<PAGE>   1
                                                                    EXHIBIT 10.5

                              FORBEARANCE AGREEMENT

          THIS FORBEARANCE AGREEMENT dated as of July 12, 2001, by and among
AKORN, INC., a Louisiana corporation ("Akorn"), AKORN (NEW JERSEY), INC., an
Illinois corporation "Akorn NJ") (Akorn and Akorn NJ being sometimes referred to
herein individually as a "Borrower" and collectively as the "Borrowers"), and
THE NORTHERN TRUST COMPANY, an Illinois banking corporation (the "Lender");

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

          WHEREAS, the following documents (collectively, the "Documents") were
heretofore entered into by the parties indicated:

          (i) Amended and Restated Credit Agreement dated as of September 15,
     1999, among the Borrowers and the Lender (which, as amended by the
     documents referred to in (v), (vi) and (vii) below, is referred to herein
     as the "Credit Agreement");

          (ii) Amended and Restated Security Agreement dated as of December 29,
     1997 (which, as amended by the documents referred to in (v), (vi) and (vii)
     below, is referred to herein as the "Security Agreement"), from the
     Borrowers to the Lender;

          (iii) Intellectual Property Security Agreement dated as of September
     15, 1999 (the "Intellectual Property Security Agreement"), from Akorn to
     the Lender;

          (iv) Junior Mortgage dated as of March 21, 2001 (the "Junior
     Mortgage"), from Akorn to the Lender recorded in the Office of the Recorder
     of Deeds of Macon County, Illinois, on May 7, 2001, in Book 3056, Page 544;

          (v) First Amendment dated as of December 28, 1999, among the Borrowers
     and the Lender;

          (vi) Second Amendment and Waiver dated as of February 15, 2001, among
     the Borrowers and the Lender;

          (vii) Third Amendment and Waiver dated as of April 16, 2001, among the
     Borrowers and the Lender; and

          (viii) Note dated April 16, 2001, from the Borrowers to the Lender in
     the principal amount of $45,000,000; and

          WHEREAS, certain Events of Default have occurred and are continuing
under the Documents, as more fully described below in this Agreement; and

          WHEREAS, the Borrowers have requested that the Lender forbear from
exercising certain remedies under the Documents in


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<PAGE>   2

order to provide the Borrowers with additional time within which to comply with
their obligations under the Documents; and

          WHEREAS, the Lender is willing to so forbear from exercising remedies
under the Documents, on the terms and subject to the conditions provided for in
this Agreement;

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

          Section 1. Recitals Part of Agreement; Defined Terms; Applicability of
Provisions. (a) The foregoing recitals are hereby incorporated into and made a
part of this Agreement.

          (b) For purposes of this Agreement, the following terms shall have the
following respective meanings:

          (i) "Gross Receipts" shall mean, for any period, the amount of the
     gross proceeds received by the Borrowers during such period from sales of
     merchandise, including collections of accounts receivable, plus the amount
     of proceeds of the loans under the Subordinated Loan Agreement received by
     the Borrowers during such period, all determined on a cash basis.

          (ii) "Net Receipts" shall mean, for any period, an amount equal to the
     difference between (A) the Gross Receipts for such period and (B) the
     amount of the cash expenditures of the Borrowers during such period, other
     than capital expenditures that do not violate the conditions provided for
     in Section 11 of this Agreement or in Section 7.18 of the Credit Agreement,
     all determined on a cash basis.

          (iii) "Subordinated Loan Agreement" means a Convertible Bridge Loan
     and Warrant Agreement in the form attached to this Agreement as Exhibit A.

          (c) All capitalized terms used and not otherwise defined in this
Agreement shall have the same meanings as in the Credit Agreement. Unless
otherwise defined or the context otherwise requires, all financial and
accounting terms used in this Agreement shall be defined in accordance with
GAAP.

          (d) Except as otherwise expressly provided in this Agreement, all of
the covenants and agreements of the Borrowers contained in this Agreement, and
all of the conditions provided for in this Agreement, shall apply at all times
on and after the date of this Agreement and until all of the Obligations of the
Borrowers under the Documents have been fully paid and performed,
notwithstanding any termination of the Forbearance Period (as defined below).



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          Section 2. Acknowledgments by Borrowers. The Borrowers acknowledge and
agree with the Lender as follows:

          (a) The amount of the Advances outstanding under the Credit Agreement
     as of May 15, 2001, was $44,800,000, and the amount of the Advances
     outstanding under the Credit Agreement as of the date of this Agreement is
     $44,800,000. There were no Letter of Credit Obligations outstanding under
     the Credit Agreement as of May 15, 2001, and there are no Letter of Credit
     Obligations outstanding under the Credit Agreement as of the date of this
     Agreement.

          (b) As of May 15, 2001, the $44,800,000 aggregate amount of Advances
     and Letter of Credit Obligations outstanding under the Credit Agreement
     exceeded the $43,500,000 Commitment in effect as of that date by
     $1,300,000, and the Borrowers failed to prepay the outstanding amount of
     Advances by an amount equal to such excess as required by Section 2.3(b) of
     the Credit Agreement. The failure of the Borrowers to make such prepayment
     constitutes an Event of Default under Section 8.1(a) of the Credit
     Agreement, and such Event of Default is continuing as of the date of this
     Agreement.

          (c) The Borrowers failed to pay monthly interest on May 31, 2001, and
     June 30, 2001, as required by Section 2.5(a) of the Credit Agreement. The
     failure of the Borrowers to make such payments of interest constitutes an
     Event of Default under Section 8.1(a) of the Credit Agreement, and such
     Event of Default is continuing as of the date of this Agreement.

          (d) As of May 15, 2001, the Borrowers had not received the cash
     proceeds of the Subordinated Loan or otherwise caused the conditions set
     forth in Section 6.15 of the Credit Agreement to be satisfied. The
     circumstances described above in this paragraph have continued from May 15,
     2001, through the date of this Agreement (being a period of more than 10
     days) and therefore constitute an Event of Default under Section 8.1(c) of
     the Credit Agreement, and such Event of Default is continuing as of the
     date of this Agreement.

          (e) The Events of Default described above in this Section are not
     necessarily all of the Events of Default that have occurred and are
     continuing under the Documents as of the date of this Agreement.

          (f) By virtue of the Events of Default described above in this
     Section, the Lender is entitled to exercise the remedies provided for in
     the Documents, including the right to declare the Obligations to be
     forthwith due and payable, the right to increase the rate of interest
     applicable to the




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<PAGE>   4

     Loan to the Default Rate, and the right to foreclose on and proceed against
     the Collateral.

          Section 3. Forbearance. (a) During the period ending January 1, 2002,
provided that the conditions set forth in paragraph (b) below are continuously
satisfied, the Lender shall forbear from (i) exercising its right to declare the
Obligations to be forthwith due and payable, (ii) its right to increase the rate
of interest applicable to the Loan to the Default Rate, and (iii) its right to
foreclose on or proceed against any of the Collateral, by reason of any Event of
Default existing under the Documents as of the date of this Agreement, or by
reason of the failure of the Borrowers to make payments of principal on the Note
in accordance with the terms of the Documents. The period ending on January 1,
2002, or on any earlier date as of which the Lender is no longer obligated to
forbear from exercising the aforesaid remedies pursuant to the provisions of
this Section, is referred to herein as the "Forbearance Period."

          (b) The agreement of the Lender set forth in paragraph (a) above is
expressly contingent and conditioned upon the following (the "Forbearance
Conditions"):

          (i) Except as expressly provided to the contrary in Section 18 hereof,
     the timely payment, performance, observance and satisfaction at all times
     after the date of this Agreement of all of the obligations, terms,
     covenants, conditions and provisions contained in the Documents, as
     modified and amended by this Agreement, other than the obligation to pay
     the principal of the Note.

          (ii) The timely payment, performance, observance and satisfaction at
     all times after the date of this Agreement of all of the obligations,
     terms, covenants, conditions and provisions contained in Sections 5 through
     17 of this Agreement.

          (iii) The truth and accuracy in all material respects as of the date
     of this Agreement of all of the representations and warranties of the
     Borrowers contained in this Agreement.

          (iv) The performance and observance by the Borrowers and by the lender
     under the Subordinated Loan Agreement, at all times after the date of this
     Agreement, of all of their respective obligations and agreements under the
     Subordination and Standby Agreement referred to below.

In the event that at any time during the period ending January 1, 2002, any one
or more of the Forbearance Conditions is not satisfied, then the Lender shall no
longer be obligated to forbear from exercising the aforesaid remedies under the
Documents, and the Lender shall be entitled to exercise any and all remedies
under the Documents. A delay or failure on the part of the Lender in any
instance to exercise remedies as a result of the failure of any Forbearance
Condition to be satisfied shall



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<PAGE>   5

not operate as a waiver of the Lender's right to later exercise remedies as a
result thereof, or as a result of any other failure of the same or any other
Forbearance Condition to be satisfied.

          (c) The Borrowers acknowledge and agree that the Lender has made no
agreement, and has given no assurances of any sort, as to any forbearance by the
Lender after January 1, 2002, and the Borrowers understand, acknowledge and
agree that the Lender will be entitled to exercise any and all remedies under
the Documents after January 1, 2002, if and to the extent that all of the
obligations of the Borrowers under the Documents have not been fully paid and
performed as of January 1, 2002.

     Section 4. Commitment. Except as provided below in this Section, the
Commitment of the Lender to make Advances and to issue Letters of Credit under
the Credit Agreement shall not be in effect from and after the date of this
Agreement, and the Lender shall not be obligated to make, and the Borrowers
shall not have the right to receive, any additional Advances or Letters of
Credit under the Credit Agreement from and after the date of this Agreement.
Notwithstanding the foregoing provisions of this Section, during the Forbearance
Period (but not after any termination of the Forbearance Period), the Borrowers
shall have the right to receive Advances, but only if and to the extent that the
amount of the outstanding Advances under the Credit Agreement, after giving
effect to such Advances, does not exceed $44,800,000, and only if at the time
any such Advance is made all of the Forbearance Conditions are fully satisfied.

     Section 5. Payments. (a) On the date of this Agreement, the Borrowers shall
pay all past due interest outstanding under the Documents. In order to
accomplish the payment of such past due interest, the Borrowers authorize and
direct the Lender to debit Account No. 86746 at the Lender. The Borrowers also
authorize and direct the Lender to debit Account No. 86746 at the Lender on each
interest payment date under the Documents for the interest due on such interest
payment date. The provisions of this paragraph are without limitation on the
provisions of Section 2.7 of the Credit Agreement.

          (b) If at any time after the date of this Agreement, either of the
     Borrowers shall receive any federal, state or local tax refund, the
     Borrowers shall promptly make a payment of the principal of the Loan in an
     amount equal to the amount of such refund.

          (c) In addition to the payments provided for in paragraphs (a) and (b)
     of this Section, on the last day of the Forbearance Period, the Borrowers
     shall immediately pay to the Lender all principal, interest and other
     amounts due under the Documents.

          Section 6. Collection and Deposit of Cash Receipts. (a) The Lender
hereby grants to the Borrowers the authority to collect their accounts
receivable during the



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Forbearance Period, and will not, during the Forbearance Period, exercise its
right under Section 7 of the Security Agreement to make direct collections from
the Borrowers' account debtors, but such grant of authority by the Lender to the
Borrowers to collect their accounts receivable shall be subject to the terms and
conditions hereinafter set forth in this Section. The authority granted to the
Borrowers by the Lender in this Section to collect their accounts receivable
shall terminate at the end of the Forbearance Period.

          (b) Except as provided in Section 8 of this Agreement and in paragraph
(e) of this Section, at all times on and after the date of this Agreement, (i)
all cash receipts received by either of the Borrowers, including, without
limitation, payments of accounts receivable, amounts deposited in the lockbox
account referred to in paragraph (d) of this Section, and proceeds of the loans
under the Subordinated Loan Agreement, whether by check or in any other form,
shall be deposited by the Borrowers not later than the first Business Day after
the date of receipt, in Account No. 86746 at the Lender; and (ii) the Borrowers
shall have all of their cash and investments (whether derived from collections
of accounts receivable or other sources) on deposit in accounts maintained with
the Lender (all such accounts with the Lender, including the lockbox account
referred to in paragraph (d) of this Section, are hereinafter referred to as the
"Bank Accounts"). The Borrowers hereby acknowledge and reaffirm the grant to the
Lender a security interest in the Bank Accounts as provided in the Security
Agreement.

          (c) At any time and from time to time after the end of the Forbearance
Period, the Lender will, in its sole discretion, exercise its right under the
Credit Agreement and the Security Agreement to apply the whole or any part of
any amounts received by the Lender in the Bank Accounts against the Obligations
of the Borrowers under the Documents in such order of application as the Lender
may determine unless such amounts are, in the sole discretion of the Lender,
released to the Borrowers. The provisions of this paragraph are without
limitation on any of the provisions of the Credit Agreement or the Security
Agreement.

          (d) The Borrowers currently maintain a lockbox account arrangement
with the Lender for the purpose of receiving payment of accounts receivable.
From and after the date of this Agreement, such lockbox account arrangement
shall be mandatory and shall be used by the Borrowers for the collection of all
of their accounts receivable, except as otherwise permitted by paragraph (e)
below. The Borrowers shall instruct their account debtors, to make payment of
their accounts directly to such lockbox account, except as otherwise permitted
by paragraph (e) below. The Borrowers hereby irrevocably designate, make,
constitute and appoint the Lender, and all persons designated by the Lender, as
the Borrowers' true and lawful attorney and agent-in-fact, and the Lender, or
the Lender's agent may, without notice to the Borrowers, endorse any Borrower's
name on any checks, notes, drafts or any other items of payment which come



                                      - 6 -
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into the possession of the Lender or under the Lender's control and, at any time
and from time to time after the end of the Forbearance Period, apply such
payment or proceeds to the Obligations of the Borrowers under the Documents.

          (e) Notwithstanding the foregoing provisions of this Section, during
the Forbearance Period, the Borrowers may maintain a bank account at American
National Bank and Trust Company of Chicago for the purpose of processing credit
card payments, provided that the balance on deposit in such account shall not at
any time be in excess of $150,000.

