Document:

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                                                                    EXHIBIT 10.1

            CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH
      THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

                   [Letterhead of Mylan Pharmaceuticals, Inc.]

February 25, 2000

Jennifer Good, Chief Financial Officer
Penwest Pharmaceuticals Co.
2981 Route 22
Patterson, NY 12563

                               LETTER OF AGREEMENT

Dear Jennifer:

This Letter of Agreement shall serve to confirm the agreement of Mylan
Pharmaceuticals Inc. and Penwest Pharmaceuticals Co. with respect to the rights
and obligations of Penwest and Mylan with respect to the Product and Supply
Agreement entered into by Penwest Ltd. and Mylan dated August 17, 1994, (the
"Agreement") as a result of the proposed transaction between Mylan and Pfizer
regarding the sale and distribution of a generic controlled release version of
Procardia(R) XL in 30 mg, 60 mg and 90 mg strengths ("Generic Procardia XL(R)").

Subject to the conditions set forth herein, our agreement is as follows:

1.) The Agreement, as it relates to the 60 mg and 90 mg strengths of the
Designated Product, shall be deemed terminated as of the Effective Date of this
Letter of Agreement and, except as set forth herein, the parties shall have no
further rights or obligations with respect to the 60 mg and 90 mg strengths of
the Designated Products under this Letter of Agreement and these dosage
strengths shall cease to be deemed a Designated Product for purpose of the
Agreement. Mylan hereby agrees that the licenses to Penwest under Sections 6.4,
6.7, 6.8 and 6.9 shall include (in addition to their coverage as stated in such
sections) making, using and selling said dosage strengths in the Territory and
the use of the Mylan Test and Regulatory Data for purposes of complying with
governmental requests with respect to said dosage strengths for marketing and
use in the Territory; provided that the restrictions on sublicensing in such
provisions and the provisions requiring the payment of royalties shall not be
applicable to said dosage strengths.

<PAGE>   2
            CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH
      THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

2.) With respect to the 30 mg strength of the Designated Product and except as
set forth below, the rights and obligations of the parties under the Agreement
shall toll beginning on the Effective Date until such time, if ever, as Mylan,
or its Affiliates or sublicensee, markets the Designated Product. In the event
Mylan does market the 30 mg strength of the Designated Product, the Parties
recognize that Mylan may be obligated to pay to Pfizer a patent royalty. As
such, any royalties payable under the Agreement to Penwest for the 30 mg
strength of the Designated Product shall be paid at the percentages set forth in
the Agreement; provided however, the royalty amount due to Penwest shall be
calculated based upon Net Sales after any royalty amount paid to Pfizer on such
sales has been subtracted from Net Sales. Notwithstanding the foregoing,
Sections 6, 7, 8, 9, 10(excluding section 10.2) and 11 shall not toll and shall
remain in full force and effect until such time, if ever, as Mylan markets the
Designated Product.

3.) With respect to sales of the 30 mg strength of Generic Procardia XL(R),
Mylan agrees to pay to Penwest within 60 days from the end of each calendar
quarter in which sales by Mylan, or its Affiliates or sublicensee, in North
America of 30 mg Generic Procardia XL(R) occur a royalty rate equal to
************ of all Net Sales in North America.

4.) The Effective Date of this Letter of Agreement shall be deemed to take place
upon the occurrence of each and all of the following:

     a.) The execution of a definitive agreement with respect to the supply and
     distribution of the Generic Procardia XL(R) between Mylan and Pfizer; and

     b.) The execution of the Settlement Agreement by and between Mylan and
     Pfizer including the settlement of all issues related to the civil action
     entitled PFIZER INC. V. JANE E. HENNEY, M.D., AS COMMISSIONER, FOOD AND
     DRUG ADMINISTRATION AND UNITED STATES FOOD AND DRUG ADMINISTRATION, Civil
     Action No. 99-907, currently pending in the United States District Court of
     Delaware and the civil action entitled BAYER AG, BAYER CORPORATION AND
     PFIZER INC. V. MYLAN LABORATORIES INC. AND MYLAN PHARMACEUTICALS INC.,
     Civil Action No. 97-1309, currently pending in the United States District
     Court for the Western District of Pennsylvania; and

     c.) The receipt of Mylan's specified quantities of Generic Procardia XL(R)
     by Mylan from Pfizer prior tO March 31, 2000.

