribution of securities or other property in respect of shares or other
securities (other than ordinary cash dividends) of the Company, or other change
in corporate structure or capitalization affecting the rights or value of the
securities subject to an Option, the Board shall make such appropriate
adjustments as it shall determine, reasonably and in good faith, in the number
and/or kind of securities subject to the Option and/or in the exercise price
and/or in its other terms and conditions, and/or shall make appropriate
provision(s), reasonably and in good faith, for supplemental payments of cash,
securities and/or other property, so as to avoid substantial dilution or
enlargement of the rights and economic value represented by the Options.

             (c) Notwithstanding the provisions of Section 3.02(b) above,
Executive shall be eligible to receive additional equity in the form of stock
options or otherwise and other long-term incentive awards during the Term at
levels and on terms and conditions consistent with both his positions and with
corresponding awards (if any) to other senior executives of the Company.

             (d) Notwithstanding any provision herein to the contrary, an Option
shall in all events comply with the terms of the stock option plan under which
the Option was granted.

        3.03       Reimbursement of Expenses and Certain Other Benefits.  (a)
                    ----------------------------------------------------
The Company shall promptly reimburse Executive for reasonable business expenses
incurred on behalf of the Company in accordance with the Company policy for
senior Executives upon presentation of appropriate receipts.  The Company shall
also reimburse Executive for all legal expenses reasonably incurred in
negotiating and documenting his employment arrangements with the Company.

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             (b) Commencing no later than January 1, 2001, Executive shall be
entitled to participate in a deferred compensation program under which Executive
may defer salary, annual bonuses and other cash compensation payments.

             (c) During the term of this Agreement, Executive shall be entitled
to four (4) weeks of paid vacation per annum accrued in accordance with and
otherwise subject to the Company's vacation policies for senior executives, to
be taken at such times and intervals as shall be determined by the Executive,
subject to the reasonable business needs of the Company. In the event that any
portion of such four (4) weeks of paid vacation are not used by Executive in any
annual period, the Executive shall be entitled to carry forward such unused
vacation time in accordance with the Company's policies.

             (d) The Company shall provide on Executive's behalf Directors and
Officers insurance coverage during the Term hereof and for the period of six (6)
years immediately following the expiration or sooner termination of the Term on
terms no less favorable than those applying to any other present or former Board
member or officer of the Company.

             (e) In addition to the perquisites described in Section 3.03(a)
through 3.03(e) above, Executive shall participate in any other perquisites as
are generally made available to other senior executives, in each case at a level
and on terms and conditions consistent with his position and no less favorable
than those provided to other senior executives.

        3.04 Benefits.  In addition to the compensation payable to
             --------
Executive pursuant to Section 3.01 and Section 3.02 above and the perquisites
provided to Executive in accordance with Section 3.03 above, Executive shall
participate in any Benefits (as defined in this Section 3.04 below) which the
Company from time to time may offer to or provide for its senior Executives in
each case at a level, an on terms and conditions, consistent with his positions
and no less favorable that those provided to any other senior executive. For
purposes of this Agreement, "Benefits" shall mean all the benefits approved by
the Board from time to time and established by the Company for the benefit of
Executives generally and/or for senior Executives of the Company as a class,
which may include, but not be limited to, retirement, deferred compensation and
savings plans, medical, dental, vision, prescription drug and hospitalization
plans, life insurance, short- and long-term disability programs, accidental
death and dismemberment protection and travel accident insurance.  Benefits paid
to Executive shall not be deemed to be in lieu of other compensation to
Executive hereunder as described in this Section 3.

        3.05 Taxes.  (a)  Executive recognizes that the compensation,
             -----
benefits and other amounts provided by the Company under this Agreement may be
subject to federal, state or local income taxes.  It is expressly understood and
agreed that all such taxes shall be the responsibility of Executive.  To the
extent that federal, state or local law requires withholding of taxes on
compensation, benefits or other amounts provided under

                                      12
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this Agreement, the Company shall withhold the necessary amounts from the
amounts payable to Executive under this Agreement.

             (b)  If it is determined, by the Company's independent public
accountants in consultations with the Company's independent legal counsel, that
any amount payable to the Executive by the Company under this Agreement, would
constitute an "Excess Parachute Payment" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and be subject to the
excise tax imposed by Section 4999 of the Code, the Company shall pay to the
Executive a "gross up" amount equal to the amount of such excise tax and all
federal and state income or other taxes with respect to payment of such excise
tax, including all taxes with respect to such gross up amount.  The highest
marginal tax rate applicable to individuals at the time of the payment of such
amount shall be used to determine the federal and state income and other taxes
with respect thereto. The Company shall withhold from any amounts paid under
this Agreement the amount of any such excise tax or other federal, state or
local taxes then required to be withheld.

     4. Ownership of and Rights to Proprietary Information.
        --------------------------------------------------

        4.01  Executive hereby agrees to assign and does assign to the
Company all of Executive's right, title and interest in any and all proprietary
information discovered, conceived, developed, created or reduced to practice by
Executive personally or jointly with others in the course of performing services
under this Agreement.  Executive agrees to disclose to the Company the existence
of all such proprietary information, and further agrees to execute and deliver
promptly all proper papers and perform all proper legal acts which the Company
deems necessary or desirable to vest in the Company all of Executive's right,
title and interest in and to such proprietary information, to enable the Company
to file patent applications, and obtain and maintain Letters Patent with respect
to patentable material and to enable the Company to confirm or perfect its
rights in copyrightable material.  Executive agrees that all proprietary
information which is subject to United States Copyright Law is a "work made for
hire," and in the event that it is determined that any such work is deemed not
to be a work made for hire, the foregoing assignment and agreement to assign
shall apply.

        4.02  The Company agrees that it shall have no right, title or
interest in any proprietary information for which no equipment, supplies,
facility or trade secret information of the Company was used, and which was
developed entirely apart from the services performed by Executive under this
Agreement, and which does not relate to or result from Executive's work under
this Agreement.  Executive represents that, except as disclosed to the Company
in writing as of the date hereof and attached hereto, all material created or
submitted by Executive for or to the Company (excluding any material which is
assigned by the Company to Executive for preparation) shall not be subject to an
obligation of confidentiality in favor of, or infringe upon or violate any
rights of any third person, including but not limited to any right or interest
in any copyright, patent or trade secret rights.

                                      13
<PAGE>

            4.03  "Proprietary information," for purposes of this Agreement,
includes but shall not be limited to any trade secret (as defined in the Uniform
Trade Secrets Act), any inventions, improvements and ideas, whether or not
patentable, or know-how relating thereto, any material which is protected by
copyright and any other Confidential Information (as defined in Section 5.02(c)
below).

        5.  Competition and Confidentiality.
            -------------------------------

            5.01  Competition.  Executive agrees that his services hereunder
                  -----------
are of a special, unique, extraordinary and intellectual character, and his
position with the Company places him in a position of confidence and trust with
the clients and employees of the Company.  Executive acknowledges that the
rendering of services to the clients of the Company necessarily requires the
disclosure to Executive of confidential information and trade secrets of the
Company (such as, without limitation, proprietary software programs, marketing
plans, media plans, budgets, corporate policies, client preferences and
policies, and the identity of appropriate personnel of clients with sufficient
authority to influence a shift in suppliers).  The parties hereto agree that in
the course of Executive's employment with the Company, Executive has and shall
continue to develop a personal relationship with the Company's clients and a
knowledge of those clients' affairs and requirements, and that the relationship
of the Company with its established clientele shall therefore be placed in
Executive's hands in confidence and trust.  Executive consequently agrees that
it is reasonable and necessary for the protection of the trade secrets, goodwill
and business of the Company that Executive make the covenants contained herein.
Accordingly, Executive agrees that while he is in the employ of the Company and
for a six (6) month period after the expiration or sooner termination of the
Term pursuant to Sections 2.02 and 2.04, he shall not except on behalf of the
Company, directly or indirectly, and regardless of the reason for his ceasing to
be employed by the Company:

             (a) attempt in any manner to solicit from any client business of
the type performed by the Company or to persuade any client to cease to do
business or to reduce the amount of business which any such client has
customarily done or is reasonable expected to do with the Company, whether or
not the relationship between the Company and such client was originally
established in whole or in part through his efforts; or

             (b) solicit to employ any employee or exclusive consultant who is
then or at any time during the preceding twelve months was an employee of or
exclusive consultant to the Company, or persuade or attempt to persuade any
employee of or exclusive consultant to the Company to leave the employ of the
Company or to become employed as an employee or retained as a consultant by
anyone other than the Company; or

             (c) render to or for any client any services of the type rendered
by the Company.