          Section 7. Subordinated Loans. (a) The following are conditions of
this Agreement:

          (i) On or before the date of this Agreement, Akorn shall have entered
     into the Subordinated Loan Agreement, and the lender under the Subordinated
     Loan Agreement and the Borrowers shall have entered into a Subordination
     and Standby Agreement with the Lender in the form attached to this
     Agreement as Exhibit B (the "Subordination Agreement").

          (ii) On or before the date of this Agreement, Akorn shall have
     received any required approval from the shareholders of Akorn for the
     $3,000,000 Tranche A Loan transaction contemplated by the Subordinated Loan
     Agreement, or the National Association of Securities Dealers shall have
     granted an exception in writing to the requirement for such shareholder
     approval, and Akorn shall have received all of the proceeds of such Tranche
     A Loan, which loan shall be evidenced by a Convertible Promissory Note in
     the form of Exhibit A to the Subordinated Loan Agreement.

          (iii) On or before August 16, 2001, Akorn shall have received any
     required approval from the shareholders of Akorn for the $2,000,000 Tranche
     B Loan transaction contemplated by the Subordinated Loan Agreement, or the
     National Association of Securities Dealers shall have granted an exception
     in writing to the requirement for such shareholder approval, and on or
     before August 17, 2001, Akorn shall have received all of the proceeds of
     such Tranche B Loan, which loan shall be evidenced by a Convertible
     Promissory Note in the form of Exhibit A-1 to the Subordinated Loan
     Agreement.

          (b) Clause (h) of Section 7.3 of the Credit Agreement is hereby
deleted. Notwithstanding anything to the contrary contained in the Documents,
the consummation by Akorn of the transactions contemplated by the Subordinated
Loan Agreement shall not constitute a violation of Section 7.3 of the Credit
Agreement, provided that such transactions are consummated pursuant to
documentation in the form attached to this Agreement as Exhibit A, and that the
Subordination Agreement has been executed and delivered by all of the parties
thereto, and Section



                                      - 7 -
<PAGE>   8

7.3 of the Credit Agreement is hereby modified and amended accordingly.

          (c) Notwithstanding anything to the contrary contained in the
Documents, conversion of the loans under the Subordinated Loan Agreement into
common stock of Akorn shall not constitute a violation of Section 7.5 or Section
7.14 of the Credit Agreement, provided that no cash or other property (other
than shares of common stock of Akorn) of the Borrowers is given in exchange for
the conversion of such loans, and Section 7.5 and Section 7.14 of the Credit
Agreement are hereby modified and amended accordingly.

          (d) Notwithstanding anything to the contrary contained in the
Documents, issuance of common stock of Akorn to the lender under the
Subordinated Loan Agreement pursuant to the Common Stock Purchase Warrants
issued by Akorn in accordance with the Subordinated Loan Agreement, shall not
constitute a violation of Section 7.5 or Section 7.14 of the Credit Agreement,
and Section 7.5 and Section 7.14 of the Credit Agreement are hereby modified and
amended accordingly.

          Section 8. Fees and Expenses. Within 14 days after the date of this
Agreement and at all time thereafter, the Borrowers shall have on deposit with
the Lender in a blocked account, not less than $50,000 as an advance deposit
against the obligation of the Borrowers to reimburse the Lender for fees and
expenses as required by Section 10.4 of the Credit Agreement. The Lender shall
have the right to debit such account from time to time in order to reimburse
itself for such fees and expenses. The Lender shall give notice of each such
debit to the Borrowers. At such time as all of the obligations of the Borrower
under the Documents have been fully paid and performed, the Lender shall release
any remaining balance on deposit in such account to the Borrowers.

          Section 9. Lender's Consultant and Personnel. The Borrowers understand
that the Lender intends to engage a consultant to review the accounting and
business practices of the Borrowers relating to its accounting reserves and
additions to those reserves, and that the Lender's collateral evaluation
personnel will from time to time, and not less often than monthly, make visits
to the Borrowers' places of business to inspect the tangible collateral for the
Loan, review the books and records of the Borrowers and confer with the
Borrowers' personnel. The Borrowers shall cooperate with such consultant and
collateral evaluation personnel and allow them to have access to the Borrowers'
books and records and personnel and to the collateral for the Loan. The
Borrowers acknowledge that the fees of such consultant shall be reimbursable to
the Lender by the Borrowers in accordance with Section 10.4 of the Credit
Agreement. The provisions of this Section are without limitation on the
provisions of Section 2.11 of the Credit Agreement.

          Section 10. Inventory Reserve. It is a condition of this Agreement
that from and after the date of this Agreement,



                                      -8-
<PAGE>   9

the aggregate amount of the additions to the Borrowers' reserves for slow-moving
and obsolete inventory shall not at any time exceed an amount equal to the sum
of 3.0% of sales of merchandise booked after the date of this Agreement, plus
$250,000.

          Section 11. Capital Expenditures; Dividends. (a) The limitation on
spending to acquire fixed or capital assets during Fiscal Year 2001 provided for
in Section 7.18 of the Credit Agreement is hereby increased from $2,000,000 to
$4,125,000, which spending may consist of the following:

          (i) Up to $620,000 for interest required to be capitalized under GAAP
     on borrowings to finance capital assets.

          (ii) If the license fee payable to Johns Hopkins is required to be
     capitalized under GAAP, up to $175,000 for such license fee.

          (iii) Other capital expenditures made or contracted for prior the date
     of this Agreement in an aggregate amount not exceeding $2,680,000.

          (iv) Other capital expenditures made on or after the date of this
     Agreement in an aggregate amount not exceeding $400,000 for the following
     items at Akorn's Decatur, Illinois, place of business: (A) HVAC Areas C and
     D upgrades; (B) chilled water systems revisions; (C) glassware washer
     installation and system improvements; and (D) miscellaneous system
     improvements.

          (v) Other capital expenditures made on or after the date of this
     Agreement in an aggregate amount not exceeding $250,000.

Section 7.18 of the Credit Agreement is hereby modified and amended to conform
to the foregoing provisions of this Section.

          (b) The Borrowers acknowledge that by virtue of the existence of
Events of Default under the Credit Agreement, the Borrowers are, under the
provisions of Section 7.14 of the Credit Agreement prohibited from paying cash
dividends on their common stock. In addition to the restrictions contained in
Section 7.14 of the Credit Agreement, from and after the date of this Agreement,
the Borrowers shall not pay any cash dividend on any of their capital stock.

          Section 12. Receipts. (a) It is a condition of this Agreement that (i)
for each of the calendar months set forth in Column A below, the Gross Receipts
and Net Receipts of the Borrowers shall be not less than the amount set forth
beside such month in Column B and Column C below, respectively, and (ii) that
for the periods commencing on July 1, 2001, and ending on the last day of each
of the months set forth in Column A below, the cumulative Gross Receipts and
cumulative Net Receipts of the



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Borrowers shall be not less than the amount set forth beside such month in
Column D and Column E below, respectively:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
       Column A              Column B             Column C             Column D             Column E

                                                                  Cumulative Gross     Cumulative Net
                                                                  Receipts For         Receipts For
                                                                  Period July 1,       Period July 1,
                                                                  2001, through Last   2001, through Last
                      Gross Receipts For   Net Receipts For       Day of Month Not     Day of Month Not
Month                Month Not Less Than  Month Not Less Than     Less Than            Less Than
------------------------------------------------------------------------------------------------------------
<S>                  <C>                  <C>                     <C>                   <C>
July, 2001              $2,960,000           ($3,100,000)         $2,960,000           ($3,100,000)
------------------------------------------------------------------------------------------------------------
August, 2001            $3,680,000           $0                   $7,380,000           ($2,300,000)
------------------------------------------------------------------------------------------------------------
September, 2001         $2,320,000           ($1,300,000)         $10,620,000          ($2,800,000)
------------------------------------------------------------------------------------------------------------
October, 2001           $2,320,000           ($725,000)           $13,520,000          ($3,025,000)
------------------------------------------------------------------------------------------------------------
November, 2001          $3,040,000           ($1,080,000)         $17,140,000          ($3,930,000)
------------------------------------------------------------------------------------------------------------
December, 2001          $2,880,000           ($600,000)           $20,780,000          ($4,350,000)
------------------------------------------------------------------------------------------------------------
</TABLE>

          (b) The Borrowers acknowledge and agree that the amounts provided for
in paragraph (a) of this Section have been established at levels that are
substantially lower than the Borrowers' actual expectations, and that any
failure to satisfy the foregoing condition of this Section shall be deemed to be
material, regardless of the amount of such failure.

          Section 13. Regulatory Matters. (a) The Borrowers shall provide the
Lender with copies of any communications to or from the Food and Drug
Administration (the "FDA") concerning the 483 M Warning Letter received by Akorn
from the FDA, or concerning any other matters, and shall inform the Lender of
the substance of any oral communication with the FDA concerning any of such
matters, in each case not later than the first Business Day after the date of
any such communication.

          (b) It is a condition of this Agreement that from and after the date
of this Agreement there shall be no materially adverse action taken by the FDA,
or by any other Governmental Authority, with respect to either of the Borrowers,
based on an alleged failure to comply with laws or regulations, including,
without limitation, the imposition of any fine, any ban on sale, recall or
seizure of products, or any total or partial suspension of production, or the
filing of any judicial or administrative proceeding seeking any of the
foregoing.

          (c) The provisions of this Section are without limitation on the
provisions of Section 6.14 of the Credit Agreement.

          Section 14. Reports and Notices. (a) From and after the date of this
Agreement, the Borrowers shall deliver the following to the Lender:

          (i) On or before Tuesday of each week, the Borrowers shall deliver to
     the Lender a report of actual Gross Receipts and Net Receipts for the
     one-week period ending on the immediately preceding Friday, and forecast



                                     - 10 -
<PAGE>   11

     Gross Receipts and Net Receipts for the next 12 weeks, prepared in the
     format of Exhibit C attached to this Agreement and signed by officers of
     the Borrowers.

          (ii) Within two Business Day after the end of each calendar month
     commencing with the month of July, 2001, the Borrowers shall deliver to the
     Lender a report of Gross Receipts and Net Receipts for such month and for
     the period commencing July 1, 2001, and ending on the last day of such
     month, which reports shall be prepared in reasonable detail and in a format
     acceptable to the Lender and shall be signed by officers of the Borrowers.

          (iii) The Borrowers shall deliver to the Lender each of the monitoring
     reports specified in Exhibit D attached to this Agreement, with the
     frequency and by the dates specified in Exhibit D, each of which reports
     shall be prepared in reasonable detail and in a format acceptable to the
     Lender and shall be signed by officers of the Borrowers.

          (iv) Immediately upon learning of any failure of any Forbearance
     Condition to be satisfied, the Borrowers shall deliver to the Lender
     written notice describing same.

Except as otherwise expressly provided in paragraph (b) of this Section, the
reports and notices required by this paragraph shall be in addition to the
reports, notices and information required to be furnished by the Borrowers
pursuant to the terms of the Documents, including, without limitation, Section
5.1 of the Credit Agreement.

          (b) Section 5.1 of the Credit Agreement is hereby modified and amended
     as follows:

          (i) The only monthly reports required to be furnished by the Borrowers
     under Section 5.1(g) of the Credit Agreement are the unauditied financial
     statements referred to in clause (ii) in such Section, which unauditied
     financial statements shall be furnished within 15 Business Days after the
     end of each month.

          (ii) The date for the Borrowers to furnish the budget for the Fiscal
     Year 2001 required by Section 5.1(h) of the Credit Agreement is hereby
     extended from July 31, 2001, to August 31, 2001.

          (iii) The reports referred to in Section 5.1(i) of the Credit
     Agreement shall no longer be required.

          Section 15. Title Insurance and Surveys. Within 30 days after the date
of this Agreement, the Borrowers shall, at their sole cost and expense, provide
the Lender with the following:


                                     - 11 -
<PAGE>   12

          (i) A loan policy of title insurance insuring the Junior Mortgage as a
     second lien on the property described in the Junior Mortgage, containing
     such endorsements as the Lender shall reasonably request, and subject only,
     to (A) in the case of each parcel of such property, to a first mortgage
     securing an original indebtedness of not more than $1,500,000, and other
     exceptions to title acceptable to the Lender, and, (B) in the case of the
     parcel commonly known as 1222 West Grand and 1365 North University,
     Decatur, Illinois, a mechanics lien claim in an amount not exceeding
     $250,000.

          (ii) A survey of each of the parcels of property described in the
     Junior Mortgage showing only such survey defects as are acceptable to the
     Lender, which surveys need not be currently dated if the title insurer
     issuing the loan policy provided for above is willing to issue an
     endorsement to such policy as to the accuracy of such surveys.

          Section 16. Security Interests. Without limitation on any of the
provisions of the Documents, from and after the date of this Agreement, the
Borrowers shall cooperate with the Lender by executing and delivering such
documents as the Lender shall deem necessary or advisable in order to conform to
the provisions of Revised Article 9 of the Uniform Commercial Code and to
perfect the Lender's security interest in any intellectual property of the
Borrowers in addition to that described in the Intellectual Property Security
Agreement.

          Section 17. Financing Fee. As a part of the consideration for the
agreements of the Lender provided for in this Agreement, the Borrowers shall pay
to the Lender a financing fee in the amount of $168,750, which financing fee
shall be fully earned at the time of the execution and delivery of this
Agreement, but shall be due and payable on the last day of the Forbearance
Period.

          Section 18. Certain Provisions of Credit Agreement Not to Apply. The
provisions of Sections 7.10 of the Credit Agreement shall not apply so as to
cause any Event of Default under the Credit Agreement during the Forbearance
Period.

          Section 19. Representations and Warranties. The Borrowers hereby
represent and warrant to the Lender as follows:

          (a) Akorn is a corporation duly organized, validly existing and in
     good standing under the laws of the State of Louisiana and duly qualified
     to do business and in good standing in the States of Illinois and
     California, has all necessary power to carry on its present business, and
     has full right, power and authority to enter into and execute and deliver
     this Agreement and the Subordination Agreement and to otherwise perform and
     consummate the transactions contemplated thereby.