5.) Those audit and payment terms set forth in Section 4.4 and 4.5 shall be
incorporated by reference as if fully set forth herein and shall be applicable
to the payment of royalties contemplated in Section 3 hereof.

6.) The term of this Letter of Agreement shall begin on the Effective Date and
shall continue until such time as Mylan, or its Affiliates or sublicensees,
permanently ceases to market and/or sell Generic Procardia XL(R). Mylan shall
use its best efforts to market, promote and sell Generic

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            CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH
      THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.

Procardia XL(R) as soon as is reasonably possible following the Effective Date
of this Letter of Agreement.

7.) In addition to the other amounts set forth herein, Mylan shall pay to
Penwest ***** *************************************** in twelve equal monthly
installments with the first payment being due on July 1, 2000.

8.) On or about, September 1, 2000, Penwest shall deliver to Mylan in accordance
with Section 5.2 of the Agreement, ************* of Formulated TIMERx. With
respect to this shipment, the rights and obligations of Sections 5.4, 5.5 and
5.6 shall be incorporated by reference as if fully set forth herein.

9.) Mylan hereby warrants and represents that it has obtained the
**************** with respect to the proposed transaction with Pfizer. Mylan
hereby agrees to indemnify, defend and hold Penwest, its officers, directors and
Affiliates harmless from and against any and all third party claims to the
extent arising from, in connection with, based upon, by reason of or relating in
any way to any claim that the activities described herein, including but not
limited to the proposed transaction between Mylan and Pfizer, violate in any
respect any federal or state laws, statutes or regulations including without
limitation antitrust laws, except to the extent said claims result from the
negligence or intentional misconduct of Penwest or its officers, directors or
Affiliates. Any indemnification made pursuant to this Section shall be made in
accordance with Sections 9.8, 9.9 and 9.10 of the Agreement.

10.) To the extent not defined in the Letter of Agreement, the capitalized terms
contained herein shall be defined as set forth in the Agreement.

11.) Neither Party shall make any public announcement or other publication
regarding this Letter of Agreement or the issues addressed herein without the
prior written consent of the other party, which consent shall not be
unreasonably withheld; provided that the foregoing shall not prohibit any
disclosure which, in the opinion of counsel to the disclosing party is required
by any applicable law or by any competent government authority.

12.) The person signing this Letter of Agreement on behalf of both parties has
the requisite right and authority to enter into this Letter of Agreement and to
bind its principal to the rights and obligations set forth herein.

<PAGE>   4

     Enclosed are two copies of this Letter of Agreement. Please sign them both
to signify your acknowledgment and acceptance of the terms contained herein.
Return one copy to me at your earliest convenience and retain one copy for your
files. Should you have any question, please feel free to contact me.

Sincerely,

/s/ Lynn Cayton
Lynn Cayton
Director of Business Development

Acknowledged and accepted by:

PENWEST PHARMACEUTICALS CO.
by:

/s/ Jennifer L. Good
-----------------------------------------
Its: VP Finance & Chief Financial Officer

February 26, 2000
-----------------------------------------
Date<PAGE>

                                  FEE AGREEMENT

                  FEE AGREEMENT (this "Agreement"), dated as of January 1, 2000
by and between Spigadoro, Inc. (the "Company"), Jacob Agam (the "Executive") and
Vertical Financial Holdings ("Vertical").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  WHEREAS, the Executive serves as the Chairman of the Board and
Chief Executive Officer of the Company; and

                  WHEREAS, the Executive and Vertical desire to have the Company
compensate Vertical for the services of the Executive in lieu of payments to the
Executive; and

                  WHEREAS, the Executive, Vertical and the Company now desire to
set forth the rights and obligations of each of the parties hereto.

                  NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:

                  Section 1. Term of Agreement. This Agreement shall continue
until the earlier of (i) the date on which the Executive ceases to serve as
either the Chairman of the Board or Chief Executive Officer of the Company and
(ii) December 31, 2002 (the "Term").