                                      14
<PAGE>

As used in this Section 5.01, the "Company" shall include subsidiaries of the
Company and the term "client" shall mean (1) anyone who is a client of the
Company on the date of expiration or sooner termination of the Term hereof or,
if Executive's employment shall not have terminated, at the time of the alleged
prohibited conduct (the "Determination Date"); (2) anyone who was a client of
the Company at any time during the one year period immediately preceding the
Determination Date; and (3) any prospective clients to whom the Company had made
a new business presentation at any time during the one year period immediately
preceding the Determination Date.

          5.02  Confidentiality.  (a)  Executive shall not, during the Term
                ---------------
and thereafter, disclose confidential information of the Company (other than to
an Executive of the Company or to a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by Executive of
services hereunder) and shall not use confidential information of the Company
for any purpose beyond the performance of services under this Agreement without
the prior written consent of the Company. Executive shall have no obligation
hereunder to keep confidential any confidential information if and to the extent
disclosure of any thereof is specifically required by law; provided, however,
that in the event disclosure is required by applicable law, Executive shall
provide the Company with prompt notice of such requirement, prior to making any
disclosure, so that the Company may seek an appropriate protective order.  All
confidential information shall remain the property of the Company. Upon
expiration or sooner termination of the Term hereof, Executive shall return to
the Company all documents, records, plans, designs, notebooks and other
evidences, including all copies thereof, of information, including proprietary
information or confidential information, obtained by Executive during his
employment.

             (c) "Confidential information," for purposes of this Agreement
shall mean all information maintained in confidence by the Company. It includes,
but is not limited to, all information that derives independent economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable through proper means by, other persons who can derive economic
value from its disclosure or use. It includes, but is not limited to,
proprietary information and information relating to such business matters as
research and development, manufacturing processes, management systems and
techniques, the identity and profiles of customers and suppliers and sales and
marketing plans and information. Such information may be marked as confidential
or proprietary, or received under circumstances reasonably interpreted as
imposing an obligation of confidentiality. Such information does not lose its
status as confidential information merely because it was known by a limited
number of persons or entities other than Executive or because it was not
entirely originated by the Company. Confidential information does not include
information which Executive can show is or becomes generally available to the
public without fault of Executive, or which is obtained without restriction on
publication or use from a third party having the right to disclose the same.
Executive acknowledges that the confidential information of the Company is a
valuable, special and unique asset of the Company, and that any disclosure of
such confidential information may be materially damaging to the Company.

                                      15
<PAGE>

          5.03  (a)   The parties acknowledge that the type and periods
of restriction imposed in the provisions of Sections 5.01 and 5.02 above are
fair and reasonable and are reasonably required for the protection of the
Company and the goodwill associated with the business of the Company; and that
the time, scope, geographic area and other provisions of Sections 5.01 and 5.02
have been specifically negotiated by sophisticated commercial parties, it being
understood that the clients of the Company may be serviced from any location and
accordingly it is reasonable that the restrictive covenants set forth herein are
not limited by narrow geographic area but generally by the location of such
clients and potential clients.  Executive specifically acknowledges that his
being restricted from servicing clients and prospective clients as contemplated
by this Agreement shall not prevent him from being employed or earning a
livelihood in the type of business conducted by the Company.

               (b) If any of the covenants in Sections 5.01 or 5.02 above, or
any part thereof, is hereafter construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions. If any of the
covenants contained in Sections 5.01 or 5.02, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court or arbitrator making such
determination shall have the power to reduce the duration and/or areas of such
provision and, in its reduced form, such provision shall then be enforceable.
The parties hereto intend to and hereby confer jurisdiction to enforce the
covenants contained in Sections 5.01 and 5.02 above upon the courts of any state
or other jurisdiction within the geographical scope of such covenants in which a
breach or alleged breach of a covenant contained in Section 5.01 or 5.02 has
been alleged to have occurred. In the event that the courts of any one or more
of such states or other jurisdictions shall hold such covenants wholly
unenforceable by reason of the breadth of such scope or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the right of the Company to the relief provided above in the courts of
any other states or other jurisdictions within the geographical scope of such
covenants, as to breaches of such covenants in such other respective states or
other jurisdictions, the above covenants as they relate to each state or other
jurisdiction being, for this purpose, severable into diverse and independent
covenants. Notwithstanding anything set forth to the contrary express or implied
in this Section 5.03(b), nothing set forth in this Section 5.03(b) is intended
to limit, in any manner, the provisions of Section 7.03.

        6. Equitable and Other Remedies.  If Executive commits a breach,
           ----------------------------
or is about to commit a breach, of any of the provisions of Sections 4 or 5
above, the Company shall have the right to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company.  In addition the Company may take all such other
actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show it has sustained by reason of such
breach.

                                      16
<PAGE>

        7. Miscellaneous.
           -------------

           7.01  Survival.  Executive's duties under Sections 4, 5 and 6
                 --------
shall survive termination of Executive's employment with the Company to the
extent provided under such Section.

           7.02  Assignment.  This Agreement and the rights and obligations
                 ----------
of the parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by way of reorganization, or merger and any assignee
of all or substantially all of its business and properties, but, except as to
any such successor or assignee of the Company, neither this Agreement nor any
rights or benefits hereunder may be assigned by the Company or by Executive.

           7.03  Interpretation.  In case any one or more of the provisions
                 --------------
contained in the Agreement shall be held to be invalid, illegal or unenforceable
in any respect, for any reason, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.  If, moreover, any one or more of the provisions
contained in this Agreement shall be held to be excessively broad, for any
reason, it shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it shall then
appear.

           7.04  Notices.  Any notice which the Company is required or may
                 -------
desire to give to Executive shall be given by personal delivery, established
overnight courier service requiring signature for receipt or registered or
certified mail, return receipt requested, addressed to Executive at Executive's
address of record with the Company or at such other place as Executive may from
time to time designate in writing.  Any notice which Executive is required or
may desire to give to the Company hereunder shall be given by personal delivery,
established overnight courier service requiring signature for receipt or by
registered or certified mail, return receipt requested, addressed to the General
Counsel of the Company at its principal office, or at such other office as the
Company may from time to time designate in writing.  The date of personal
delivery, deposit with courier or the date of mailing such notice shall be
deemed to be the date of delivery thereof.

           7.05  Arbitration.  Any dispute, controversy or claim between the
                 -----------
parties arising out of this Agreement shall be settled by expedited arbitration
conducted in New York City in accordance with the American Arbitration
Association National Rules for the Resolution of Employment Disputes (the
"Rules") and the laws of the State of New York. In the event that a party
requests arbitration, it shall serve on the other party (the "Non-Requesting
Party") a written demand for arbitration stating the substance of the
controversy, dispute or claim, the contention of the party requesting
arbitration and the name and address of the arbitrator appointed by it.  The
Non-Requesting Party, within twenty (20) days of such demand, shall accept the
arbitrator or appoint a second arbitrator and notify the other party of the name
and address of this second arbitrator so selected, in which case the two
arbitrators shall appoint a third.  The decision or award of the single

                                      17
<PAGE>

arbitrator or, in the case of three arbitrators, the decision or award of any
two arbitrators, shall be final and binding upon the parties.  In the event that
the two arbitrators fail in any instance to appoint a third arbitrator within
twenty (20) days of the appointment of the second arbitrator, either arbitrator
or any party to the arbitration may apply to the American Arbitration
Association for appointment of the third arbitrator in accordance with the
Rules.  Should the Non-Requesting Party (upon whom a demand for arbitration has
been served) fail or refuse to accept the arbitrator appointed by the other
party or to appoint an arbitrator within twenty (20) days, the single arbitrator
shall have the right to decide alone, and such arbitrator's decision or award
shall be final and binding upon the parties.  The decision of the arbitrator or
arbitrators shall be in writing and shall set forth the basis therefor.  The
parties shall abide by all awards rendered in the arbitration proceedings, and
all such awards may be enforced and executed upon in any court having
jurisdiction over the party against whom enforcement of such award is sought.
The Company shall pay all administrative charges, arbitrator's fees, reasonable
legal fees and other related expenses of the arbitration (the foregoing fees and
expenses are collectively referred to herein as "Arbitration Costs"), provided,
                                                                      --------
however, that Executive shall reimburse the Company for all Arbitration Costs to
the extent that his claims and defenses are found to lack any reasonable basis.
The foregoing, however, shall not limit the right of either party to seek
equitable relief from any court of competent jurisdiction as more particularly
described in Section 6 above or otherwise.   For the purposes hereof, Executive
hereby submits to the jurisdiction of the federal and state courts in New York
and notice of demand, process and/or summons in connection with legal
proceedings, may be served upon Executive by registered or certified mail in
accordance with Section 7.04 with the same effect as if personally served.