                                     - 12 -
<PAGE>   13

          (b) Akorn NJ is a corporation duly organized, validly existing and in
     good standing under the laws of the State of Illinois and duly qualified to
     do business and in good standing in the State of New Jersey, has all
     necessary power to carry on its present business, and has full right, power
     and authority to enter into and execute and deliver this Agreement and the
     Subordination Agreement and to otherwise perform and consummate the
     transactions contemplated thereby.

          (c) This Agreement, the Subordination Agreement and the Documents have
     been duly authorized, executed and delivered by the Borrowers and
     constitute valid and legally binding obligations enforceable against the
     Borrowers in accordance with their terms, subject to bankruptcy, insolvency
     and other laws of general application relating to the enforcement of
     creditors rights. The execution and delivery of this Agreement, the
     Subordination Agreement and the Documents and compliance with the
     provisions thereof under the circumstances contemplated therein do not and
     will not conflict with or constitute a breach or violation of or default
     under the articles of incorporation or bylaws of either of the Borrowers,
     or any agreement or other instrument to which either of the Borrowers are
     party, or by which either of them are bound, or to which their properties
     are subject, or any existing law, administrative regulation, court order or
     consent decree to which either of them are subject.

          (d) There is no litigation or administrative proceeding pending or
     threatened to restrain or enjoin the transactions contemplated by this
     Agreement, the Subordination Agreement or the Documents, or questioning the
     validity thereof, or in any way contesting the existence or powers of
     either of the Borrowers, or in which an unfavorable decision, ruling or
     finding would adversely affect the transactions contemplated by this
     Agreement, the Subordination Agreement or the Documents.

          (e) Except as disclosed in Exhibit E attached to this Agreement, there
     is no litigation or administrative proceeding pending or threatened against
     either of the Borrowers.

          (f) Schedules 4.2, 4.8, 4.9, 4.13, 4.15, 4.17, 4.18, 4.19, 7.3,
     7.4(a), 7.7 and 10.10 attached to this Agreement contain accurate and
     complete current updates of the information contained in the corresponding
     Schedules attached to the Credit Agreement.

          Section 20. Time of Essence. Time is of the essence of this Agreement
and each of the provisions hereof.



                                     - 13 -
<PAGE>   14

          Section 21. Joint and Several Obligation. The obligations of the
Borrowers under this Agreement shall be joint and several.

          Section 22. Release of Lender. To the extent permitted by applicable
law, each of the Borrowers hereby releases and forever discharges the Lender and
its past, present and future parent corporations, subsidiaries, affiliates and
divisions, and their respective past, present and future shareholders,
directors, officers, employees, attorneys, agents, investigators and insurers,
and the heirs, administrators, executors, legal representatives, trustees,
successors and assigns of each of the foregoing, of and from any and all claims
of any kind or character whatsoever, whether now known or hereafter discovered,
absolute or contingent, direct or indirect, arising out of any act, event or
occurrence of any sort whatsoever occurring on or prior to the date of this
Agreement; provided, however, that the Borrowers do not hereby release the right
to performance by the Lender of its obligations under the Documents and this
Agreement arising on and after the date of this Agreement. The Borrowers shall
forever refrain and forbear from commencing or prosecuting any lawsuit or other
proceeding against the Lender based upon, arising out of or connected with any
of the claims released in this Agreement.

          Section 23. Documents to Remain In Effect; Confirmation of
Obligations; References. The Documents shall remain in full force and effect as
originally executed and delivered by the parties, as expressly modified and
amended by this Agreement. In order to induce the Lender to enter into this
Agreement, the Borrowers hereby (i) confirm and reaffirm all of their
obligations under the Documents; (ii) acknowledge and agree that the Lender, by
entering into this Agreement, does not waive any existing or future default or
event of default under any of the Documents, or any rights or remedies under any
of the Documents, except as expressly provided herein; (iii) acknowledge and
agree that the Lender has not heretofore waived any default or event of default
under any of the Documents, or any rights or remedies under any of the
Documents; and (iv) acknowledge that they do not have any defense, set-off or
counterclaim to the payment or performance of any of their obligations under the
Documents.

          Section 24. Confirmation of Certifications, Representations and
Warranties. In order to induce the Lender to enter into this Agreement, the
Borrowers hereby certify, represent and warrant to the Lender that, except as
otherwise disclosed to the Lender in writing prior to the date hereof, including
in this Agreement and in the Exhibits and Schedules attached hereto and/or in
documents submitted to the Lender prior to the date hereof (including, but not
limited to, any and all financial statements and reports, budgets, statements of
cash flow and governmental reports and filings) (collectively referred to herein
as "Disclosures"), all certifications, representations and warranties contained
in the Documents and in all certificates heretofore delivered to the Lender are
true and correct as of the



                                     - 14 -
<PAGE>   15

date hereof in all material respects, and, subject to such Disclosures, all such
certifications, representations and warranties are hereby remade and made to
speak as of the date of this Agreement.

          Section 25. Entire Agreement. This Agreement sets forth all of the
covenants, promises, agreements, conditions and understandings of the parties
relating to the subject matter of this Agreement, and there are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than as are
herein set forth.

          Section 26. Successors. This Agreement shall inure to the benefit of
and shall be binding upon the arties and their respective successors, assigns
and legal representatives.

          Section 27. Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

          Section 28. Amendments, Changes and Modifications. This Agreement may
be amended, changed, modified, altered or terminated only by a written
instrument executed by all of the parties hereto.

          Section 29. Construction. (a) The words "hereof," "herein," and
"hereunder," and other words of a similar import refer to this Agreement as a
whole and not to the individual Sections in which such terms are used.

          (b) References to Sections and other subdivisions of this Agreement
are to the designated Sections and other subdivisions of this Agreement as
originally executed.

          (c) The headings of this Agreement are for convenience only and shall
not define or limit the provisions hereof.

          (d) Where the context so requires, words used in singular shall
include the plural and vice versa, and words of one gender shall include all
other genders.

          (e) Each party to this Agreement and legal counsel for each party have
participated in the drafting of this Agreement, and accordingly the general rule
of construction to the effect that any ambiguities in a contract are to be
resolved against the party drafting the contract shall not be employed in the
construction and interpretation of this Agreement.

          Section 30. Execution of Counterparts. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.


                                     - 15 -
<PAGE>   16

          Section 31. Governing Law. This Agreement is prepared and entered into
with the intention that the law of the State of Illinois shall govern its
construction and enforcement.


                       [SIGNATURE PAGE(S) AND EXHIBIT(S),
                            IF ANY, FOLLOW THIS PAGE]


                                     - 16 -
<PAGE>   17



          IN WITNESS WHEREOF, the parties have executed this instrument as of
the date first above written.


                                            AKORN, INC.



                                            By   /s/ Kevin M. Harris
                                              ----------------------------------
                                              Title:  CFO


                                            AKORN (NEW JERSEY), INC.



                                            By   /s/ Kevin M. Harris
                                              ----------------------------------
                                              Title:  CFO


                                            THE NORTHERN TRUST COMPANY



                                            By   /s/ Olga Georgiev
                                              ----------------------------------
                                              Title:  Vice President


                                     - 17 -
<PAGE>   18



                                    EXHIBIT A

                       FORM OF SUBORDINATED LOAN AGREEMENT



                                     - 18 -
<PAGE>   19


                  Convertible Bridge Loan and Warrant Agreement

     This Convertible Bridge Loan and Warrant Agreement (this "Agreement") is
entered into as of July 12, 2001 (the "Effective Date"), by and among Akorn,
Inc., a Louisiana corporation (the "Company"), and The John N. Kapoor Trust
Dated September 20, 1989 (the "Lender").

     WHEREAS, the Lender is willing, pursuant to the terms and conditions of
this Agreement, to loan the Company, in two tranches, an aggregate amount of
Five Million Dollars ($5,000,000) (the "Loan Amount"), which loan (the "Loan")
shall be convertible into securities of the Company on the terms and subject to
the conditions set forth herein.

     NOW, THEREFORE, the parties hereby agree as follows:

1. DEFINITIONS. In addition to those terms defined in the body of this
Agreement, the following terms shall have the following respective meanings:

"Common Stock" shall mean the Company's Common Stock, no par value per share.

"Closing" shall be on or before July 12, 2001, and shall be held at 9:00 a.m. at
the offices of Vedder, Price, Kaufman & Kammholz, 222 N. LaSalle Street, Suite
2600, Chicago, Illinois 60601.

"Prime Rate" shall have the meaning ascribed thereto in the Senior Loan
Agreement.

"Senior Loan Agreement" shall mean that certain Amended and Restated Credit
Agreement dated as of September 15, 1999, by and among the Company, Akorn (New
Jersey), Inc. and The Northern Trust Company, as amended and supplemented by (i)
a First Amendment thereto dated as of December 28, 1999, (ii) a Second Amendment
thereto dated as of February 15, 2001, (iii) a Third Amendment and Waiver
thereto dated as of April 16, 2001 (iv) a Waiver dated December 29, 2000, and
(v) a Forbearance Agreement dated the date hereof by and among the Company,
Akorn (New Jersey), Inc. and The Northern Trust Company.

2. LOAN. Subject to the terms and conditions set forth in this Agreement, the
Lender will loan the Company the Loan Amount in two tranches as follows: (a)
Three Million Dollars ($3,000,000) (the "Tranche A Loan") on the Effective Date,
evidenced by a Convertible Promissory Note substantially in the form attached
hereto as Exhibit A (the "Tranche A"); and (b) Two Million Dollars ($2,000,000)
(the "Tranche B Loan") pursuant to the terms of Section 3A hereof, evidenced by
a Convertible Promissory Note substantially in the form attached hereto as
Exhibit A-1 (the "Tranche B Note" and, together, with the Tranche A Note, the
"Notes").

3. LOAN TERM; INTEREST; REPAYMENT; PREPAYMENT. Subject to the Subordination
Agreement (as defined herein), the term of each of the Tranche A Loan and the
Tranche B Loan will end on the date that is thirty-six (36) months after the
date of issuance (the "Issuance Date") of the Tranche A Note and the Tranche B
Note, respectively (the "Repayment Date"). Interest on the unpaid principal
balance of each of the Tranche A Loan and the Tranche B Loan (each unpaid
principal balance is referred to as the "Outstanding Balance") will accrue from
the Issuance Date of the Tranche A Note and the Tranche B Note, as applicable,
at



                                     - 19 -
<PAGE>   20

the Prime Rate, calculated on the basis of a 360 day year and actual days
elapsed and such accrued interest shall be due and payable quarterly in arrears
beginning on the first day of the month immediately following the Issuance Date
of the Tranche A Note and the Tranche B Note, as applicable; provided, however,
that, notwithstanding the foregoing, no quarterly interest payments shall be
paid to the Lender under the Notes so long as the Subordination Agreement
remains in effect and such accrued interest shall (a) with respect to the
Tranche A Note, be paid in full on the earlier of the date of termination of the
Subordination Agreement or the Repayment Date of the Tranche A Note, and (b)
with respect to the Tranche B Note, be capitalized as provided in the Tranche B
Note. Subject to the terms of the Subordination Agreement, to the extent not
previously converted pursuant to Section 5, the Company will repay the
Outstanding Balance of each Note plus all interest accrued thereon on the
Repayment Date of each Note. Except as specifically permitted in each Note, the
portion of the Outstanding Balance on the Tranche A Loan and the Tranche B Loan
and all accrued interest payable to the Lender hereunder may not be prepaid
prior to the applicable Repayment Date without the consent of the Lender in its
sole and absolute discretion. Unless prohibited under applicable law, any
accrued interest that is not paid on the date on which it is due and payable
under any Note shall bear interest at the same rate at which interest is then
accruing on the principal amount of such Note.

3A. CONDITIONS TO TRANCHE B LOAN. The obligation of the Lender to make the
Tranche B Loan is subject to the condition precedent that the Lender shall have
received on or before August 16, 2001, all of the following, each dated (unless
otherwise indicated) as of the date of the Tranche B Loan, in each case in form
and substance satisfactory to the Lender unless otherwise agreed to by the
Lender and the Company in writing:

     (a)  Tranche B Note. The Tranche B Note in the form attached hereto as
          Exhibit A-1, properly executed on behalf of the Company.

     (b)  Tranche B Warrant. The Tranche B Warrant in the form attached hereto
          as Exhibit B-1, properly executed on behalf of the Company.

     (c)  Use of Proceeds. Evidence that the proceeds of the Tranche B Loan
          shall be used for the Company's general working capital purposes.

     (d)  Officers' Certificate. A certificate of a senior executive officer of
          the Company certifying that (i) the representations and warranties
          contained in Section 6 are true and correct on and as of the date of
          the Tranche B Loan as though made on and as of such date, except to
          the extent that such representations and warranties relate solely to
          an earlier date, and (ii) no event has occurred and is continuing, or
          would result from the Tranche B Loan, which constitutes, or would,
          upon notice or lapse of time or both, constitute a default.

     (e)  Resolutions. A certified copy of (i) the resolutions of the
          shareholders and Board of Directors of the Company evidencing approval
          of this Agreement, the Tranche B Loan, the Tranche B Note, the Tranche
          B Warrant and the other matters contemplated hereby, or (ii) the
          written exception of the National Association of Securities Dealers to
          the requirement for such shareholder approval.


                                     - 20 -
<PAGE>   21


     (f)  Other Agreements. Such other documents, agreements and certificates as
          the Lender may reasonably request.

4. WARRANT ISSUANCE. (a) At the Closing, the Company will issue to the Lender a
warrant to purchase one million (1,000,000) shares of Common Stock at an
exercise price of $2.85 per share, in accordance with and in substantially the
form attached hereto as Exhibit B (the "Tranche A Warrant"); and (b) on the
Tranche B Note Issuance Date, the Company will issue to the Lender a warrant to
purchase six hundred sixty-seven thousand (667,000) shares of Common Stock at an
exercise price of $2.25 per share, in accordance with and in substantially the
form attached hereto as Exhibit B-1 (the "Tranche B Warrant" and, together with
the Tranche A Warrant, the "Warrants").