                  Section 2. Position and Duties. During the Term, the Executive
shall serve as the Chairman of the Board and/or the Chief Executive Officer of
the Company and shall have such powers and duties as are commensurate with such
position and as may be conferred upon him from time to time by the Board of
Directors of the Company (the "Board"). During the Term, and except for illness
or incapacity and reasonable vacation periods, the Executive shall devote such
of his business time, attention, skill and efforts as are necessary to the
business and affairs of the Company and its subsidiaries and affiliates;
provided, however, it is expressly understood that Executive provides managerial
services to companies other than the Company and shall continue to devote a
portion of his business time to such other companies in conjunction with his
duties hereunder to the extent that such activities do not inhibit or prohibit
the performance of his duties hereunder or inhibit or conflict in any material
way with the business of the Company, its subsidiaries and affiliates. In
addition, the Executive may engage in charitable, educational, religious, civic
and similar types of activities (all of which shall be deemed to benefit the
Company), speaking engagements, membership on the board of directors of other
organizations, and similar activities to the extent that such activities do not
inhibit or prohibit the performance of his duties hereunder.

<PAGE>

                  Section 3. Compensation. (a) For all services rendered by the
Executive in any capacity during the Term, including, without limitation,
services as an executive officer, director, or member of any committee of the
Company, or any subsidiary, affiliate or division thereof, the Company shall
compensate Vertical, in lieu of payments to the Executive, $25,000 per month,
plus all reasonable travel or other expenses incurred by the Executive in
connection with the performance of his duties and obligations hereunder, subject
to the Executive's presentation of appropriate vouchers in accordance with such
procedures as the Company may from time to time establish for senior officers
and to preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.

                           (b) During the Term, the Executive  shall be entitled
to participate in all compensation and employee benefit plans or programs, and
to receive all benefits, perquisites and emoluments, for which any salaried
employees of the Company are eligible under any plan or program now or hereafter
established and maintained by the Company, to the fullest extent permissible
under the general terms and provisions of such plans or programs and in
accordance with the provisions thereof, including, without limitation, incentive
compensation, bonus, group hospitalization, health, dental care, life,
disability or other insurance, tax-qualified and non-qualified pension, savings,
thrift and profit-sharing plans, termination or severance pay programs,
sick-leave plans, travel or accident insurance, automobile allowance or
automobile lease plans, and executive contingent compensation plans, including,
without limitation, capital accumulation programs and stock purchase, restricted
stock and stock option plans. Notwithstanding the foregoing, nothing in this
Agreement shall preclude the amendment or termination of any such plan or
program, provided that such amendment or termination is applicable generally to
the senior officers of the Company or any subsidiary or affiliate.

                  Section 4. Other Duties of Executive During and After Term.
(a) The Executive recognizes and acknowledges that all information pertaining to
the affairs, business, clients, or customers of the Company or any of its
subsidiaries or affiliates (any or all of such entities being hereinafter
referred to as the "Business"), as such information may exist from time to time,
other than information that the Company has previously made publicly available,
is confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. In consideration of the payments made
to Vertical hereunder, the Executive shall not, except to the extent reasonably
necessary in the performance of his duties under this Agreement, divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, businesses, clients, or customers of the Business
(except such information as is required by law to be divulged to a government
agency or pursuant to lawful process), or make use of any such information for
his own purposes or for the benefit of any person, firm, association or
corporation (except the Business) and shall use his reasonable best efforts to
prevent the disclosure of any such information by others. All records,
memoranda, letters, books, papers, reports, accountings, experience or other
data, and other records and documents relating to the Business, whether made by
the Executive or otherwise coming into his possession, are confidential
information and are, shall be, and shall remain the property of the Business. No
copies thereof shall be made which are not retained by the Business, and the
Executive agrees, on

                                       -2-

<PAGE>

termination of his employment or on demand of the Company, to deliver the same
to the Company.

                           (b) In  consideration of the payments made to
Vertical hereunder, during the period (the "Restricted Period") commencing on
the effective date of the termination of the Executive's employment (the
"Termination Date") and ending on the earlier of the second anniversary of the
Termination Date or upon the occurrence of a Termination Transaction (as
hereafter defined), the Executive shall not, without express prior written
approval of the Board, directly or indirectly, own or hold any proprietary
interest in, or be employed by or receive remuneration from, any corporation,
partnership, sole proprietorship or other entity engaged in competition with the
Company or any of its affiliates (a "Competitor"), other than severance-type or
retirement-type benefits from entities constituting prior employers of the
Executive. The Executive also shall not, during the Restricted Period, solicit
for the account of any Competitor, any customer or client of the Company or its
affiliates, or, any entity or individual that was such a customer or client
during the twelve-month period immediately preceding the Termination Date. The
Executive also shall not, during the Restricted Period, act on behalf of any
Competitor to interfere with the relationship between the Company or its
subsidiaries and affiliates and their respective employees.