           7.05  Waiver.  If either party should waive any breach of any
                 ------
provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provisions of
this Agreement.

           7.06  Withholding.  All payments made by the Company under this
                 -----------
Agreement shall be reduced by any tax or other amounts required to be withheld
by the Company under applicable law.

           7.07  Complete Agreement and Amendments.  This Agreement is the
                 ---------------------------------
entire agreement of the parties hereto with respect to the subject matter
hereof.  This Agreement may not be amended, supplemented, canceled or discharged
except by written instrument executed by both parties hereto.

           7.08  Applicable Law.  This Agreement has been negotiated in, and
                 --------------
shall be governed by the internal laws of the State of New York.

           7.09  Headings.  The headings of the sections hereof are inserted
                 --------
for convenience only and shall not be deemed to constitute a part hereof or to
affect the meaning thereof.

                                      18
<PAGE>

           7.10  Expectations Regarding Employment and Service as Officer
                 --------------------------------------------------------
or Director.
-----------

                 (a) The Company and Executive agree that this Agreement
expresses all of the expectations between Executive and the Company regarding
the term of Executive's employment and Executive's and the Company's right to
terminate that employment and supersedes all other prior agreements whether
written or oral relating to the Executive's employment, including, without
limitation, the Original Employment Agreement. Without limiting the foregoing,
Executive acknowledges that the Company, in its sole discretion, may decline in
the future to renew his Employment upon termination of this Agreement for any
reason.

                 (b) Executive confirms that Executive has reviewed this
Agreement carefully and understands it. Executive further confirms that
Executive has consulted with or been afforded ample opportunity to consult with
legal counsel representing Executive concerning this Agreement and any other
agreements between or among Executive and the Company.

        IN WITNESS WHEREOF, the parties have hereunto set their hand as of the
date first set forth above.

------------------------------------------------------
Jeffrey A. Dachis (the "Executive")

RAZORFISH, INC.

BY:
   ---------------------------------------------------
ITS:
       -----------------------------------------------

                                      19<PAGE>

                                                                     EXHIBIT 4.1

                          ___________________________

                             AMENDED AND RESTATED

                            STOCKHOLDERS AGREEMENT

                       ENDO PHARMACEUTICALS HOLDINGS INC.

                           Dated as of July 14, 2000

                         ____________________________
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                         Page
                                                                         ----
<S>                                                                      <C>
ARTICLE I

     RESTRICTIONS ON TRANSFER OF STOCK...................................   2
     1.1  General Restriction on Transfer by Management Stockholders.....   2
     1.2  Permitted Transferees..........................................   3

ARTICLE II

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

ARTICLE III

     PURCHASE PRICE......................................................   7
     3.1  Fair Market Value..............................................   7
     3.2  Carrying Value.................................................   7
     3.3  Certain Defined Terms..........................................   8

ARTICLE IV

     PROHIBITION ON PURCHASES............................................   9
     4.1  Prohibited Purchases...........................................   9

ARTICLE V

     SALES TO THIRD PARTIES..............................................  12
     5.1  General........................................................  12
     5.2  Agreements to Be Bound.........................................  12
     5.3  Involuntary Transfers..........................................  12
     5.4  Tag- and Drag-Along Rights.....................................  13

ARTICLE VI

     REGISTRATION RIGHTS.................................................  16
     6.1  Incidental Registration........................................  16
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                         <C>
     6.2   Expenses.......................................................  18
     6.3   Holdback and Other Agreements..................................  18
     6.4   Indemnification................................................  19

ARTICLE VII

     CHARTER DOCUMENTS....................................................  19
     7.1   Charter Documents..............................................  19

 ARTICLE VIII

     TERMINATION..........................................................  20
     8.1   Sale of the Company............................................  20
     8.2   Cessation of Ownership of Stock................................  20
     8.3   Other Termination Events.......................................  20

ARTICLE IX

     MISCELLANEOUS PROVISIONS.............................................  21
     9.1   Stock Certificate Legend.......................................  21
     9.2   Option Plans...................................................  21
     9.3   New Management Stockholders....................................  22
     9.4   No Other Arrangements or Agreements............................  22
     9.5   Amendment and Modification.....................................  22
     9.6   Assignment.....................................................  22
     9.7   Recapitalizations, Exchanges, etc. Affecting the Common Stock..  23
     9.8   Transfer of Common Stock.......................................  23
     9.9   Further Assurances.............................................  24
     9.10  Governing Law..................................................  24
     9.11  Invalidity of Provision........................................  24
     9.12  Notices........................................................  24
     9.13  Headings; Execution in Counterparts............................  26
     9.14  Entire Agreement; Effect on Certain Other Agreements...........  26
     9.15  Injunctive Relief..............................................  26
     9.16  Attorneys' Fees................................................  26
 </TABLE>

                                      ii
<PAGE>

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

          AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of July 14, 2000
(this "Agreement"), by and among Endo Pharmaceuticals Holdings Inc., a Delaware
       ---------
corporation (the "Company"), Kelso Investment Associates V, L.P., a Delaware
                  -------
limited partnership (together with Kelso Equity Partners V, L.P., a Delaware
limited partnership, ("Kelso"), Endo Pharma LLC, a Delaware limited liability
                       -----
company (together with its designee, "Endo LLC"), Carol A. Ammon, Jeffrey R.
                                      --------
Black and Mariann T. MacDonald (collectively, together with their Permitted
Transferees, the "Initial Management Stockholders"), David A.H. Lee and the
                  -------------------------------
Carol A. Ammon Trustee, Revocable Trust U/A, Dated 6/13/97 as Permitted
Transferee of Carol A. Ammon (the Initial Management Stockholders, together with
David A.H. Lee and any other persons who become parties to this Agreement
pursuant to Sections 10.2 and 10.3 of this Agreement and each of their
respective Permitted Transferees, the "Management Stockholders").
                                       -----------------------

          WHEREAS, the Company, Kelso and the Management Stockholders are
parties to that certain Stockholders Agreement, dated as of December 1, 1997
(the "1997 Stockholders Agreement");
      ---------------------------

          WHEREAS, the Company has entered into an agreement and plan of merger,
dated as of  November 26, 1999 (as may be amended and restated from time to
time, the "Merger Agreement"), by and among the Company, Endo Inc. and Algos
           ----------------
Pharmaceutical Corporation ("Algos") whereby Algos will merge with and into Endo
                             -----
Inc., a wholly owned subsidiary of the Company (the "Merger");
                                                     ------

          WHEREAS, the Company and Endo LLC have granted, and may grant
additional, options to purchase shares of common stock, par value $.01 per
share, of the Company (the "Common Stock") to the current Management
                            ------------
Stockholders and certain employees of the Company and its subsidiaries pursuant
to the Endo 1997 Employee Stock Option Plan, the Endo Pharma Amended and
Restated 1997 Employee Stock Option Plan, the Endo Pharma Amended and Restated
1997 Executive Stock Option Plan, the Endo Pharma 2000 Supplemental Employee
Stock Option Plan and the Endo Pharma 2000 Supplemental Executive Stock Option
Plan (collectively, and together with any similar such plan the Company may in
the future adopt, the "Option Plans") and, upon exercise of the options such
                       ------------
shares of Common Stock will be subject to this Agreement and to the extent such
employees are not already parties to this Agreement, such employees will become
parties to this Agreement pursuant to Section 10.3 hereof;
<PAGE>

          WHEREAS, the Company may offer additional shares of Common Stock after
the date of this Agreement to employees of the Company and its subsidiaries and
such shares of Common Stock will be subject to this Agreement and to the extent
such employees are not already parties to this Agreement, such employees will
become parties to this Agreement pursuant to Section 10.3 hereof; and

          WHEREAS, the Company, Endo LLC and the Management Stockholders believe
it to be in their respective best interests and in the best interests of the
Company that they enter into this Agreement providing for certain rights and
restrictions with respect to the shares of Common Stock owned by the Management
Stockholders or their Permitted Transferees.

          NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree that the 1997
Stockholders Agreement is hereby amended and restated in its entirety and agree
as follows:

                                   ARTICLE I

                       RESTRICTIONS ON TRANSFER OF STOCK

          1.1   General Restriction on Transfer by Management Stockholders.
                ----------------------------------------------------------
No shares of Common Stock owned by any Management Stockholder or any interest
therein may, directly or indirectly, be sold, assigned, transferred or otherwise
disposed of or transferred by such Management Stockholder (collectively,
"Transferred" and any such transaction, a "Transfer"), except for (i) Transfers
 -----------                               --------
to a transferee pursuant to Section 1.2 hereof (a "Permitted Transferee"), (ii)
                                                   --------------------
Transfers of shares of Common Stock to the Company, Kelso, Endo LLC or
Management Stockholders, including pursuant to Article II or III hereof, or
(iii) Transfers of shares of Common Stock pursuant to, or as otherwise permitted
under, Article VI hereof; provided that in the event the employment of a
                          -------- ----
Management Stockholder with the Company or any of its Subsidiaries is terminated
for any reason, such Management Stockholder may pledge, hypothecate, mortgage or
encumber his or her shares of Common Stock; provided further that the terms of
                                            -------- ------- ----
any such pledge, hypothecation, mortgage or encumbrance shall be approved by
Endo LLC in its discretion taking into account the financial situation of Endo
LLC at the time.

                                       2
<PAGE>

          1.2  Permitted Transferees.
               ---------------------

          (a)  Subject to paragraph (b) of this Section 1.2, any Management
Stockholder may Transfer any shares of Common Stock or any interest therein or
his or her rights to subscribe for the same, if any, (i) with the prior written
consent of Endo LLC's Board of Managers (the "LLC Board"), which consent shall
                                              ---------
not be unreasonably withheld (provided that reasonable grounds to withhold
                              -------- ----
consent shall include, but not be limited to, the risk of subjecting the Company
to registration or reporting requirements under federal securities laws), to a
trust or corporation the beneficiaries or stockholders of which are such
Management Stockholder, as the case may be, his or her spouse, parents, any
other family members, (ii) in case of his or her death, by will or by the laws
of intestate succession to executors, administrators, testamentary trustees,
legatees or beneficiaries, or (iii) with the prior written consent of the LLC
Board, to any transferee, including, without limitation, to one or more
Management Stockholders or to any employee who is, in the opinion of the LLC
Board, a current member of management of the Company or any of its subsidiaries,
if any.  In addition to the foregoing, any transferee of a Management
Stockholder described above may Transfer shares of Common Stock back to such
Stockholder or to another Permitted Transferee of such Stockholder.

          (b)  Any Transfer of shares of Common Stock made pursuant to paragraph
(a) of this Section 1.2 to a Permitted Transferee shall be permitted and shall
be effective only if such Permitted Transferee shall agree in writing to be
bound by the terms and conditions of this Agreement pursuant to an instrument of
assumption reasonably satisfactory in form and substance to Endo LLC.

          (c)  An "affiliate" of, or a person "affiliated" with, a specified
                   ---------                   ----------
person, is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified (in the case of Kelso, including, without limitation, any
partner of such entity or any director or officer of Kelso & Company, any
individual retirement account of any such partner, director or officer, any
family member of any such partner, director or officer, or any trust or family
partnership for the benefit of any such partner, director or officer or family
member thereof).

                                       3
<PAGE>

                                  ARTICLE II

                             PURCHASES BY ENDO LLC

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

          (a)  Subject to all provisions of this Article III and Article V
hereof, Endo LLC shall have the right to purchase from a Management Stockholder,
and such Management Stockholder shall have the obligation to sell to Endo LLC,
all, but not less than all, of the shares of Common Stock owned by such
Management Stockholder:

               (i)  at the fair market value of such shares, as determined
     pursuant to Section 4.1 hereof ("Fair Market Value"), if such Management
                                      -----------------
     Stockholder's employment with the Company or any of its  subsidiaries is
     terminated as a result of (v) the termination by the Company or one of its
     subsidiaries of such employment without Cause, (w) the resignation of such
     Management Stockholder for Good Reason, (x) the resignation of such
     Management Stockholder without Good Reason, (y) the retirement of such
     Management Stockholder upon or after reaching the age of 65 or, if
     different, the Company's normal retirement age ("Retirement"), or (z) the
                                                      ----------
     death or Disability (as defined in Section 4.3 hereof) of such Management
     Stockholder; and

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

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

                                       4
<PAGE>

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

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

          2.3  Payment.
               -------

          (a)  Subject to Article V and Section 3.4 hereof, payment for shares
of Common Stock purchased pursuant to Section 3.1(a) and (b) hereof shall be
made on the date that is (i) in any case in which the price to be paid for such
shares may only be the Carrying Value thereof, the 30th business day following
the date on which notice is given pursuant to Section 3.2 hereof, or (ii) in all
other cases, the 15th business day following the date of the determination of
Fair Market Value pursuant to Section 4.1 hereof.

          (b)  If the termination of employment of such Management Stockholder
is as a result of his or her resignation without Good Reason, and:

               (i)  if the date of termination of employment occurs prior to
          December 1, 2002, then the purchase price of the purchased shares
          shall be paid within 15 days following the surrender of the
          certificates representing the purchased shares, and

               (ii) if the date of termination of employment occurs on or after
          December 1, 2002, then the portion of the purchase price of the
          purchased shares equal to the Carrying Value of such shares on the
          date of termination of employment shall be paid by the 15th day fol-

                                       5
<PAGE>

          lowing the surrender of the certificates representing the purchased
          shares and the remainder shall be paid on the last day of the 18/th/
          month following the date of termination of employment.

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

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

          (d)   Any payments based on Fair Market Value required to be made by
Endo LLC under this Section 3.3 shall accrue interest at 6% simple interest per
annum on the amounts not paid from the date of termination of employment (or the
date of deemed termination, including with respect to the election made pursuant
to Section 3.3(c) hereof) to the date Endo LLC makes such payments.

                                       6
<PAGE>

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

          (a)   The date of payment and closing of any purchase and sale under
this Article III may be postponed to the extent necessary to permit such
purchase and sale under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder, if applicable to
such sale.  No party shall be required to consummate any purchase and sale under
this Article III until such time as such transaction would not violate
applicable law, other than violations which would not have a direct or indirect
material adverse effect on such party.

          (b)   Notwithstanding anything to the contrary in this Article III, in
no event shall any sale of Common Stock that was received by a Management
Stockholder upon the exercise of an employee stock option occur prior to the
six-month anniversary of such exercise.

                                  ARTICLE III

                                PURCHASE PRICE

          3.1   Fair Market Value.
                -----------------

          (a)   Fair Market Value.  For the purposes of this Agreement, the
                -----------------
"Fair Market Value" of any share of Common Stock being purchased by or sold to
------------------
Endo LLC or Kelso (or its designees) pursuant to this Agreement shall be the
average for the ten consecutive trading days prior to such transaction of the
last sales price for a share of Common Stock on the principal securities
exchange on which the Common Stock is then listed or, if the Common Stock is not
so listed, on the National Association of Securities Dealers Automated Quotation
System or, if not so quoted, on the principal market on which the Common Stock
is then traded.

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

          3.2   Carrying Value.  For the purposes of Sections 3.1 and 6.5
                --------------
hereof, "Carrying Value" of any share of Common Stock being purchased by Endo
         --------------
LLC shall be equal to the price paid by the selling Management Stockholder for
any such share.

                                       7
<PAGE>

          3.3  Certain Defined Terms.  As used in this Agreement, the
               ---------------------
following terms shall have the meanings ascribed to them below, except with
respect to Initial Management Stockholders (and such other Management
Stockholders as determined, from time to time, by resolution of the LLC Board)
with employment agreements with the Company which define such terms differently,
in which case such terms shall have the meanings ascribed to them in such
Initial Management Stockholder's respective employment agreement (or the
employment agreements of such other Management Stockholders as determined, from
time to time, by resolution of the LLC Board):

          (a)  Cause.  The term "Cause" used in connection with a termination
               -----
of employment of a Management Stockholder shall mean a termination of such
Management Stockholder's employment by the Company or any of its subsidiaries
due to (i) the continued failure, after written notice, by such Management
Stockholder substantially to perform his or her duties with the Company or any
of its subsidiaries (other than any such failure resulting from incapacity due
to reasonably documented physical illness or injury or mental illness), (ii) the
engagement by such Management Stockholder in serious misconduct that causes, or
in the good faith judgment of the Board may cause, harm (financial or otherwise)
to the Company or any of its subsidiaries including, without limitation, (A) the
disclosure of material secret or confidential information of the Company or any
of its subsidiaries (B) the potential debarment of the Company or any of its
subsidiaries by the U.S. Food and Drug Administration or any successor agency
(the "FDA"), or (C) the possibility that the registration of the Company or any
      ---
of its subsidiaries with the U.S. Drug Enforcement Administration or any
successor agency (the "DEA") could be revoked or an application with the DEA
                       ---
could be denied, (iii) the potential debarment of such Management Stockholder by
the FDA, or (iv) the material breach by the Management Stockholder of this
Agreement or any other agreement between such Management Stockholder, on the one
hand, and the Company or Kelso, on the other hand.