5. CONVERSION; RESERVATION.

     (a)  The Outstanding Balance on the Tranche A Loan shall be convertible, in
          whole or in part, into Common Stock at the option of the Lender at any
          time during the five (5) year period after the Tranche A Note Issuance
          Date (i.e., for a period including two (2) years after the Tranche A
          Repayment Date) at a conversion price of $2.28 per share of Common
          Stock. The Company shall have reserved such securities as the Lender
          becomes entitled to receive upon conversion of the Tranche A Note and
          upon the exercise of the Tranche A Warrant no later than the earlier
          to occur of (i) the conversion of the Outstanding Balance of the
          Tranche A Note, plus any accrued interest thereon, or (ii) the
          exercise of all or any portion of the Tranche A Warrant. If necessary,
          prior to the issuance by the Company of any equity securities (or any
          instrument exercisable for or convertible into equity securities) and
          whenever otherwise required, the Company will amend its Articles of
          Incorporation to ensure that there is a sufficient quantity of such
          equity securities into which the Outstanding Balance on the Tranche A
          Note, plus any accrued interest to date thereon, can be converted and
          for which the Tranche A Warrant may be exercised.

     (b)  The Outstanding Balance plus accrued interest, if any, on the Tranche
          B Loan shall be convertible, in whole or in part, into Common Stock at
          the option of the Lender at any time during the five (5) year period
          after the Tranche B Note Issuance Date (i.e., for a period including
          two (2) years after the Tranche B Repayment Date) at a conversion
          price of $1.80 per share of Common Stock. The Company shall have
          reserved such securities as the Lender becomes entitled to receive
          upon conversion of the Tranche B Note and upon the exercise of the
          Tranche B Warrant no later than the earlier to occur of (i) the
          conversion of the Outstanding Balance of the Tranche B Note, plus any
          accrued interest thereon, or (ii) the exercise of all or any portion
          of the Tranche B Warrant. If necessary, prior to the issuance by the
          Company of any equity securities (or any instrument exercisable for or
          convertible into equity securities) and whenever otherwise required,
          the Company will amend its Articles of Incorporation to ensure that
          there is a sufficient quantity of such equity securities into which
          the Outstanding Balance on the Tranche B Note,



                                     - 21 -
<PAGE>   22

          plus any accrued interest to date thereon, can be converted and for
          which the Tranche B Warrant may be exercised.

6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Lender that the statements in the following paragraphs of
this Section 6 are true and correct as of the Closing and shall be true and
correct on and as of the Tranche B Issuance Date, except as provided in the
disclosure schedule attached hereto as Exhibit D:

     6.1  Organization, Good Standing and Qualification. The Company is a
          corporation duly organized, validly existing and in good standing
          under, and by virtue of, the laws of the State of Louisiana and has
          all requisite corporate power and authority to own its properties and
          assets and to carry on its business as now conducted and as presently
          proposed to be conducted. The Company is qualified to do business as a
          foreign corporation in each jurisdiction where failure to be so
          qualified would have a material adverse effect on its financial
          condition, business, prospects or operations.

     6.2  Capitalization. The authorized capital stock of the Company consists
          of 45,000,000 shares of capital stock, consisting of: (a) 40,000,000
          shares of Common Stock, and (b) 5,000,000 shares of preferred stock,
          par value $1.00 per share (the "Preferred Stock"). Of the 40,000,000
          authorized shares of Common Stock, 19,310,644 shares are issued and
          outstanding on the date hereof. No shares of the Preferred Stock are
          issued and outstanding on the date hereof. All of the issued and
          outstanding shares of Common Stock have been duly authorized and
          validly issued and are fully paid and nonassessable. No person or
          entity is entitled to any preemptive or similar right with respect to
          the issuance of any capital stock of the Company. All of the issued
          and outstanding shares of Common Stock have been issued and sold by
          the Company in compliance with applicable federal and state securities
          laws.

     6.3  Due Authorization; Consents. With the exception of shareholder
          approval of the Tranche B Loan and the issuance by the Company of the
          Tranche B Note, all corporate action has been taken on the part of the
          Company, its officers, directors and shareholders necessary for (a)
          the authorization, execution and delivery of, and the performance of
          all obligations of the Company under this Agreement, (b) the
          authorization, execution and delivery of each Note and each Warrant
          and (c) the authorization, issuance, reservation for issuance and
          delivery of all equity securities issuable upon conversion of each
          Note and upon the exercise of each Warrant. Each of this Agreement,
          the Notes and the Warrants constitute a valid and binding obligation
          of the Company enforceable in accordance with its terms, subject, as
          to enforcement of remedies, to applicable bankruptcy, insolvency,
          moratorium, reorganization and similar laws affecting creditors'
          rights generally and to general equitable principles. With the
          exception of NASDAQ approval of the Tranche B Loan and the issuance by
          the Company of the Tranche B Note, all consents, approvals and
          authorizations of, and registrations, qualifications and filings with,
          any federal or state governmental agency, authority or body, or any
          third




                                     - 22 -
<PAGE>   23

          party including, without limitation, any and all approvals and
          consents from NASDAQ, required in connection with the execution,
          delivery and performance of this Agreement, the Notes and the Warrants
          and the consummation of the transactions contemplated hereby and
          thereby have been obtained.

     6.4  Conflict with Other Instruments. Neither the execution and delivery by
          the Company of this Agreement, the Notes, the Warrants or the other
          instruments, documents and agreements contemplated or required hereby
          or thereby, nor the consummation of the transactions herein or therein
          contemplated to be consummated by the Company, nor compliance by the
          Company with the terms, conditions and provisions hereof or thereof,
          shall conflict with or result in a breach of any of the terms,
          conditions or provisions of the Articles of Incorporation or the
          By-laws of the Company, or any law or any regulation, order, writ,
          injunction or decree of any court or governmental instrumentality or
          any agreement or instrument to which the Company is a party or by
          which it or any of its respective properties is bound or constitute a
          default thereunder or result in the creation or imposition of any lien
          or encumbrance thereon.

     6.5  Litigation; Compliance with Law. There is no action, suit, claim,
          proceeding, arbitration, or investigation pending or, to the best of
          the Company's knowledge, threatened against or affecting the Company,
          at law or in equity, or before or by any federal, state, municipal or
          other governmental department, commission, board, bureau, agency or
          instrumentality, domestic or foreign, and there is no basis for any of
          the foregoing. The Company is not in default with respect to any
          order, writ, injunction or decree known to or served upon the Company
          of any court or of any federal, state, municipal or other governmental
          department, commission, board, bureau, agency or instrumentality,
          domestic or foreign. There is no action or suit by the Company
          pending, threatened or contemplated against others. The Company has
          complied in all material respects with all laws, rules, regulations
          and orders applicable to its business, operations, properties, assets,
          products and services. The Company has all necessary permits, licenses
          and other authorizations required to conduct its business as currently
          conducted, and the Company has been operating its business pursuant to
          and in compliance in all material respects with the terms of all such
          permits, licenses and other authorizations. There is no existing law,
          rule, regulation or order, and the Company after due inquiry is not
          aware of any proposed law, rule, regulation or order, whether federal,
          state, county or local, which would prohibit or restrict the Company
          from, or otherwise materially adversely affect the Company in,
          conducting its business in any jurisdiction in which it is now
          conducting business or in which it proposes to conduct business.

     6.6  Proprietary Information of Third Parties. No third party has claimed
          or, to the best of the Company's knowledge, has reason to claim that
          any person employed by or affiliated with the Company has (a) violated
          or may be violating any of the terms or conditions of his or her
          employment, noncompetition or nondisclosure agreement with such third
          party, (b)



                                     - 23 -
<PAGE>   24

          disclosed or may be disclosing or utilized or may be utilizing any
          trade secret or proprietary information or documentation of such third
          party, or (c) interfered or may be interfering in the employment
          relationship between such third party and any of its present or former
          employees. No third party has requested information from the Company
          which suggests that such a claim might be contemplated. No person
          employed by or affiliated with the Company has employed or proposes to
          employ any trade secret or any information or documentation
          proprietary to any former employer, and no person employed by or
          affiliated with the Company has violated any confidential relationship
          which such person may have had with any third party, in connection
          with the development, manufacture or sale of any product or proposed
          product or the development or sale of any service or proposed service
          of the Company, and the Company has no reason to believe there will be
          any such employment or violation. To the best of the Company's
          knowledge, neither the execution or delivery of this Agreement nor the
          carrying on of the business of the Company by any officer, director or
          key employee of the Company will conflict with or result in a breach
          of the terms, conditions or provisions of or constitute a default
          under any contract, covenant or instrument under which any such person
          is obligated.

     6.7  Patents, Trademarks, Etc. The Company has delivered to the Lender a
          complete and accurate list and brief description of all domestic and
          foreign patents, patent rights, patent applications, trademarks,
          trademark applications, service marks, service mark applications,
          trade names and copyrights, and all applications for such which are in
          the process of being prepared, owned by or registered in the name of
          the Company, or of which the Company is a licensor or licensee or in
          which the Company has any right, and in each case a brief description
          of the nature of such right. The Company owns or possesses, or expects
          to be able to acquire on commercially reasonable terms, adequate
          licenses or other rights to use all patents, patent applications,
          trademarks, trademark applications, service marks, service mark
          applications, trade names, copyrights, manufacturing processes,
          formulae, trade secrets, customer lists and know-how (collectively,
          "Intellectual Property") necessary or desirable ----------------------
          to the conduct of its business as conducted and as proposed to be
          conducted, and no claim is pending or, to the best of the Company's
          knowledge, threatened to the effect that the operations of the Company
          infringe upon or conflict with the asserted rights of any other person
          under any Intellectual Property, and there is no basis for any such
          claim (whether or not pending or threatened). No claim is pending or
          threatened to the effect that any such Intellectual Property owned or
          licensed by the Company, or which the Company otherwise has the right
          to use, is invalid or unenforceable by the Company, and there is no
          basis for any such claim (whether or not pending or threatened). All
          technical information developed by and belonging to the Company which
          has not been patented has been kept confidential. The Company has not
          granted or assigned to any other person or entity any right to
          manufacture, have manufactured, assemble or sell the products or
          proposed products or to provide the services or proposed services of
          the Company.



                                     - 24 -
<PAGE>   25

     6.8  Title to Properties. The Company has good, clear and marketable title
          to the properties and assets acquired by it since the date of its
          incorporation (other than properties and assets disposed of in the
          ordinary course of business since the date of its incorporation), and
          all such properties and assets are free and clear of mortgages,
          pledges, security interests, liens, charges, claims, restrictions and
          other encumbrances (including without limitation, easements and
          licenses), except for liens imposed as of the date hereof by StanCorp
          Mortgage Investors, LLC, as agent for the Standard Insurance Company,
          National City Leasing and The Northern Trust Company, and other liens
          and minor imperfections of title, if any, not material in nature or
          amount and not materially detracting from the value or impairing the
          use of the property subject thereto or impairing the operations or
          proposed operations of the Company, including without limitation, the
          ability of the Company to secure financing using such properties and
          assets as collateral.

     6.9  Taxes. The Company has filed all tax returns, federal, state, county
          and local, required to be filed by it, and the Company has paid all
          taxes shown to be due by such returns as well as all other taxes,
          assessments and governmental charges which have become due or payable,
          including without limitation all taxes which the Company is obligated
          to withhold from amounts owing to employees, creditors and third
          parties. The federal income tax returns of the Company have never been
          audited by the Internal Revenue Service. No deficiency assessment with
          respect to or proposed adjustment of the Company's federal, state,
          county or local taxes is pending or, to the best of the Company's
          knowledge, threatened. There is no tax lien (other than for current
          taxes not yet due and payable), whether imposed by any federal, state,
          county or local taxing authority, outstanding against the assets,
          properties or business of the Company. Neither the Company nor any of
          its present or former stockholders has ever filed an election pursuant
          to Section 1362 of the Internal Revenue Code of 1986, as amended, that
          the Company be taxed as an S corporation.

     6.10 Assumptions, Guaranties, Etc. of Indebtedness of Other Persons. The
          Company has not assumed, guaranteed, endorsed or otherwise become
          directly or contingently liable on any indebtedness of any other
          person (including, without limitation, liability by way of agreement,
          contingent or otherwise, to purchase, to provide funds for payment, to
          supply funds to or otherwise invest in the debtor, or otherwise to
          assure the creditor against loss), except for guaranties by
          endorsement of negotiable instruments for deposit or collection in the
          ordinary course of business.

     6.11 No Material Change. Except as set forth in the Senior Loan Agreement
          and in filings made by the Company with the Securities and Exchange
          Commission, copies of which have previously been provided to the
          Lender, on or prior to the date hereof, there has not occurred any
          event, change or other circumstance that, upon notice or lapse of time
          or both, could reasonably be expected to have a material adverse
          effect on the financial condition, prospects, business or results of
          operations of the Company.



                                     - 25 -
<PAGE>   26

     6.12 Disclosure. This Agreement does not contain any untrue statement of a
          material fact or omit to state a material fact necessary to make the
          statements contained herein not misleading, and none of the
          statements, documents, certificates or other items prepared or
          supplied by the Company with respect to the transactions contemplated
          hereby contains an untrue statement of a material fact or omits to
          state a material fact necessary to make the statements contained
          therein not misleading.

     7.   REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender represents
and warrants to the Company as follows:

     7.1  Economic Risk. The Lender acknowledges that it is sophisticated with
          respect to the transactions contemplated by this Agreement and has the
          ability to bear the economic risks of its investment pursuant to this
          Agreement.

     7.2  Purchase for Own Account. The Note and the Warrant and the securities
          issuable upon exercise or conversion thereof will be acquired for the
          Lender's own account, not as a nominee or agent, and not with a view
          to or in connection with the sale or distribution of any part thereof
          which would violate the Securities Act of 1933, as amended (the
          "Act").

     7.3  Accredited Investor. The Lender represents and warrants that: (a) the
          Lender is an "accredited investor" as that term is defined in
          Regulation D promulgated under the Act; (b) the Company has given the
          Lender the opportunity to ask questions and receive answers concerning
          the Company, the Note and the Warrant; (c) the Company has made
          available to the Lender the opportunity to conduct such investigations
          and reviews as he has requested to conduct; (d) all materials and
          information requested by the Lender in connection with this Agreement
          have been provided to the Lender to its reasonable satisfaction; (e)
          the Company did not offer the Note and the Warrant to the Lender by
          any form of general solicitation or general advertising, including,
          but not limited to, any advertisement, article, notice, or similar
          media or broadcast over television or radio, or any seminar or meeting
          whose attendees were invited by any general solicitation or general
          advertising; and (f) the Lender has not engaged a broker or finder in
          connection with this Agreement or the transactions contemplated
          hereby.