                  For purposes of the preceding paragraph, (i) the term
"proprietary interest" means legal or equitable ownership, whether through
stockholding or otherwise, of an equity interest in a business, firm or entity
other than ownership of less than 5 percent of any class of equity interest in a
publicly held business, firm or entity, (ii) an entity shall be considered to be
"engaged in competition" if such entity is, or is a holding company for, a
company engaged in the manufacture or distribution of animal feed, flour or
pasta products in the countries comprising the European Union or the United
States, and (iii) "Termination Transaction" shall mean (x) the merger or
consolidation of the Company with another company which is not affiliated with
the Company where the shareholders (or equity holders as the case may be) of the
Company, immediately prior to the merger or consolidation, do not beneficially
own immediately after the merger or consolidation, shares of the corporation
issuing cash or securities in the merger or consolidation entitling such
shareholders to the majority of all votes (without consideration of the rights
of any class of stock to elect directors by a separate class vote) to which all
stockholders of such corporation would be entitled in the election of directors,
or (y) the sale or disposition of all or substantially all of the assets or
equity of the Company to an entity not affiliated with the Company.

                           (c) The Company's obligation to make payments, or
provide for any benefits under this Agreement (except to the extent vested or
exercisable) shall cease upon a violation of the preceding provisions of this
section. The provisions of this Section 4 shall survive the Executive's
termination of his employment with the Company and the termination of this
Agreement.

                           (d) Executive acknowledges that he has carefully
read and  considered  all of the restraints imposed pursuant to this Section 4
and that each and every one of said restraints is reasonable in respect to
subject matter, length of time, and area. Employee further

                                       -3-

<PAGE>

acknowledges that damages at law would not be a measurable or adequate
remedy for a breach of the restrictive covenants contained herein, and
accordingly consents to the entry by any court of competent jurisdiction of
order enjoining him from violating any of such covenants. If any of the
covenants contained in this Section 4 is held to be invalid or unenforceable
because of the duration of such provision or the area covered thereby, the
parties agree that the court making such determination shall have the power to
reduce the duration and/or area of such provision and in its reduced form said
provision shall then be enforceable.

                  Section 5. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
by same day or overnight mail as follows:

If to the Executive or Vertical:            Vertical Financial Holdings
                                            c/o Vertical Capital Ltd.
                                            HSBC Republic Bank Building
                                            Rue du Pre
                                            St. Peter Port
                                            Guernsey, Channel Islands GY1 1LU

If to the Company:                          Spigadoro, Inc.
                                            70 East 55th Street, 24th Floor
                                            New York, NY 10022

         With a copy to:                    Lowenstein Sandler PC
                                            65 Livingston Avenue
                                            Roseland, New Jersey 07068
                                            Attn: Steven Skolnick

or to such other address as either party shall have previously specified in
writing to the other.

                  Section 6. Binding Agreement; No Assignment. This Agreement
shall be binding upon, and shall inure to the benefit of, the Executive,
Vertical and the Company and their respective permitted successors, assigns,
heirs, beneficiaries and representatives. This Agreement may not be assigned by
any party hereto without the prior written consent of each of the other parties
hereto.

                  Section 7. Governing Law. This  Agreement  shall be governed
by, and construed in accordance  with, the internal laws of the State of
New York, without reference to the choice of law principles thereof.

                  Section 8. Entire Agreement. This Agreement shall constitute
the entire agreement among the parties with respect to the matters covered
hereby and shall supersede all previous written, oral or implied understandings
among them with respect to such matters.

                                      -4-

<PAGE>

                  Section 9. Amendments.  This Agreement may only be amended or
otherwise  modified,  and compliance with any provision hereof may only be
waived, by a writing executed by all of the parties hereto.

                  Section 10.  Counterparts.  This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original,
and all of which shall together be deemed to constitute one and the same
instrument.

                            [signature page follows]

                                      -5-
<PAGE>

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

                                   SPIGADORO, INC.

                                   By: /s/ Lucio de Luca
                                       --------------------------
                                       Name:
                                       Title:

                                       /s/ Jacob Agam
                                       --------------------------
                                       JACOB AGAM

                                   VERTICAL FINANCIAL HOLDINGS

                                   By:  /s/ Jacob Agam
                                        -------------------------
                                        Name:
                                        Title:

                                      -6-

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