          (b)  Good Reason.  A termination of a Management Stockholder's
               -----------
employment with the Company or any of its subsidiaries shall be for "Good
                                                                     ----
Reason" if such Management Stockholder voluntarily terminates his or her
------
employment with the Company or any of its subsidiaries as a result of any of the
following:

               (i) without the Management Stockholder's prior written consent, a
     material reduction by the Company or any of its subsidiaries in his or her
     current salary, other than any such reduction which is part of a general
     salary reduction or other concessionary arrangement affecting all employees

                                       8
<PAGE>

     or affecting the group of employees of which the Management Stockholder is
     a member;

               (ii)  the taking of any action by the Company or any of its
     subsidiaries that would substantially diminish the aggregate value of the
     benefits provided him or her under the Company's or any such subsidiary's
     medical, health, accident, disability, life insurance, thrift and
     retirement plans in which he or she was participating on the date of his or
     her execution of this Agreement, other than any such reduction that is (A)
     required by law, (B) implemented in connection with a general concessionary
     arrangement affecting all employees or affecting the group of employees of
     which the Management Stockholder is a member or (C) generally applicable to
     all beneficiaries of such plans; or

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

          (c)  Disability.  The termination of the employment of any
               ----------
Management Stockholder by the Company or any of its subsidiaries shall be deemed
to be by reason of a "Disability" if, as a result of such Management
                      ----------
Stockholder's incapacity due to reasonably documented physical illness or injury
or mental illness, such Management Stockholder shall have been unable for more
than six months within any 12-month period to perform his or her duties with the
Company or any of its subsidiaries on a full time basis and within 30 days after
written notice of termination has been given to such Management Stockholder,
such Management Stockholder shall not have returned to the full time performance
of his or her duties.  The date of termination in the case of a termination for
"Disability" shall be the last day of the aforementioned 30-day period.

                                  ARTICLE IV

                           PROHIBITION ON PURCHASES

          4.1  Prohibited Purchases.  Notwithstanding anything to the
               --------------------
contrary herein, Endo LLC shall not be permitted or obligated to purchase any
shares of Common Stock from a Management Stockholder (or make any payment for
any

                                       9
<PAGE>

purchased shares of Common Stock) pursuant to Section 2.1 or Section 3.1 hereof
to the extent (i) Endo LLC or the Company (if the Company were to be the sole
source of the funds necessary to make any such payment or purchase) is
prohibited from purchasing such shares (or incurring debt to finance the
purchase of such shares or making payment for such purchased shares) by any debt
instruments or other agreements (the "Agreements") entered into by Endo LLC, the
                                      ----------
Company or any of their respective subsidiaries or by applicable law, (ii) an
event of default under any Agreement has occurred and is continuing or a
condition exists which would, with notice or lapse of time or both, result in an
event of default under any Agreement or (iii) the purchase of such shares by
Endo LLC or the Company (if the Company were to be the sole source of the funds
necessary to make any such payment or purchase) (including the incurrence of any
debt which in the judgment of the LLC Board is necessary to finance such
purchase or the payment for such purchased shares) (A) could, in the judgment of
the LLC Board, result in the occurrence of an event of default under any
Agreement or create a condition which would or might, with notice or lapse of
time or both, result in an event of default under any Agreement, (B) would, in
the judgment of the LLC Board, be imprudent in view of the financial condition
(present or projected) of Endo LLC and its subsidiaries, if any, taken as a
whole, or the Company and its subsidiaries, taken as a whole, or the anticipated
impact of the purchase of (or payment for) such shares on Endo LLC's, the
Company's (if the Company were to be the sole source of the funds necessary to
make any such payment or purchase) or any of their respective subsidiaries'
ability to meet their respective obligations, including under any Agreement or
(C) could, in the judgment of the LLC Board, constitute a fraudulent conveyance
or transfer or render Endo LLC or the Company (if the Company were to be the
sole source of the funds necessary to make any such payment or purchase)
insolvent under applicable law or violate limitations in the Delaware General
Corporation Law on repurchases of stock.  If shares of Common Stock which Endo
LLC has the right or obligation to purchase (or make payment for) on any date
exceed the total amount permitted to be purchased on such date pursuant to the
preceding sentence (the "Maximum Amount"), Endo LLC shall purchase (or pay for)
                         --------------
on such date only that number of shares of Common Stock up to the Maximum Amount
(and shall not be required to purchase more than the Maximum Amount) in such
amounts as the LLC Board shall in good faith determine, applying the following
order of priority:

          (a)   first, the shares of Common Stock of all Management Stockholders
whose shares of Common Stock are being (or were) purchased by Endo LLC by reason
of termination of employment due to death or Disability up to the Maximum Amount
and, to the extent that the number of shares of Common Stock that Endo LLC is
obligated or has the right to purchase (or pay for) from such Manage-

                                      10
<PAGE>

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

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

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

          Subject to Sections 2.1(c)and 3.1(c) hereof, notwithstanding anything
to the contrary contained in this Agreement, if Endo LLC is unable to purchase
any Management Stockholder's shares pursuant to Section 2.1 or 3.1 of this
Agreement by reason of this Article V (or make any payment for any purchased
shares), Endo LLC may nonetheless in the case of Section 3.1 hereof exercise its
option to purchase such shares and in the case of purchases pursuant to Sections
2.1 or 3.1 hereof shall purchase (or make payment for) such shares at the
earliest practicable date permitted under this Article V and any payment
therefor shall accrue simple interest (or if such payment is accruing interest
at such time, shall continue to accrue interest) at 6% per annum from the date
such payment would have been made but for this Article V to the date such
payment is actually made.  All payments of interest accrued hereunder shall be
paid only at the date of payment by Endo LLC for the shares of Common

                                      11
<PAGE>

Stock being purchased. Any shares as to which Endo LLC has exercised its right
to purchase pursuant to Section 3.1 hereof may not otherwise be sold by the
Management Stockholder notwithstanding non-payment therefor pursuant to this
Article V.

                                   ARTICLE V

                            SALES TO THIRD PARTIES

          5.1  General. No Management Stockholders shall sell any of his or
               -------
her shares of Common Stock to a third party for the term of this Agreement;
provided that such restriction shall not apply to any sale or other transaction
-------- ----
described in clause (i) or (ii) of Section 1.1 hereof or to any sale pursuant to
a Registration under the Act, subject to Article VII hereof.  Endo LLC may not
sell the shares of Common Stock it owns to a third party at any time after the
date of this Agreement unless Endo LLC as transferor first complies with Section
6.4 hereof.

          5.2  Agreements to Be Bound. Notwithstanding anything contained in
               ----------------------
this Article VI, any sale to a third party or any Involuntary Transfer (as
defined in Section 6.3 hereof) to an Involuntary Transferee (as defined in
Section 6.3 hereof) shall be permitted under the terms of this Agreement only if
such third party or Involuntary Transferee, as the case may be, shall agree in
writing to be bound by the terms and conditions of this Agreement pursuant to an
instrument of assumption reasonably satisfactory in form and substance to Endo
LLC.

          5.3  Involuntary Transfers.  In the case of any transfer of title
               ---------------------
or beneficial ownership of shares of Common Stock upon default, foreclosure,
forfeit, divorce, court order, or otherwise than by a voluntary decision on the
part of a Management Stockholder (an "Involuntary Transfer"), Endo LLC shall
                                      --------------------
have the right to purchase such shares pursuant to this Section 6.3.  Upon the
Involuntary Transfer of any shares of Common Stock, such Management Stockholder
shall promptly (but in no event later than two days after such Involuntary
Transfer) furnish written notice (the "Notice") to Endo LLC indicating that the
                                       ------
Involuntary Transfer has occurred, specifying the name of the person to whom
such shares have been transferred (the "Involuntary Transferee") and giving a
                                        ----------------------
detailed description of the circumstances giving rise to, and stating the legal
basis for, the Involuntary Transfer.  Upon the receipt of the Notice, and for 30
days thereafter, Endo LLC shall have the right to purchase, and the Involuntary
Transferee shall have the obligation to sell, all, but not less than all, of the
shares of Common Stock acquired by the Involuntary Transferee

                                      12
<PAGE>

for a purchase price equal to the lesser of (i) the Fair Market Value of such
shares of Common Stock on the date of transfer to the Involuntary Transferee and
(ii) the amount of the indebtedness or other liability that gave rise to the
Involuntary Transfer plus the excess, if any, of the Carrying Value of such
shares of Common Stock over the amount of such indebtedness or other liability
that gave rise to the Involuntary Transfer.