     8.   COVENANTS OF THE COMPANY. The Company covenants to the Lender as
follows:

     8.1  Use of Proceeds. The Company will use the proceeds of the Loan solely
          for working capital requirements and other general corporate purposes.

     8.2  Inspection Rights. The Lender and any person the Lender may designate
          shall have the right to review all books and records, reports,
          accounts and other financial documents of the Company and to copy the
          same and to make excerpts therefrom, all at such reasonable times and
          as often as the Lender may reasonably request, upon prior notice to
          the Company, so long as such review and copying does not unreasonably
          interfere with the business of the Company.



                                     - 26 -
<PAGE>   27
     8.3  Registration Rights. All shares of the Company's securities issued or
          issuable upon conversion of the Outstanding Balance of the Tranche A
          Loan and the Tranche B Loan in accordance with Section 5, and upon
          exercise of the Tranche A Warrant the Tranche B Warrant, shall have
          registration rights and related obligations as set forth in the
          Registration Rights Agreement attached hereto as Exhibit C (the
          "Rights Agreement"), and the Company shall have delivered a copy of
          the Rights Agreement executed by all parties thereto as a condition to
          the Closing, and the parties hereto shall each execute such
          agreements, documents and instruments upon any conversion of the
          Outstanding Balance of the Tranche A Loan and the Tranche B Loan as
          reasonably requested in order to fulfill the purposes of this Section
          8.3.

     9.   DEFAULT. For purposes of this Agreement, the term "default" shall
include any of the following:

          (a)  The failure by the Company to pay any amounts due hereunder or
               under the Tranche A Note or the Tranche B Note within three (3)
               days of the date any such payment is due; provided, however, that
               the Company's failure to make quarterly payments of accrued
               interest under the Tranche A Note or the Tranche B Note as a
               result of any prohibitions in the Subordination Agreement (as
               hereinafter defined) shall not constitute a Default hereunder and
               such accrued interest shall be capitalized as provided in the
               Tranche A Note and the Tranche B Note;

          (b)  A breach by the Company of any other term or provision of this
               Agreement, any Note or any Warrant;

          (c)  Any default or breach by the Company of or under (i) any
               agreement for borrowed money, including but not limited to the
               Senior Loan Agreement (except for any default under the Senior
               Loan Agreement existing as of the date hereof) and any other loan
               agreements, or (ii) a material breach under any real property
               lease agreements or capital equipment lease agreements, by which
               the Company is bound or obligated;

          (d)  Except for a certain mechanics lien recorded prior to the date
               hereof against certain Decatur, Illinois property of the Company
               and/or its subsidiaries by T.A. Brinkoetter & Sons, a default or
               breach shall occur under any other agreement, document or
               instrument to which the Company or any subsidiary thereof is a
               party and such default is not cured or waived within any
               applicable grace period and such default or breach (A) involves
               the failure to make any payment when due in respect of any
               indebtedness of the Company or any subsidiary of the Company in
               excess of $50,000 in the aggregate, or (B) causes such
               indebtedness or a portion thereof in excess of $100,000 in the
               aggregate to become due prior to its stated maturity or prior to
               its regularly scheduled date of payment, or (C) entitles any
               holder of such indebtedness or a trustee to cause indebtedness or
               a portion thereof in excess of $100,000 in the aggregate to
               become due prior to its stated maturity or prior



                                     - 27 -
<PAGE>   28

               to its regularly scheduled dates of payment, regardless of
               whether such right is exercised or waived by such holder or
               trustee;

          (e)  the Company shall have failed to obtain all necessary shareholder
               and third party consents to the Tranche B Loan and the issuance
               by the Company of the Tranche B Note on or prior to August 22,
               2001; or

          (f)  The voluntary or involuntary filing of a petition in bankruptcy
               or under any similar insolvency law by the Company, the making of
               an assignment for the benefit of creditors by the Company, or if
               any voluntary or involuntary petition in bankruptcy or under any
               similar insolvency law is filed against the Company and such
               petition is not dismissed within sixty (60) days after the filing
               thereof.

Subject to the terms of the Subordination Agreement, upon the occurrence of a
default, the Lender may, at its option and for so long as such default is
continuing, accelerate repayment of the portion of the Outstanding Balance under
the Tranche A Loan or the Tranche B Loan payable to the Lender under the Tranche
A Note or the Tranche B Note, in which case each such Outstanding Balance and
all interest accrued thereon shall be due and payable immediately.

     10.  MISCELLANEOUS.

          10.1 Governing Law. This Agreement shall be governed in all respects
               by and construed in accordance with the laws of the State of
               Illinois without regard to provisions regarding choice of laws.

          10.2 Survival. The representations, warranties, covenants and
               agreements made herein shall survive any investigation made by
               any party hereto and the closing of the transactions contemplated
               hereby.

          10.3 Indemnification. In consideration of the Lender's execution and
               delivery of this Agreement and acquiring the Notes and the
               Warrants hereunder, and in addition to all of the Company's other
               obligations under this Agreement and in addition to all other
               rights and remedies available at law or in equity, the Company
               shall defend, protect and indemnify the Lender and its
               affiliates, agents, representatives, successors and assigns
               (including, without limitation, those retained in connection with
               the transactions contemplated by this Agreement) (collectively,
               the "Indemnified Parties"), and save and hold each of them
               harmless against, and pay on behalf of or reimburse such party on
               demand as and when incurred from and against any and all actions,
               causes of action, suits, claims, losses, out-of-pocket costs,
               penalties, fees, liabilities and damages, and expenses in
               connection therewith (irrespective of whether any such
               Indemnified Party is a party to the action for which
               indemnification hereunder is sought), including, without
               limitation, reasonable attorneys' fees and disbursements,
               interest and penalties and all amounts paid in investigation,
               defense or settlement of any of the foregoing and claims relating
               to any of the foregoing (the "Indemnified Liabilities"), incurred
               by the Indemnified Parties or any of them as a result of, arising
               out of, or relating to (a) any transaction financed or to be
               financed in whole or in part, directly or indirectly, with the
               proceeds of the Loan and the issuance of the Notes and/or



                                     - 28 -
<PAGE>   29

               the Warrants, (b) the execution, delivery, performance or
               enforcement of this Agreement and any other instrument, document
               or agreement executed pursuant hereto by any of the Indemnified
               Parties, to the extent that the foregoing undertaking by the
               Company may be unenforceable for any reason, the Company shall
               make the maximum contribution to the payment and satisfaction of
               each of the Indemnified Liabilities which is permissible under
               applicable law, or (c) the breach by the Company of any
               representation or warranty, or the failure of the Company to
               perform any covenant, contained herein or in the Notes or the
               Warrants.

          10.4 Successors and Assigns. Except as otherwise expressly provided
               herein, the provisions hereof shall inure to the benefit of, and
               shall be binding upon, the respective successors, assigns,
               executors and administrators of the parties hereto. This
               Agreement and the rights and obligations herein may be assigned
               by the Lender to an affiliate of the Lender, to members of the
               immediate family of Dr. John N. Kapoor, or to trusts,
               partnerships or other beneficiaries of the Lender. This Agreement
               and the rights and obligations herein may not be assigned by the
               Company without the prior written consent of the Lender.

          10.5 Entire Agreement. This Agreement, the Notes and the Warrants and
               the Exhibits and Schedules hereto and thereto (all of which are
               hereby expressly incorporated herein by this reference)
               constitute the entire understanding and agreement between the
               parties with regard to the Loan and the Warrants.

          10.6 Notices. Except as may be otherwise provided herein, all notices
               and other communications required or permitted hereunder shall be
               in writing and shall be conclusively deemed to have been duly
               given (a) when hand delivered to the other party; (b) when
               received when sent by facsimile on a business day at the address
               and number set forth below; (c) five (5) business days after
               deposit in the U.S. mail with first class or certified mail
               (receipt requested) postage prepaid and addressed to the other
               party as set forth below; or (d) the next business day after
               deposit with a national overnight delivery service, postage
               prepaid, addressed to the parties as set forth below with
               next-business-day delivery guaranteed, provided that the sending
               party receives a confirmation of delivery from the delivery
               service provider.


If to the Lender:                           With a copy to:

Dr. John Kapoor                             Douglas J. Lipke, Esq.
225 E. Deerpath Road                        Dana S. Armagno, Esq.
Suite 250                                   Vedder, Price, Kaufman & Kammholz
Lake Forest, Illinois 60045                 222 North LaSalle Street, Suite 2600
Telecopy:  (847) 295-8680                   Chicago, Illinois  60601-1003
                                            Telecopy:  (312) 609-5005



                                     - 29 -
<PAGE>   30

If to the Company:                     with a copy to:

Akorn, Inc.                            Christopher R. Manning, Esq.
2500 Millbrook Drive                   Barbara Canning, Esq.
Buffalo Grove, Illinois 60089          Burke, Warren, MacKay & Serritella, P.C.
Attn: President                        22nd Floor, IBM Plaza
Telecopy:  (847) 279-6123              330 N. Wabash Avenue
                                       Chicago, Illinois 60611
                                       Telecopy:  (312) 346-8242

Each person making a communication hereunder by facsimile shall promptly confirm
by telephone to the person to whom such communication was addressed each
communication made by it by facsimile pursuant hereto but the absence of such
confirmation shall not affect the validity of any such communication. A party
may change or supplement the addresses given above, or designate additional
addresses, for purposes of this Section 10.6 by giving the other party written
notice of the new address in the manner set forth above.

          10.7  Amendments. Any term of this Agreement may be amended only with
                the prior written consent of the Company and the Lender.

          10.8  Delays or Omissions. No delay or omission to exercise any right,
                power or remedy accruing to a party, upon any breach or default
                of any party hereto under this Agreement, shall impair any such
                right, power or remedy of such party, nor shall it be construed
                to be a waiver of any such breach or default or any subsequent
                breach or default. Any waiver, permit, consent or approval of
                any kind or character related to this Agreement on the part of
                either party must be in writing and shall be effective only to
                the extent specifically set forth in such writing.

          10.9  Legal Fees. The Company agrees to reimburse the Lender for its
                reasonable expenses (including legal expenses and disbursements)
                incurred in connection with the execution of this Agreement. In
                the event of any action at law, suit in equity or arbitration
                proceeding in relation to this Agreement or any securities of
                the Company issued or to be issued, the prevailing party shall
                be paid by the other party a reasonable sum for attorney's fees
                and expenses of the prevailing party.

          10.10 Finder's Fee. Each party (a) represents and warrant to the other
                parties hereto that it has retained no finder or broker in
                connection with the transaction contemplated by this Agreement,
                and (b) hereby agrees to indemnify and to hold harmless the
                other parties hereto from and against any liability for any
                commission or compensation in the nature of a finder's fee of
                any broker or other person or firm (and the costs and expenses
                of defending against such liability or asserted liability) for
                which the indemnifying party or any of its employees or
                representatives are responsible.

          10.11 Title and Subtitles. The titles of the paragraphs and
                subparagraphs of this Agreement are for convenience of reference
                only and are not to be considered in construing this Agreement.

                                     - 30 -
<PAGE>   31

          10.12 Counterparts. This Agreement may be executed in any number of
                counterparts and by either party hereto on separate
                counterparts, each of which, when so executed and delivered,
                shall be an original, but all such counterparts shall together
                constitute one and the same instrument. One or more counterparts
                of this Agreement may be delivered by facsimile, with the
                intention that delivery by such means shall have the same effect
                as delivery of an original counterpart thereof.

          10.13 Severability. Should any provision of this Agreement be
                determined to be illegal or unenforceable, such determination
                shall not affect the remaining provisions of this Agreement.

          10.14 Subordination. The indebtedness evidenced by the Note shall be
                subordinated to certain indebtedness of the Company pursuant to
                that certain Subordination and Standby Agreement dated as of
                July 12, 2001 (the "Subordination Agreement"), executed by the
                Lender in favor of The Northern Trust Company and acknowledged
                by the Company and Akorn (New Jersey), Inc.

                            [SIGNATURE PAGE FOLLOWS]



                                     - 31 -
<PAGE>   32


IN WITNESS WHEREOF, the parties have executed this Convertible Bridge Loan and
Warrant Agreement to be effective as of the date first above written.

COMPANY:                                       LENDER:

AKORN, INC.                                    THE JOHN N. KAPOOR TRUST DATED
                                               SEPTEMBER 20, 1989

By:                                            By:
   ----------------------------------             ------------------------------
Name:                                          Name:
     --------------------------------               ----------------------------
Its:                                           Its:
     --------------------------------              -----------------------------


                                     - 32 -
<PAGE>   33



                                    EXHIBIT B

                         FORM OF SUBORDINATION AGREEMENT



                                     - 33 -
<PAGE>   34


                       SUBORDINATION AND STANDBY AGREEMENT

     WHEREAS, AKORN, INC., a Louisiana corporation (hereinafter, together with
its successors and assigns, called "Akorn"), and AKORN (NEW JERSEY), INC., an
Illinois corporation ("Akorn NJ"; together with Akorn, the "Borrowers" and each
individually a "Borrower") may from time to time hereafter become indebted to
the undersigned, including, without limitation, indebtedness under Subordinated
Note A and Subordinated Note B referred to below, and the Borrowers have
requested, and may from time to time hereafter request, THE NORTHERN TRUST
COMPANY, an Illinois banking corporation (hereinafter, together with its
successors and assigns, called the "Bank"), 50 South LaSalle Street, Chicago,
Illinois 60675, to make or agree to make loans, advances or other financial
accommodations to the Borrowers pursuant to the terms of the Credit Agreement
(as hereinafter defined); and

     WHEREAS, the Borrowers and the Bank are party to that certain Amended and
Restated Credit Agreement dated as of September 15, 1999 (as amended, restated
or supplemented from time to time, the "Credit Agreement"; capitalized terms not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement); and

     WHEREAS, Akorn has incurred an indebtedness to the undersigned in the
principal amount of $3,000,000 pursuant to a Convertible Promissory Note dated
July 12, 2001 ("Subordinated Note A"), a copy of which is attached hereto as
Schedule A; and

     WHEREAS, Akorn intends to incur an additional indebtedness to the
undersigned in the principal amount of $2,000,000 pursuant to a second
Convertible Promissory Note ("Subordinated Note B"), in the form attached hereto
as Schedule B; and

     WHEREAS, the undersigned is a shareholder of Akorn and as such will benefit
from the continued making of loans, advances and other financial accommodations
from the Bank to the Borrowers;

     NOW, THEREFORE, to induce the Bank, from time to time, at its option, to
make or agree to make loans, advances or other financial accommodations
(including, without limitation, renewals or extensions of, or forbearances with
respect to, any loans or advances heretofore or hereafter made) to Borrowers,
and for other valuable consideration, receipt whereof is hereby acknowledged,
the undersigned agrees as follows:

     1. All obligations of each of the Borrowers, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent or now or
hereafter existing, or due or to become due, are hereinafter called
"Liabilities". All Liabilities to the Bank (other than any arising solely by
reason of any pledge or assignment made to the Bank pursuant to paragraph 2(c)
hereof) are hereinafter called "Senior Liabilities"; and all Liabilities to the
undersigned, including under Subordinated Note A and Subordinated Note B
(including any that may be pledged or assigned to the Bank pursuant to paragraph
2(c) hereof), are hereinafter called "Junior Liabilities"; it being expressly
understood and agreed that the term "Senior Liabilities", as used herein, shall
include, without limitation, any and all interest accruing on any of the Senior



                                     - 34 -
<PAGE>   35

Liabilities after the commencement of any proceedings referred to in paragraph 4
hereof, notwithstanding any provision or rule of law which might restrict the
rights of the Bank, as against the Borrowers or anyone else, to collect such
interest.