          Notwithstanding the foregoing, the LLC Board may, for good cause shown
by the Management Stockholder who made the Involuntary Transfer, determine that
payment of a purchase price equal to the Fair Market Value of such shares of
Common Stock on the date of transfer to the Involuntary Transferee would be
appropriate under the circumstances, and direct that payment be made in such
amount.

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

          5.4  Tag- and Drag-Along Rights.
               --------------------------

          (a)  Tag-Along Rights. Endo LLC shall not, in any one transaction
               ----------------
or any series of similar transactions not effected through a broker or over a
national securities exchange, Transfer more than 25% of the shares of Common
Stock it owns as of the date of the Merger, except pursuant to Section 6.4(b)
hereof, to any third party or parties unaffiliated with Endo LLC (a "Third
                                                                     -----
Party") unless the Management Stockholders (collectively, the "Offerees"), are
-----                                                          --------
offered the right, at the option of each Offeree, to include in such Transfer to
the Third Party such number of shares of Common Stock then owned by each such
Offeree, as determined in accordance with this Section 6.4(a).  If Endo LLC
receives from a Third Party a bona fide offer or offers to Transfer which it
intends to accept, or proposes to Transfer to a Third Party, shares of its
Common Stock, Endo LLC shall provide written notice (the "Tag-Along Notice") to
                                                          ----------------
each of the Offerees, setting forth the consideration per share to be paid by
such Third Party and the other material terms and conditions of such
transaction.  The Tag-Along Notice shall offer the Offerees the opportunity to
participate in the proposed Transfer of shares to the Third Party according to
the terms and conditions of this Section 6.4(a) and for the same type of
consideration and for an amount of consideration per share not less than that
offered to Endo LLC by the Third Party.  At any time within 20 days after its
receipt of the Tag-Along Notice, each of the Offerees may irrevocably accept the
offer included in the Tag-Along Notice for up to such number of shares of Common
Stock as is determined in accordance with the provisions of this Section 6.4(a)
by furnishing written notice of

                                      13
<PAGE>

such acceptance to Endo LLC. Promptly following such acceptance by an Offeree,
each such Offeree shall deliver to Endo LLC the certificate or certificates
representing the shares of Common Stock to be Transferred pursuant to such offer
by such Offeree, together with a limited power-of-attorney authorizing Endo LLC
to sell or otherwise dispose of such shares of Common Stock pursuant to the
proposed Transfer to the Third Party.

          Each Offeree shall have the right to participate in the proposed
Transfer to the Third Party by Transferring in connection therewith shares of
Common Stock equal to the product of (x) the total number of shares to be
acquired by the Third Party, times (y) a fraction, the numerator of which shall
be the total number of shares of Common Stock then owned by such Offeree, and
the denominator of which shall be the number of shares of Common Stock then
owned by Endo LLC plus the total number of shares of Common Stock then owned by
the Offerees.  The maximum number of shares of Common Stock that may be
Transferred by each Offeree to the Third Party in accordance with this Section
6.4(a) shall be the total number of shares of Common Stock then owned by such
Offeree.

          If within 20 days after the receipt of the Tag-Along Notice, any
Offeree has not accepted the offer contained in the Tag-Along Notice, such
Offeree will be deemed to have waived any and all rights with respect to, or to
participate in, the Transfer of Common Stock described in the Tag-Along Notice
and Endo LLC shall have 45 days in which to Transfer not more than the amount of
Common Stock described in the Tag-Along Notice, for an amount and type of
consideration per share not materially more favorable to Endo LLC than was set
forth in the Tag-Along Notice.  If, at the end of 65 days following the receipt
of the Tag-Along Notice, Endo LLC has not completed the Transfer of Common Stock
of Endo LLC and Common Stock of any Offeree, Endo LLC shall return to such
Offeree all certificates representing shares of Common Stock which such Offeree
delivered for Transfer pursuant to this Section 6.4(a), and all the restrictions
on sale or other disposition contained in this Agreement with respect to Common
Stock then or thereafter owned by the Offeree shall again be in effect.

          As promptly as practicable (but in no event later than 5 days) after
the consummation of the Transfer of Common Stock of Endo LLC and Common Stock of
the Offerees to the Third Party in accordance with this Section 6.4(a), Endo LLC
shall notify the Offerees thereof, shall remit to each of the Offerees the total
consideration in respect of the shares of Common Stock of such Offeree which
were so Transferred, and shall furnish such other evidence of the completion and
time of
                                      14
<PAGE>

completion of such Transfer and the terms thereof as may be reasonably requested
by the Offerees.

          (b)  Drag-Along Rights.  If Endo LLC shall propose to Transfer at
               -----------------
least 60% of all shares of Common Stock then owned by Endo LLC to a Third Party,
then (in addition to the rights of the Management Stockholders to participate in
such Transfer pursuant to Section 6.4(a) hereof) Endo LLC may, at its option,
require the Management Stockholders (collectively, the "Remaining Holders") to
                                                        -----------------
include in such Transfer to the Third Party such number of shares of Common
Stock then owned by such Remaining Holder, as determined in accordance with this
Section 6.4(b).

          Endo LLC shall send written notice (the "Drag-Along Notice") of the
                                                   -----------------
exercise of their rights pursuant to this Section 6.4(b) to each of the
Remaining Holders, setting forth the consideration per share to be paid by the
Third Party and the other material terms and conditions of such transaction.
The Drag-Along Notice shall state that the Remaining Holders shall be required
to participate in the proposed Transfer of shares of Common Stock to the Third
Party according to the terms and conditions of this Section 6.4(b) and for the
same type of consideration and for an amount of consideration per share not less
than that offered to Endo LLC by the Third Party.  Within 15 days following the
receipt of the Drag-Along Notice, each of the Remaining Holders shall deliver to
a representative of Endo LLC designated in the Drag-Along Notice certificates
representing all shares of Common Stock held by such Remaining Holder, duly
endorsed, together with all other documents required to be executed in
connection with such transaction.  In the event that any Remaining Holder should
fail to deliver such certificates to Endo LLC, the Company shall cause the books
and records of the Company to show that such shares are bound by the provisions
of this Section 6.4(b) and that such shares may be Transferred only to the Third
Party.

          Each Remaining Holder shall be required to participate in the proposed
Transfer to the Third Party by Transferring in connection therewith shares of
Common Stock equal to the product of (x) the total number of shares to be
acquired by the Third Party, times (y) a fraction, the numerator of which shall
be the total number of shares of Common Stock then owned by such Remaining
Holder, and the denominator of which shall be the total number of shares of
Common Stock then owned by Endo LLC plus the total number of shares of Common
Stock then owned by the Remaining Holders.  The maximum number of shares of
Common Stock that may be Transferred by each Remaining Holder to the Third Party
in accordance with this Section 6.4(b) shall be the total number of shares of
Common Stock then owned by such Remaining Holder.

                                      15
<PAGE>

          If, within 120 days after Endo LLC gave the Drag-Along Notice, it
shall not have completed the Transfer of all the shares of Common Stock of the
Remaining Holders in accordance with this Section 6.4(b), Endo LLC shall return
to each of the Remaining Holders all certificates representing shares of Common
Stock that such Remaining Holder delivered for Transfer pursuant hereto and that
were not purchased pursuant to this Section 6.4(b).

          Promptly (but in no event later than 5 days) after the consummation of
the Transfer of Common Stock of Endo LLC and Remaining Holders pursuant to this
Section 6.4(b), Endo LLC shall give notice thereof to the Remaining Holders,
shall remit to each of the Remaining Holders the total consideration in respect
of the shares of Common Stock of such Remaining Holder which were so
transferred, and shall furnish such other evidence of the completion and time of
completion of such Transfer and the terms thereof as may be reasonably requested
by such Remaining Holders.

                                  ARTICLE VI

                              REGISTRATION RIGHTS

          6.1  Incidental Registration.  If Endo LLC, pursuant to that
               -----------------------
certain registration rights agreement, dated as of July 17, 2000, by and between
the Company and Endo LLC (the "Endo LLC Registration Rights Agreement"), demands
                               --------------------------------------
that the Company register any of its shares of Common Stock or any other of its
common equity securities (collectively, "Other Securities") under the Act for
                                         ----------------
sale for cash to the public under the Act, then Endo LLC will at such time give
prompt written notice to each any Management Stockholder or any of their
respective Permitted Transferees (each, a "Holder") of its intention to do so
                                           ------
and of the rights of such Holder under this Section 7.1, at least 20 days prior
to the Company's anticipated filing date of the registration statement relating
to such demand registration.  Such notice shall offer each such Holder the
opportunity to include in such registration statement such number of shares of
Common Stock as such Holder may request, in accordance with this Section 7.1.
Upon the written request of a Holder made within 10 days after the receipt of
the Endo LLC's notice (which request shall specify the number of shares of
Common Stock intended to be disposed of and the intended method of disposition
thereof), Endo LLC will use its best efforts to cause the Company to effect, in
connection with the registration of the Other Securities, the registration under
the Act of all shares of Common Stock which the Company has been so requested to
register, to the extent required to permit the

                                      16
<PAGE>

disposition (in accordance with such intended methods of disposition) of such
shares of Common Stock so requested to be registered, provided that:
                                                      -------- ----

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

          (b)  if the registration referred to in the first sentence of Section
7.1(a) hereof is to be an underwritten registration on behalf of the Company,
and the managing underwriter(s) advises the Company in writing that, in such
firm's opinion, such offering would be materially and adversely affected by the
inclusion therein of any of the Common Stock requested to be included therein,
the Company shall include in such registration: (i) first, all securities for
which Endo LLC has demanded registration ("Endo LLC Securities"), (ii) second,
                                           -------------------
up to the full number of shares of Common Stock requested to be included in such
registration by the Management Stockholders, which, in the good faith opinion of
such firm, can be so sold without so materially and adversely affecting such
offering (and, if less than the full number of such shares of Common Stock,
allocated pro rata among the Management Stockholders on the basis of the number
of shares of Common Stock requested to be included therein by the Management
Stockholders); provided, however, that with respect to the Management
               --------  -------
Stockholders, if the underwriter in connection with such registration determines
that such offering would be materially and adversely affected by the inclusion
of Common Stock owned by the Management Stockholders for reasons including, but
not limited to, the status of the owners of such securities as Management
Stockholders such underwriter may in its sole discretion exclude all or, in such
manner as either in its sole discretion deems appropriate, the Common Stock
owned by Management Stockholders from such offering, and (iii) third, an amount
of other securities, if any, requested to be included therein in excess of the
number or dollar amount of Company Securities and Common Stock of the Holders
which, in the opinion of such firm, can be so sold without materially and
adversely affecting such offering (allocated among the holders of such other
securities in such proportions as such holders and the Company may agree); and

                                      17
<PAGE>

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

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

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

          (a)  If and whenever the Company proposes to register any of its
equity securities under the Securities Act for its own account (other than on
Form S-4 or S-8 or any successor form) or is required to use its best efforts to
effect the registration of any shares of Common Stock under the Securities Act
pursuant to Section 7.1 hereof, each Holder agrees by acquisition of such shares
of Common Stock not to effect any sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, or to request registration under
Section 7.1 hereof of any shares of Common Stock within seven days prior to and
90 days (unless advised by the managing underwriter that a longer period, not to
exceed 180 days, is required, or such shorter period as the managing underwriter
for any underwritten offering may agree) after the effective date of the
registration statement relating to such registration, except as part of such
registration or unless, in the case of a private sale of distribution, the
transferee agrees in writing to be subject to this Section 7.3.  If requested by
such managing underwriter, each holder of shares of Common Stock agrees to
execute a holdback agreement, in customary form, consistent with the terms of
this Section 7.3(a).

          (b)  The Company agrees not to effect any public sale or distribution
of its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities within seven days prior to and 90 days
(unless advised in writing by the managing underwriter that a longer period, not
to exceed 180 days, is required, or such shorter period as the managing
underwriter for any underwritten offering may agree) after the effective date of
any registration statement filed pursuant to Section 7.1 hereof (except (i) as
                                                                         -
part of such registration, (ii) as permitted by the related underwriting, (iii)
                            --                                             ---
pursuant to an employee equity compensation plan, (iv) pursuant to an
                                                   --
acquisition or strategic relationship, bank or

                                      18
<PAGE>

equipment financing or similar transaction or (v) pursuant to a registration on
                                               -
Form S-4 or S-8 or any successor form). In addition, upon the request of the
managing underwriter, the Company shall use its best efforts to cause each
holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, whether outstanding on
the date of this Agreement or issued at any time after the date of this
Agreement (other than any such securities acquired in a public offering), to
agree not to effect any such public sale or distribution of such securities
during such period, except as part of any such registration if permitted, and to
cause each such holder to enter into a similar agreement to such effect with the
Company.

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

                                      19
<PAGE>

                                  ARTICLE VII

                               CHARTER DOCUMENTS

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

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

                                 ARTICLE VIII

                                  TERMINATION

          8.1  Sale of the Company. This Agreement shall terminate (a) in the
               -------------------
event of a sale of the Company or all or substantially all of its assets to a
party (whether by merger, stock sale or otherwise) other than Endo LLC or one of
its affiliates or (b) in the event that all parties to this Agreement cease to
own any shares of Common Stock or any interest therein. In the event that Endo
LLC shall come to own less than five percent of the outstanding Common Stock,
this Agreement shall also terminate, except with respect to Article VII hereof
which shall survive such termination indefinitely.

          8.2  Cessation of Ownership of Stock.  Any party to, or person or
               -------------------------------
entity who is subject to, this Agreement (other than the Company and Kelso)
which ceases to own shares of Common Stock or any interest therein shall cease
to be a party to, or person or entity who is subject to, this Agreement and
thereafter shall have no rights or obligations hereunder.

          8.3  Other Termination Events.
               ------------------------

          (a)  This Agreement may be terminated by the affirmative vote of the
members of Endo LLC owning a majority of the issued and outstanding membership
interests in Endo LLC.

                                      20
<PAGE>

          (b)  Notwithstanding anything to the contrary contained herein, every
provision of this Agreement, other than the provisions contained in Section 6.5
and Article VII hereof, shall terminate upon the fifteenth anniversary of this
Agreement.

                                  ARTICLE IX

                           MISCELLANEOUS PROVISIONS

          9.1  Stock Certificate Legend.  A copy of this Agreement shall be
               ------------------------
filed with the Secretary of the Company and kept with the records of the
Company.  Each certificate representing shares of Common Stock owned by the
Management Stockholders shall bear upon its face the following legend:

     "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
     AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
     AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
     DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE
     STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO THE HOLDER,
     WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE,
     SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE,
     HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR
     IS OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS AND THE AMENDED AND
     RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF JULY 14, 2000."

          All Management Stockholders shall be bound by the requirements of such
legends to the extent that such legends are applicable.  Upon a registration
under the Act of any shares of Common Stock, the certificate representing such
shares shall be replaced, at the expense of the Company, with certificates not
bearing the legend required by this Section 10.1.

          9.2  Option Plans.  Pursuant to the Option Plans, the Company has
               ------------
required that participants thereunder must become parties to this Agreement upon

                                      21
<PAGE>

exercise of the options and that they will be "Management Stockholders"
hereunder with respect to such shares.  In addition, Endo LLC, notwithstanding
any requirement set forth in Section 10.4 hereof, can determine that any options
granted pursuant to the Option Plans and outstanding and vested as of the option
holder's termination of employment with the Company and its subsidiaries shall
be deemed to be Common Stock for purposes of Sections 2 and 3 hereof; provided,
                                                                      --------
however, that appropriate adjustments shall be made to reflect the existence of
-------
an exercise price for such options.

          9.3  New Management Stockholders.  Each of the Management
               ---------------------------
Stockholders hereby agrees that the Company may require that any executive
employee of the Company or any of its subsidiaries who after the date of this
Agreement is offered shares of Common Stock shall, as a condition precedent to
the acquisition of such shares of Common Stock, become a party to this Agreement
by executing the same and delivering it to the Company at its address specified
in Section 10.11 hereof. Upon such execution and delivery, such executive
employee shall be a "Management Stockholder" for all purposes of this Agreement.

          9.4  No Other Arrangements or Agreements.  Each Management Stockholder
               -----------------------------------
hereby represents, warrants and covenants to Endo LLC and to each other
Management Stockholder that, except for, if applicable, the exchange agreement
entered into on December 1, 1997, by and between the Company and each Management
Stockholder (collectively, the "Exchange Agreements") and the exchange agreement
                                -------------------
entered into as of the date of this Agreement, by and between Endo LLC and each
Management Stockholder (collectively, the "LLC Exchange Agreements"), he or she
                                           -----------------------
has not entered into or agreed to be bound by, and will not enter into or agree
to be bound by, any other arrangements or agreements of any kind with any other
party with respect to the shares of Common Stock, including, but not limited to,
arrangements or agreements with respect to the acquisition, disposition or
voting of shares of Common Stock (whether or not such agreements and
arrangements are with the Company, other Management Stockholders or holders of
Common Stock that are not parties to this Agreement). Each Management
Stockholder represents, warrants and covenants to Endo LLC and to each other
Management Stockholder that it has not entered into or agreed to be bound by,
and will not enter into or agree to be bound by, any voting agreements with
respect to its shares of Common Stock.