     2. The undersigned will, from time to time, (a) promptly notify the Bank of
the creation of any Junior Liabilities, and of the issuance of any promissory
note or other instrument to evidence any Junior Liabilities, (b) upon request by
the Bank, cause any Junior Liabilities which are not evidenced by a promissory
note or other instrument of either of the Borrowers to be so evidenced, and (c)
upon request by the Bank, and as collateral security for all Senior Liabilities,
indorse without recourse, deliver and pledge to the Bank any or all promissory
notes or other instruments evidencing Junior Liabilities, and otherwise assign
to the Bank any or all Junior Liabilities and any or all security therefor and
guaranties thereof, all in a manner satisfactory to the Bank.

     3. Except as the Bank may hereafter otherwise expressly consent in writing,
which consent may be given or withheld by the Bank in its sole and absolute
discretion, the payment of all Junior Liabilities shall be postponed and
subordinated to the payment in full of all Senior Liabilities, and no payments
or other distributions whatsoever in respect of any Junior Liabilities shall be
made by either of the Borrowers, or accepted by the undersigned, nor shall any
property or assets of either of the Borrowers be applied by them, or accepted by
the undersigned, to or for the purchase or other acquisition or retirement of
any Junior Liabilities.

     4. In the event of any dissolution, winding up, liquidation, readjustment,
reorganization or other similar proceedings relating to any Borrower or its
creditors, as such, or to their property (whether voluntary or involuntary,
partial or complete, and whether in bankruptcy, insolvency or receivership, or
upon an assignment for the benefit of creditors, or any other marshalling of the
assets and liabilities of any Borrower, or any sale of all or substantially all
of the assets of any Borrower, or otherwise), the Senior Liabilities shall first
be paid in full before the undersigned shall be entitled to receive and to
retain any payment or distribution in respect of the Junior Liabilities, and, in
order to implement the foregoing, (a) all payments and distributions of any kind
or character in respect of the Junior Liabilities to which the undersigned would
be entitled if the Junior Liabilities were not subordinated, or subordinated and
pledged or assigned, pursuant to this Agreement shall be made directly to the
Bank, (b) the undersigned shall promptly file a claim or claims, in the form
required in such proceedings, for the full outstanding amount of the Junior
Liabilities, and shall cause said claim or claims to be approved and all
payments and other distributions in respect thereof to be made directly to the
Bank, and (c) the undersigned hereby irrevocably agrees that the Bank may, at
its sole discretion, in the name of the undersigned or otherwise, demand, sue
for, collect, receive and receipt for any and all such payments or
distributions, and file, prove, and vote or consent in any such proceedings with
respect to, any and all claims of the undersigned relating to the Junior
Liabilities.

     5. In the event that the undersigned receives any payment or other
distribution of any kind or character from any Borrower or from any other source
whatsoever in respect of any of the Junior Liabilities, other than as expressly
permitted by the terms of this Agreement, such payment or other distribution
shall be received in trust for the Bank and promptly turned over by the
undersigned to the Bank. The undersigned will mark its books and records, and
cause the applicable Borrower to mark its books and records, so as to clearly
indicate that the Junior Liabilities are subordinated in accordance with the
terms of this Agreement, and will cause to be



                                     - 35 -
<PAGE>   36

clearly inserted in any promissory note or other instrument which at any time
evidences any of the Junior Liabilities a statement to the effect that the
payment thereof is subordinated in accordance with the terms of this Agreement.
The undersigned will execute such further documents or instruments and take such
further action as the Bank may reasonably from time to time request to carry out
the intent of this Agreement.

     6. All payments and distributions received by the Bank in respect of the
Junior Liabilities, to the extent received in or converted into cash, may be
applied by the Bank first to the payment of any and all expenses (including
attorneys fees and legal expenses) paid or incurred by the Bank in enforcing
this Agreement or in endeavoring to collect or realize upon any of the Junior
Liabilities or any security therefor, and any balance thereof shall, solely as
between the undersigned and the Bank, be applied by the Bank, in such order of
application as the Bank may from time to time select, toward the payment of the
Senior Liabilities remaining unpaid; but, as between any Borrower and its
respective creditors, no such payments or distributions of any kind or character
shall be deemed to be payments or distributions in respect of the Senior
Liabilities; and, notwithstanding any such payments or distributions received by
the Bank in respect of the Junior Liabilities and so applied by the Bank toward
the payment of the Senior Liabilities, the undersigned shall be subrogated to
the then existing rights of the Bank, if any, in respect of the Senior
Liabilities only at such time as this Agreement shall have been discontinued and
the Bank shall have received payment of the full amount of the Senior
Liabilities, as provided for in paragraph 9 hereof.

     7. The undersigned hereby waives: (a) notice of acceptance by the Bank of
this Agreement; (b) notice of the existence or creation or non-payment of all or
any of the Senior Liabilities; and (c) all diligence in collection or protection
of or realization upon the Senior Liabilities or any thereof or any security
therefor.

     8. The undersigned will not without the prior written consent of the Bank:
(a) cancel, waive, forgive, transfer or assign, or attempt to enforce or
collect, or subordinate to any Liabilities other than the Senior Liabilities,
any Junior Liabilities or any rights in respect thereof; (b) take any collateral
security for any Junior Liabilities; or (c) commence, or join with any other
creditor in commencing, any bankruptcy, reorganization or insolvency proceedings
with respect to any Borrower.

     9. This Agreement shall in all respects be a continuing agreement and shall
remain in full force and effect (notwithstanding, without limitation, the death,
incompetency or dissolution of the undersigned or that at any time or from time
to time all Senior Liabilities may have been paid in full), subject to
discontinuance only upon receipt by the Bank of payment in full of all Senior
Liabilities and termination of any and all commitments by the Bank to extend
credit to either of the Borrowers.

     10. The Bank may, from time to time, whether before or after any
discontinuance of this Agreement, at its sole discretion and without notice to
the undersigned, take any or all of the following actions: (a) retain or obtain
a security interest in any property to secure any of the Senior Liabilities, (b)
retain or obtain the primary or secondary obligation of any other obligor or
obligors with respect to any of the Senior Liabilities, (c) extend or renew or
forbear for one or more periods (whether or not longer than the original
period), alter or exchange any of the Senior Liabilities, or release or
compromise any obligation of any nature of any obligor with respect to




                                     - 36 -
<PAGE>   37

any of the Senior Liabilities, and (d) release its security interest in, or
surrender, release or permit any substitution or exchange for, all or any part
of any property securing any of the Senior Liabilities, or extend or renew or
forbear for one or more periods (whether or not longer than the original period)
or release, compromise, alter or exchange any obligations of any nature of any
obligor with respect to any such property.

     11. The Bank may, from time to time, whether before or after any
discontinuance of this Agreement, without notice to the undersigned, assign or
transfer any or all of the Senior Liabilities or any interest therein; and,
notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Senior Liabilities shall be and remain Senior Liabilities
for the purposes of this Agreement, and every immediate and successive assignee
or transferee of any of the Senior Liabilities or of any interest therein shall,
to the extent of the interest of such assignee or transferee in the Senior
Liabilities, be entitled to the benefits of this Agreement to the same extent as
if such assignee or transferee were the Bank; provided, however, that, unless
the Bank shall otherwise consent in writing, the Bank shall have an unimpaired
right, prior and superior to that of any such assignee or transferee, to enforce
this Agreement, for the benefit of the Bank, as to those of the Senior
Liabilities which the Bank has not assigned or transferred.

     12. The Bank shall not be prejudiced in its rights under this Agreement by
any act or failure to act of any Borrower or the undersigned, or any
noncompliance of any Borrower or the undersigned with any agreement or
obligation, regardless of any knowledge thereof which the Bank may have or with
which the Bank may be charged; and no action of the Bank permitted hereunder
shall in any way affect or impair the rights of the Bank and the obligations of
the undersigned under this Agreement.

     13. No delay on the part of the Bank in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by the Bank
of any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy; nor shall any modification or waiver of
any of the provisions of this Agreement be binding upon the Bank except as
expressly set forth in a writing duly signed and delivered on behalf of the
Bank. For the purposes of this Agreement, Senior Liabilities shall include all
obligations of each of the Borrowers to the Bank, notwithstanding any right or
power of either Borrower or anyone else to assert any claim or defense as to the
invalidity or unenforceability of any such obligation, and no such claim or
defense shall affect or impair the agreements and obligations of the undersigned
hereunder.

     14. This Agreement shall be binding upon the undersigned and upon the
heirs, legal representatives, successors and assigns of the undersigned; and, to
the extent that either Borrower or the undersigned is either a partnership or a
corporation, all references herein to such Borrower and to the undersigned,
respectively, shall be deemed to include any successor or successors, whether
immediate or remote, to such partnership or corporation. If more than one party
shall execute this Agreement, the term "undersigned" as used herein shall mean
all parties executing this Agreement and each of them, and all such parties
shall be jointly and severally obligated hereunder.

     15. This Agreement shall be construed in accordance with and governed by
the laws of the State of Illinois. Wherever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this




                                     - 37 -
<PAGE>   38

Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

     16. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE UNDERSIGNED HEREBY ABSOLUTELY AND IRREVOCABLY CONSENTS AND SUBMITS
TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS HAVING SITUS IN COOK
COUNTY, ILLINOIS OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF
ILLINOIS IN CONNECTION WITH ANY SUITS, ACTIONS OR PROCEEDINGS BROUGHT AGAINST
THE UNDERSIGNED BY THE BANK ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE UNDERSIGNED HEREBY
WAIVES AND AGREES NOT TO ASSERT IN SUCH SUIT, ACTION OR PROCEEDING, IN EACH
CASE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (A) THE
UNDERSIGNED IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT; (B)
THE UNDERSIGNED IS IMMUNE FROM SUIT OR ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO IT OR ITS PROPERTY; (C) ANY SUCH SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM; (D) THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER; OR (E) THIS AGREEMENT, MAY NOT BE
ENFORCED IN OR BY ANY SUCH COURT. NOTHING CONTAINED HEREIN SHALL AFFECT ANY
RIGHT THAT THE BANK MAY HAVE TO BRING ANY SUIT, ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT AGAINST THE UNDERSIGNED OR ITS PROPERTY IN THE COURTS OF ANY
OTHER JURISDICTION.


                       [SIGNATURE PAGE(S) AND EXHIBIT(S),
                            IF ANY, FOLLOW THIS PAGE]


                                     - 38 -
<PAGE>   39


   IN WITNESS WHEREOF, this Agreement has been made and delivered at Chicago,
                  Illinois this ___________ day of July, 2001.


                               THE JOHN N. KAPOOR TRUST DATED SEPTEMBER 20, 1989


                               By
                                 -----------------------------------------------
                                 Name:
                                 Title:



                                     - 39 -
<PAGE>   40

                         ACKNOWLEDGMENT OF SUBORDINATION

         The Borrowers each hereby acknowledge receipt of a copy of the
foregoing Subordination and Standby Agreement, waive notice of acceptance
thereof by the Bank, and agree to be bound by the terms and provisions thereof,
to make no payments or distributions contrary to the terms and provisions
thereof, and to do every other act and thing necessary or appropriate to carry
out such terms and provisions. In the event of any violation of any of the terms
and provisions of the foregoing Subordination and Standby Agreement, then, at
the election of the Bank, any and all obligations of each of the Borrowers to
the Bank shall forthwith become due and payable and any and all agreements of
the Bank to make loans, advances or other financial accommodations to the
Borrowers, or to forbear from exercising remedies, shall forthwith terminate,
notwithstanding any provisions thereof to the contrary.

Dated:   July _______, 2001                 AKORN, INC.



                                            By
                                              ----------------------------------
                                              Name:
                                              Title:
                                                    ----------------------------


Dated:   July _______, 2001                 AKORN (NEW JERSEY), INC.



                                            By
                                              ----------------------------------
                                              Name:
                                              Title:
                                                    ----------------------------

                                     - 40 -
<PAGE>   41

                                   SCHEDULE A

                               SUBORDINATED NOTE A


                                     - 41 -
<PAGE>   42


THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS.

THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT
SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF JULY 12, 2001,
EXECUTED BY THE JOHN N. KAPOOR TRUST DATED SEPTEMBER 20, 1989, IN FAVOR OF THE
NORTHERN TRUST COMPANY AND ACKNOWLEDGED BY AKORN, INC. AND AKORN (NEW JERSEY),
INC., TO THE INDEBTEDNESS AND OTHER LIABILITIES OWED BY AKORN, INC. AND ITS
SUBSIDIARIES UNDER AND IN CONNECTION WITH THE AMENDED AND RESTATED CREDIT
AGREEMENT DATED AS OF SEPTEMBER 15, 1999 AMONG AKORN, INC., AKORN (NEW JERSEY),
INC. AND THE NORTHERN TRUST COMPANY, AS AMENDED FROM TIME TO TIME.

                           CONVERTIBLE PROMISSORY NOTE


$3,000,000.00                                                  Chicago, Illinois
                                                               Date of Issuance:
                                                                   July 12, 2001

FOR VALUE RECEIVED, AKORN, INC., A LOUISIANA CORPORATION (THE "COMPANY"),
PROMISES TO PAY TO THE ORDER OF THE JOHN N. KAPOOR TRUST DATED SEPTEMBER 20,
1989, OR ITS ADMINISTRATORS, REPRESENTATIVES, SUCCESSORS OR ASSIGNS ("HOLDER"),
THE PRINCIPAL SUM OF THREE MILLION DOLLARS ($3,000,000), AND TO PAY INTEREST ON
THE OUTSTANDING PRINCIPAL BALANCE OF THIS CONVERTIBLE PROMISSORY NOTE (THIS
"NOTE") IN ACCORDANCE WITH SECTION 2 OF THIS NOTE. THIS NOTE IS DELIVERED IN
CONNECTION WITH THAT CERTAIN CONVERTIBLE BRIDGE LOAN AND WARRANT AGREEMENT OF
EVEN DATE HEREWITH (THE "LOAN AGREEMENT") BETWEEN THE COMPANY AND THE HOLDER.

     1. Maturity. To the extent not previously converted in accordance with the
Loan Agreement, subject to the terms of the Subordination Agreement (as defined
below), the Company shall repay the outstanding principal balance of this Note
and interest accrued thereon in full on the date that is thirty-six (36) months
after the original date of issuance of this Note (the "Maturity Date"). All
payments received shall be applied first against costs of collection (if any),
then against accrued and unpaid interest on this Note, then against the
outstanding principal balance of this Note.

     2. Interest. Interest shall begin to accrue on the outstanding principal
balance of this Note commencing on the date hereof and continuing until
repayment of this Note in full at the Prime Rate calculated on the basis of a
360 day year and actual days elapsed and such accrued interest shall be payable
quarterly in arrears beginning October 1, 2001; provided, however, that upon the
occurrence of a Default (as defined herein) interest on the outstanding
principal balance of this Note will accrue from the date of such Default at a
rate per annum equal to three percent (3%) plus the interest rate then in
effect. Notwithstanding the foregoing, no quarterly interest payment shall be
paid to Holder so long as the Subordination Agreement (as defined




                                     - 42 -
<PAGE>   43

below) remains in effect, subject to the next sentence. Unless prohibited under
applicable law, any accrued interest that is not paid on the date on which it is
due and payable shall (a) bear interest at the same rate at which interest is
then accruing on the principal amount of this Note and (b) be paid in full on
the earlier of the date of termination of the Subordination Agreement or the
Maturity Date.

     3. Prepayment; Acceleration. The outstanding principal balance and all
accrued interest payable to Holder hereunder may not be prepaid without the
consent of Holder in its sole and absolute discretion. All prepayments so
permitted shall be applied in the order provided in Section 1. The outstanding
principal balance of this Note is subject to acceleration as set forth in
Section 9 of the Loan Agreement. Following any such acceleration, Holder may
pursue any and all legal or equitable remedies that are available to it.

     4. Conversion. This Note shall be convertible into certain securities of
the Company in accordance with Section 5 of the Loan Agreement.

     5. Default. The Company will be deemed to be in default ("Default")
hereunder upon the occurrence and during the continuance of any "default"
described in Section 10 of the Loan Agreement, and Holder shall have all rights
and remedies available to it upon any such Default as described therein or in
this Note, subject to the terms of the Subordination Agreement. Notwithstanding
the foregoing, the Company's failure to make quarterly payments of accrued
interest as a result of any prohibitions in the Subordination Agreement (as
hereinafter defined) shall not constitute a Default hereunder and such accrued
interest shall be capitalized as provided in the last sentence of Section 2
hereof.

     6. Miscellaneous.

          (a) The Company hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising from
any extension of time, discharge of a prior party, or other cause of release or
discharge other than actual payment in full hereof.

          (b) Holder shall not be deemed, by any act or omission, to have waived
any of its rights or remedies hereunder unless such waiver is in writing and
signed by Holder and then only to the extent specifically set forth in such
writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event. No delay or omission of Holder to exercise any right, whether before or
after a Default hereunder, shall impair any such right or shall be construed to
be a waiver of any right or Default, and the acceptance at any time by Holder of
any past-due amount shall not be deemed to be a waiver of the right to require
prompt payment when due of any other amounts then or thereafter due and payable.

          (c) Time is of the essence hereof. Upon any Default hereunder, Holder
may exercise all rights and remedies provided for herein or in the Loan
Agreement and by law or equity, including, but not limited to, the right to
immediate payment in full of this Note.

          (d) The remedies of Holder as provided herein or in the Loan
Agreement, or any one or more of them, in law or at equity, shall be cumulative
and concurrent, and may be



                                     - 43 -
<PAGE>   44

pursued singularly, successively or together at Holder's sole discretion, and
may be exercised as often as occasion therefor shall occur.

          (e) It is expressly agreed that if this Note is referred to any
attorney or if suit is brought to collect or interpret this Note or any part
hereof or to enforce or protect any rights conferred upon Holder by this Note or
any other document evidencing or securing this Note, then the Company covenants
and agrees to pay all reasonable costs, including attorneys' fees, incurred by
Holder in connection therewith.

          (f) If any provisions of this Note would require the Company to pay
interest hereon at a rate exceeding the highest rate allowed by applicable law,
the Company shall instead pay interest under this Note at the highest rate
permitted by applicable law.

          (g) This Note shall be governed by and construed in accordance with
the laws of the State of Illinois without giving effect to any choice or
conflict of law provision or law that would cause the application of the laws of
any other jurisdiction other than the State of Illinois.

          (h) Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.

          (i) The indebtedness evidenced by this Note is subordinated to certain
indebtedness of the Company pursuant to that certain Subordination and Standby
Agreement dated as of July 12, 2001 (the "Subordination Agreement"), executed by
Holder in favor of The Northern Trust Company and acknowledged by the Company
and Akorn (New Jersey), Inc.

          (j) This Note and the rights and obligations herein may be assigned by
Holder to any affiliate of Holder, to members of the immediate family of Dr.
John N. Kapoor, or to trusts, partnerships or other beneficiaries of Holder,
subject to such assignee executing a subordination agreement substantially
similar in form and substance to the Subordination Agreement.

     IN WITNESS WHEREOF, the Company has executed this Convertible Promissory
Note as of the date first above written.

                                           AKORN, INC.


                                           By
                                              ---------------------------------
                                           Name:
                                                 ------------------------------
                                           Title:
                                                 ------------------------------



                                     - 44 -
<PAGE>   45


                                   SCHEDULE B

                               SUBORDINATED NOTE B



                                     - 45 -
<PAGE>   46


THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS.

THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT
SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF JULY 12, 2001,
EXECUTED BY THE JOHN N. KAPOOR TRUST DATED SEPTEMBER 20, 1989, IN FAVOR OF THE
NORTHERN TRUST COMPANY AND ACKNOWLEDGED BY AKORN, INC. AND AKORN (NEW JERSEY),
INC., TO THE INDEBTEDNESS AND OTHER LIABILITIES OWED BY AKORN, INC. AND ITS
SUBSIDIARIES UNDER AND IN CONNECTION WITH THE AMENDED AND RESTATED CREDIT
AGREEMENT DATED AS OF SEPTEMBER 15, 1999 AMONG AKORN, INC., AKORN (NEW JERSEY),
INC. AND THE NORTHERN TRUST COMPANY, AS AMENDED FROM TIME TO TIME.

                           CONVERTIBLE PROMISSORY NOTE


$2,000,000.00                                                  Chicago, Illinois
                                                               Date of Issuance:
                                                                   July 12, 2001

FOR VALUE RECEIVED, Akorn, Inc., a Louisiana corporation (the "Company"),
promises to pay to the order of The John N. Kapoor Trust Dated September 20,
1989, or its administrators, representatives, successors or assigns ("Holder"),
the principal sum of Two Million Dollars ($2,000,000), and to pay interest on
the outstanding principal balance of this Convertible Promissory Note (this
"Note") in accordance with Section 2 of this Note. This Note is delivered in
connection with that certain Convertible Bridge Loan and Warrant Agreement of
even date herewith (the "Loan Agreement") between the Company and the Holder.

     1. Maturity. To the extent not previously converted in accordance with the
Loan Agreement, subject to the terms of the Subordination Agreement (as defined
below), the Company shall repay the outstanding principal balance of this Note
and interest accrued thereon in full on the date that is thirty-six (36) months
after the original date of issuance of this Note (the "Maturity Date"). All
payments received shall be applied first against costs of collection (if any),
then against accrued and unpaid interest on this Note, then against the
outstanding principal balance of this Note.

     2. Interest. Interest shall begin to accrue on the outstanding principal
balance of this Note commencing on the date hereof and continuing until
repayment of this Note in full at the Prime Rate calculated on the basis of a
360 day year and actual days elapsed and such accrued interest shall be payable
quarterly in arrears beginning October 1, 2001; provided, however, that upon the
occurrence of a Default (as defined herein) interest on the outstanding
principal balance of this Note will accrue from the date of such Default at a
rate per annum equal to ten percent (10%) plus the interest rate then in effect.
Notwithstanding the foregoing, no quarterly interest payment shall be paid to
Holder so long as the Subordination Agreement (as defined




                                     - 46 -
<PAGE>   47

below) remains in effect and such accrued interest shall be capitalized until
paid pursuant to the next sentence. Unless prohibited under applicable law, any
accrued interest that is not paid on the date on which it is due and payable
shall bear interest at the same rate at which interest is then accruing on the
principal amount of this Note.

     3. Prepayment; Acceleration. The outstanding principal balance and all
accrued interest payable to Holder hereunder may not be prepaid without the
consent of Holder in its sole and absolute discretion. All prepayments so
permitted shall be applied in the order provided in Section 1. The outstanding
principal balance of this Note is subject to acceleration as set forth in
Section 9 of the Loan Agreement. Following any such acceleration, Holder may
pursue any and all legal or equitable remedies that are available to it.

     4. Conversion. This Note shall be convertible into certain securities of
the Company in accordance with Section 5 of the Loan Agreement.

     5. Default. The Company will be deemed to be in default ("Default")
hereunder upon the occurrence and during the continuance of any "default"
described in Section 10 of the Loan Agreement, and Holder shall have all rights
and remedies available to it upon any such Default as described therein or in
this Note, subject to the terms of the Subordination Agreement. Notwithstanding
the foregoing, the Company's failure to make quarterly payments of accrued
interest as a result of any prohibitions in the Subordination Agreement (as
hereinafter defined) shall not constitute a Default hereunder and such accrued
interest shall be capitalized as provided in the last sentence of Section 2
hereof.

     6. Miscellaneous.

     (a) The Company hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising from
any extension of time, discharge of a prior party, or other cause of release or
discharge other than actual payment in full hereof.

     (b) Holder shall not be deemed, by any act or omission, to have waived any
of its rights or remedies hereunder unless such waiver is in writing and signed
by Holder and then only to the extent specifically set forth in such writing. A
waiver with reference to one event shall not be construed as continuing or as a
bar to or waiver of any right or remedy as to a subsequent event. No delay or
omission of Holder to exercise any right, whether before or after a Default
hereunder, shall impair any such right or shall be construed to be a waiver of
any right or Default, and the acceptance at any time by Holder of any past-due
amount shall not be deemed to be a waiver of the right to require prompt payment
when due of any other amounts then or thereafter due and payable.

     (c) Time is of the essence hereof. Upon any Default hereunder, Holder may
exercise all rights and remedies provided for herein or in the Loan Agreement
and by law or equity, including, but not limited to, the right to immediate
payment in full of this Note.

     (d) The remedies of Holder as provided herein or in the Loan Agreement, or
any one or more of them, in law or at equity, shall be cumulative and
concurrent, and may be pursued singularly, successively or together at Holder's
sole discretion, and may be exercised as often as occasion therefor shall occur.



                                     - 47 -
<PAGE>   48

     (e) It is expressly agreed that if this Note is referred to any attorney or
if suit is brought to collect or interpret this Note or any part hereof or to
enforce or protect any rights conferred upon Holder by this Note or any other
document evidencing or securing this Note, then the Company covenants and agrees
to pay all reasonable costs, including attorneys' fees, incurred by Holder in
connection therewith.

     (f) If any provisions of this Note would require the Company to pay
interest hereon at a rate exceeding the highest rate allowed by applicable law,
the Company shall instead pay interest under this Note at the highest rate
permitted by applicable law.

     (g) This Note shall be governed by and construed in accordance with the
laws of the State of Illinois without giving effect to any choice or conflict of
law provision or law that would cause the application of the laws of any other
jurisdiction other than the State of Illinois.

     (h) Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Loan Agreement.

     (i) The indebtedness evidenced by this Note is subordinated to certain
indebtedness of the Company pursuant to that certain Subordination and Standby
Agreement dated as of July 12, 2001 (the "Subordination Agreement"), executed by
Holder in favor of The Northern Trust Company and acknowledged by the Company
and Akorn (New Jersey), Inc.

     (k) This Note and the rights and obligations herein may be assigned by
Holder to any affiliate of Holder, to members of the immediate family of Dr.
John N. Kapoor, or to trusts, partnerships or other beneficiaries of Holder,
subject to such assignee executing a subordination agreement substantially
similar in form and substance to the Subordination Agreement.

     IN WITNESS WHEREOF, the Company has executed this Convertible Promissory
Note as of the date first above written.

                                           AKORN, INC.