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

                                      22
<PAGE>

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

          9.6  Assignment.  The provisions of this Agreement shall be binding
               ----------
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that none of
                                               --------  -------
Endo LLC, the Company and any Management Stockholder shall assign any of its
rights or obligations pursuant to this Agreement without the prior written
consent of Kelso.  Endo LLC, with the prior written consent of Kelso, shall have
the right, but not the obligation, to assign any of its rights, and delegate any
of its obligations, to purchase any shares of Common Stock of any Management
Stockholder pursuant to Sections 2 and 3 hereof to any affiliate of Endo LLC,
any one or more persons or entities who are or become parties to this Agreement
or any employee stock ownership plan that the Company may have (or any
combination of the foregoing).  In the case of Permitted Transferees, third
parties and Involuntary Transferees, such Permitted Transferees, third parties
or Involuntary Transferees, as the case may be, shall be deemed the Management
Stockholder hereunder for purposes of obtaining the benefits or enforcing the
rights of such Management Stockholder hereunder; provided, however, that no
                                                 --------  -------
Permitted Transferee, third party or Involuntary Transferee, as the case may be,
shall derive any rights under this Agreement unless and until such Permitted
Transferee, third party or Involuntary Transferee, as the case may be, has
delivered to Endo LLC a valid undertaking to become, and becomes, bound by the
terms of this Agreement to which the transferring Management Stockholder is
subject.

          9.7  Recapitalizations, Exchanges, etc. Affecting the Common Stock.
               -------------------------------------------------------------
Except as otherwise provided herein, the provisions of this Agreement shall
apply to the full extent set forth herein with respect to (i) the shares of
Common Stock and (ii) any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, exchange,
sale of assets or otherwise), which may be issued in respect of, in exchange
for, or in substitution for the shares of Common Stock, by reason of any stock
dividend, split, reverse split, combination, recapitalization, reclassification,
merger, consolidation or otherwise.  References to the "Company" set forth
herein shall be deemed to refer to any such successor or assign and such entity
shall execute an appropriate instrument of assumption agreeing to be bound by
the terms hereof.  Except as otherwise provided herein, this Agreement is not
intended to confer upon any person, except for the parties hereto, any rights or
remedies hereunder.

                                      23
<PAGE>

          9.8   Transfer of Common Stock.  If at any time Endo LLC purchases
                ------------------------
any shares of Common Stock pursuant to this Agreement, Endo LLC may pay the
purchase price determined under this Agreement for the shares of Common Stock it
purchases by wire transfer of funds or Endo LLC check in the amount of the
purchase price, and upon receipt of payment of such purchase price or, pursuant
to Section 2.3, Section 3.3 or Article V hereof, any portion thereof, the
selling Management Stockholder shall deliver to Endo LLC the certificates
representing the number of shares of Common Stock being purchased in a form
suitable for transfer, duly endorsed in blank, and free and clear of any lien,
claim or encumbrance.  In the event that any Management Stockholder refuses or
otherwise fails to deliver, in accordance with the preceding sentence,
certificates representing the number of shares of Common Stock being purchased,
the shares of Common Stock purchased from such Management Stockholder shall
(notwithstanding such refusal or failure) be deemed, upon receipt by such
Management Stockholder of the purchase price therefor, to not be outstanding for
any purposes.  Notwithstanding anything in this Agreement to the contrary, Endo
LLC shall not be required to make any payment for shares of Common Stock
purchased hereunder until delivery to it of the certificates representing such
shares.  If Endo LLC is purchasing less than all the shares of Common Stock
represented by a single certificate, the Company, after Endo LLC makes such
purchase, shall deliver to the selling Management Stockholder a certificate for
any unpurchased shares of Common Stock.

          9.9   Further Assurances.  Each party hereto or person or entity
                ------------------
subject hereto shall do and perform or cause to be done and performed all such
further acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto or person or
entity subject hereto may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

          9.10  Governing Law.  This Agreement and the rights and obligations
                -------------
of the parties hereunder and the persons subject hereto shall be governed by,
and construed and interpreted in accordance with, the law of the State of
Delaware, without giving effect to the choice of law principles thereof.

          9.11  Invalidity of Provision.  The invalidity or unenforceability
                -----------------------
of any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.

                                      24
<PAGE>

          9.12  Notices.  All notices and other communications hereunder shall
                -------
be in writing and, unless otherwise provided herein, shall be deemed duly given
if delivered personally, telecopied (which is confirmed) or sent by registered
or certified mail (postage prepaid, return receipt requested) or by Fedex or
other similar courier service to the parties at the following addresses (or at
such other address as the person or entity to whom notice is given may have
previously furnished to the others in writing as set forth in this Section 10.12
(provided that any change of address shall be effective only upon receipt
thereof)):

                (a)  If to the Company, to it at:

                     Endo Pharmaceuticals Holdings Inc.
                     223 Wilmington - West Chester Pike
                     Chadds Ford, Pennsylvania 19317
                     Attn: Carol A. Ammon

                     with a copy to:

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

                (b)  if to a Management Stockholder, as listed on the signature
                     page hereto, or, if not so listed, to it at its address as
                     reflected in the stock records of the Company, or as such
                     Management Stockholder shall designate to the Company in
                     writing, with a copy to Kelso at its address indicated
                     below (provided that any such designation shall be
                     effective only upon receipt thereof).

                (c)  If to Endo LLC, to it at:

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

                                      25
<PAGE>

          9.13  Headings; Execution in Counterparts.  The headings and captions
                -----------------------------------
contained herein are for convenience and shall not control or affect the meaning
or construction of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument.

          9.14  Entire Agreement; Effect on Certain Other Agreements.  This
                ----------------------------------------------------
Agreement, the Exchange Agreements and the LLC Exchange Agreements embody the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein.  There are no restrictions, promises,
representations, warranties, covenants or undertakings relating to the shares of
Common Stock, other than those expressly set forth or referred to herein or in
the Exchange Agreements or the LLC Exchange Agreements.  This Agreement, the
Exchange Agreements and the LLC Exchange Agreements supersede all prior
agreements and understandings among the parties with respect to such subject
matter.

          9.15  Injunctive Relief.  The Company, Endo LLC and the Management
                -----------------
Stockholders hereby acknowledge that they each shall be irreparably damaged in
the event this Agreement is not specifically enforced.  Each of the parties
therefore agrees that in the event of a breach of any provision of this
Agreement, the aggrieved party may elect to institute and prosecute proceedings
in any court of competent jurisdiction to enforce specific performance or to
enjoin the continuing breach of this Agreement.  Such remedies shall, however,
be cumulative and not exclusive, and shall be in addition to any other remedy
which the Company, Endo LLC or the Management Stockholders may have.  Each
Management Stockholder hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts in New York and Delaware for the
purposes of any suit, action or other proceeding arising out of or based upon
this Agreement or the subject matter hereof.  Each Management Stockholder hereby
consents to service of process by mail made in accordance with Section 10.12
hereof.

          9.16  Attorneys' Fees.  If any legal action or any arbitration or
                ---------------
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover such reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled, as may be ordered in connection with such
proceeding.

                                      26
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.

                              ENDO PHARMACEUTICALS HOLDINGS INC.

                              By:  /s/ Carol A. Ammon
                                 ------------------------------------------
                              Name: Carol A. Ammon
                              Title: President and Chief Executive Officer

                              KELSO INVESTMENT ASSOCIATES V, L.P.

                              By: Kelso Partners V, L.P., General Partner

                              By: /s/ Michael Goldberg
                                 ------------------------------------------
                                  General Partner

                              ENDO PHARMA LLC

                              By: /s/ Carol A. Ammon
                                 ------------------------------------------
                                  Name: Carol A. Ammon
                                  Title: Chief Executive Officer

                              By: /s/ Carol A. Ammon
                                 ------------------------------------------
                                  Carol A. Ammon

                              By: /s/ Jeffrey R. Black
                                 -----------------------------------------
                                  Jeffrey R. Black

<PAGE>

                              By: /s/ Mariann T. MacDonald
                                 ------------------------------------------
                                  Mariann T. MacDonald

                              By: /s/ David A.H. Lee
                                 ------------------------------------------
                                  David A.H. Lee

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

                              By: /s/ Carol A. Ammon
                                 ------------------------------------------
                                  Carol A. Ammon

<PAGE>

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

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

                                        ___________________________
                                              Signature

                                        ___________________________
                                              Print Name

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