                                           By:
                                              ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------




                                     - 48 -
<PAGE>   49

                                    EXHIBIT C

                FORMAT OF GROSS RECEIPTS AND NET RECEIPTS REPORT



                                     - 49 -

<PAGE>   50
AKORN, INC.
CASH FORECAST

<TABLE>
<CAPTION>
                     Actual   Forecast  Over/(Under)  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast
WEEK ENDING:        06/22/01  06/22/01    06/22/01    06/29/01  07/06/01  07/13/01  07/20/01  07/27/01  08/03/01  08/10/01  08/17/01
----------------------------------------------------  ------------------------------------------------------------------------------
<S>                 <C>       <C>       <C>           <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
CASH ACTIVITY:
----------------------------------------------------  ------------------------------------------------------------------------------
Beginning Cash
----------------------------------------------------  ------------------------------------------------------------------------------
CASH RECEIPTS(+)
  A/R
  Other Non-A/R
  Debt Advances

CASH DISBURSEMENTS(-)
  Vendor Payments
  Payroll
  Benefits
  Other Payables
  Utilities
  Professional Services
  Insurance
  Sales Commissions
  Mortgage - P&I
  Cash Pay Interest
  Cash Pay Taxes
  Leases
  Other
----------------------------------------------------  ------------------------------------------------------------------------------
Net Change
----------------------------------------------------  ------------------------------------------------------------------------------
ENDING CASH
====================================================  ==============================================================================
</TABLE>
<PAGE>   51
AKORN, INC.
CASH FORECAST

<TABLE>
<CAPTION>
                       Forescat  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast
WEEK ENDING:           08/24/01  08/31/01  09/07/01  09/14/01  09/21/01  09/28/01  10/05/01  10/12/01  10/19/01  10/26/01  11/02/01
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
CASH ACTIVITY:
------------------------------------------------------------------------------------------------------------------------------------
Beginning Cash
------------------------------------------------------------------------------------------------------------------------------------
CASH RECEIPTS(+)
  A/R
  Other Non-A/R
  Debt Advances

CASH DISBURSEMENTS(-)
  Vendor Payments
  Payroll
  Benefits
  Other Payables
  Utilities
  Professional Services
  Insurance
  Sales Commissions
  Mortgage - P&I
  Cash Pay Interest
  Cash Pay Taxes
  Leases
  Other
------------------------------------------------------------------------------------------------------------------------------------
Net Change
------------------------------------------------------------------------------------------------------------------------------------
ENDING CASH
====================================================================================================================================
</TABLE>
<PAGE>   52
AKORN, INC.
CASH FORECAST

<TABLE>
<CAPTION>
                       Forescat  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast  Forecast
WEEK ENDING:           11/09/01  11/16/01  11/23/01  11/30/01  12/07/01  12/14/01  12/21/01  12/28/01  01/04/02  01/11/02  01/18/02
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
CASH ACTIVITY:
------------------------------------------------------------------------------------------------------------------------------------
Beginning Cash
------------------------------------------------------------------------------------------------------------------------------------
CASH RECEIPTS(+)
  A/R
  Other Non-A/R
  Debt Advances

CASH DISBURSEMENTS(-)
  Vendor Payments
  Payroll
  Benefits
  Other Payables
  Utilities
  Professional Services
  Insurance
  Sales Commissions
  Mortgage - P&I
  Cash Pay Interest
  Cash Pay Taxes
  Leases
  Other
------------------------------------------------------------------------------------------------------------------------------------
Net Change
------------------------------------------------------------------------------------------------------------------------------------
ENDING CASH
====================================================================================================================================
</TABLE>
<PAGE>   53



                                    EXHIBIT D

                               MONITORING REPORTS


                                     - 50 -
<PAGE>   54
                                                                        DUE BY
NO.                   REPORT NEEDED                     FREQUENCY      FOLLOWING
--------------------------------------------------------------------------------
1          Accounts Receivable Roll Forward               Weekly         Wed.

2            Accounts Payable Roll Forward                Weekly         Wed.

3       Income Statement/Balance Sheet/Cash Flow          Monthly        15th

4              Chargeback/Rebate Accrual                  Monthly        15th

5          Chargeback/Rebate Reconciliation               Monthly        15th

6       Discounts (actual and % of Gross Sales)           Monthly        15th

7              Summary Inventory Report                   Monthly        15th

8            Inventory Obsolesence Report                 Monthly        15th

9                  Summary A/R Aging                      Monthly        15th

10                 Summary A/P Aging                      Monthly        15th

11             A/R: Bad Debt and Returns                  Monthly        15th

12         Wholesaler Inventory Days on Hand              Monthly        15th
<PAGE>   55



                                    EXHIBIT E

                    LITIGATION AND ADMINISTRATIVE PROCEEDINGS


1.   Pending arbitration between Akorn, Inc., and NovaDAQ Technologies, Inc.

2.   Notification of intent to sue pursuant to California Proposition 65
     received by Akorn, Inc., from Consumer Cause, Inc.

3.   Apex Communications, Inc. v. Akorn Ophthalmics, Inc., Docket No.
     BER-L-506-00, Superior Court of New Jersey

4.   Matters relating to 483 M Warning Letter issued to Akorn, Inc., by the Food
     and Drug Administration

5.   Mechanics Lien Claim against property at 1222 West Grand and 1365 North
     University, Decatur, Illinois

6.   Additional matters disclosed in Schedule 4.8


                                     - 51 -
<PAGE>   56


                                  SCHEDULE 4.2

                                EXECUTIVE OFFICES


Same as Schedule 4.2 attached to the Credit Agreement




                                     - 52 -
<PAGE>   57
                                  SCHEDULE 4.8

                                  LABOR MATTERS

EMPLOYMENT AGREEMENTS

Akorn Inc.                     Tony Pera, President, COO Executed May 11, 2001
                               Terms of Employment

Akorn (New Jersey), Inc.       None


CONSULTING AGREEMENTS

Akorn, Inc.                    EJ Financial Enterprises, Inc. (affiliate)

Akorn (New Jersey), Inc.       None

MANAGEMENT AGREEMENTS

Akorn, Inc.                    None

Akorn (New Jersey), Inc.       None

COLLECTIVE BARGAINING AGREEMENTS

Akorn, Inc.                    None

Akorn (New Jersey), Inc.       None

ORGANIZING ACTIVITY PENDING OR THREATENED

Akorn, Inc.                    None

Akorn (New Jersey), Inc.       None

NLRB REPRESENTATION PROCEEDINGS PENDING OR THREATENED

Akorn, Inc.                    None

Akorn (New Jersey), Inc.       None

EMPLOYMENT RELATED COMPLAINTS OR CHARGES PENDING OR THREATENED

Akorn, Inc.                    E. Green Human Rights Age Discrimination Case
                               #1998SA0338 This matter has no material dollar
                               exposure

                               Sandra Mickle, City of Decatur Human Relations
                               Commission, Race Discrimination Charge
                               #01-0118


                                     - 53 -
<PAGE>   58
                                   This matter has no material dollar exposure

                                   Jeannie Benedict. Threatened Age
                                   Discrimination Charge
                                   This matter has no material dollar exposure

                                   Joseph Federowicz. Threatened Age
                                   Discrimination Charge
                                   This matter has no material dollar exposure


Akorn (New Jersey), Inc.           None


                                     - 54 -
<PAGE>   59


                                  SCHEDULE 4.9

                     VENTURES, SUBSIDIARIES AND AFFILIATES;
                                OUTSTANDING STOCK


     Same as Schedule 4.9 attached to the Credit Agreement with the following
changes in the number of shares of outstanding stock:

     1. Change 18,241,246 to 19,310,644

     2. Change 687,032 to 341,177

     3. Change 3,703,581 to 2,859,490





                                     - 55 -
<PAGE>   60



                                  SCHEDULE 4.13

                                   ERISA PLANS


             Same as Schedule 4.13 attached to the Credit Agreement





                                     - 56 -
<PAGE>   61
                                  SCHEDULE 4.15

                      INTELLECTUAL PROPERTY AND TRADE NAMES


     Akorn, Inc., and Akorn (New Jersey), Inc., conduct business under the names
Akorn Ophthalmics and Akorn, Inc.

     Akorn, Inc.               See Exhibit A attached hereto

                               Exclusive, royalty-free license
                               to make and have made Piroxicam
                               (patents held by Pfizer)
                               anywhere in the world for use
                               and sale in prescription
                               ophthalmic applications to be
                               sold by prescription

                               License Agreement from Johns Hopkins for methods
                               and instrumentation related to two patents for
                               treating macular degeneration.


     Akron (New Jersey), Inc.  See Exhibit A attached hereto





                                     - 57 -
<PAGE>   62
                                  EXHIBIT A






















                                       84
<PAGE>   63
                                   Exhibit A

                    TRADEMARK REGISTRATION AND APPLICATIONS

--------------------------------------------------------------------------------
                       APPLN./REG.    FILING/REG.
TRADEMARK                  NO.          DATE           STATUS          OWNER
--------------------------------------------------------------------------------
ROSE BENGAL            2,204,781       11/24/98      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
IC-GREEN               2,189,196        9/15/98      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-CON-A               1,917,586        9/12/95      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
Carrot Design          1,923,256        10/3/95      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
OCUSURG                1,863,042       11/15/94      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-FLUOR               1,464,246       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-TROL                1,464,245       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
GENT-AK                1,464,244       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-TAINE               1,464,243       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
FLUORACAINE            1,464,242       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-SPORE               1,464,241       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
TROPICACYL             1,464,240       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-DEX                 1,464,239       11/10/87      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-SULF                1,299,256        10/9/84      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
AK-CIDE                1,299,255        10/9/84      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
INNOVAR                  780,892        12/1/64      Renewed         Akorn, Inc.
--------------------------------------------------------------------------------
AK-TATE                1,299,254        10/9/84      Registered      Akorn, Inc.
--------------------------------------------------------------------------------
FLURESS (Stylized)       789,323        5/11/65      Renewed         Akorn, Inc.
--------------------------------------------------------------------------------
T TAYLOR              75/572,570       10/16/98      Pending         Akorn, Inc.
PHARMA-
CEUTICALS AN
AKORN COMPANY
and Design
--------------------------------------------------------------------------------
SUBLIMAZE                757,205        9/24/63      Renewed         Akorn, Inc.
--------------------------------------------------------------------------------
INAPSINE                 783,911        1/26/65      Renewed         Akorn, Inc.
--------------------------------------------------------------------------------
AUROLATE               1,910,697         8/8/95      Registered      Akorn, Inc.
--------------------------------------------------------------------------------

<PAGE>   64



                                  SCHEDULE 4.17

                               HAZARDOUS MATERIALS


     Same as Schedule 4.17 attached to the Credit Agreement







                                     - 58 -
<PAGE>   65



                                  SCHEDULE 4.18

                               INSURANCE POLICIES


                          Akorn, Inc. and Subsidiaries

     Policy periods run to January 29, 2002 for Workers Compensation and to
January 29, 2002 for all other policies. Premiums for the current policy periods
have been paid in full.

                          Commercial General Liability
                           Federal Insurance Company

     Policy #3532-00-86
     General aggregate $2,000,000
     Each occurrence $1,000,000

                                Excess Liability
                            Federal Insurance Company

     Policy #7977-17-96
     General aggregate $10,000,000
     Each occurrence $10,000,000

                               Commercial Package
                           Federal Insurance Company

     Policy #3532-00-86
     Property limits $68,676,272
     Business interruption limits $9,903,480
     Retention $5,000 per occurrence

                              Commercial Automobile
                           Federal Insurance Company

     Policy #7326-17-69
     Combined single limit $1,000,000
     Deductible $250 comprehensive $500 collision

                              Workers Compensation
                     Northern Insurance Company of New York


     Policy #TC298456271
     Limits each accident $100,000



                                     - 59 -
<PAGE>   66

                             Directors and Officers
                      Federal Insurance Company Liability


     Policy #8153-14-68
     General aggregate $5,000,000
     Retention $150,000


                             Product/Clinical Trial
                           Medmarc Casualty Insurance

     Company Liability
     Policy #01IL380003
     General aggregate $10,000,000
     Each occurrence $10,000,000
     Retention $50,000/claim; $250,000 aggregate


                              Executive Protection
                            Federal Insurance Company

     Policy #8153-14-29
     Limit $1,000,000
     Retention $10,000



                                     - 60 -
<PAGE>   67

                                  SCHEDULE 4.19

                        DEPOSIT AND DISBURSEMENT ACCOUNTS


     Akorn, Inc. The Northern Trust Company
     50 South LaSalle Street
     Chicago, Illinois 60675
     (312) 630-6000
     Akorn operating account #86746
     Controlled disbursements (A/P) 30286746
     Payroll disbursements 30386746
     Akorn lockbox 30186746 and 30486746
     Health Insurance 30786746
     Flexible Spending 31286746
     401(k) 31386746
     Blocked Account 1525034


     Akorn, Inc. American National Bank
     120 South LaSalle Street
     Chicago, Illinois 60603-3400
     (312) 661-5000
     Akorn Merchant Account #5300107421
     (Credit Card Account)


     Akorn (New The Northern Trust Company Jersey), Inc.
     50 South LaSalle Street
     Chicago, Illinois 60675
     (312) 630-6000
     Controlled disbursements 30986746
     Payroll 31186746


                                     - 61 -
<PAGE>   68


                                  SCHEDULE 7.3

                                  INDEBTEDNESS


     The Borrowers have the following outstanding Indebtedness:

     Akron, Inc. Mortgage loans #98021904 and 98021903 to Standard Mortgage
     Investors, secured by Decatur real properties; principal balance at June
     30, 2001 $2,318,214.90, final payment due June 2008

                             Indebtedness under the
                          Subordinated Loan Agreement


     Akorn (New Jersey), Inc.      None




                                     - 62 -
<PAGE>   69

                                 SCHEDULE 7.4(a)

                          TRANSACTIONS WITH AFFILIATES


     Same as Schedule 7.4(a) attached to the Credit Agreement












                                     - 63 -
<PAGE>   70
                                  SCHEDULE 7.7

                                      LIENS


     Akorn, Inc.

     a) Operating lease #8197-001 with National City Leasing Corporation
        financing production equipment. Total acquisition cost of $3,811,028.93.
        Monthly rent of $52,577.71 through December 26, 2007.

     b) See Schedule 7.3 also

     c) Mechanics Lien Claim against property at 1222 West Grand and 1365 North
        University, Decatur, Illinois


     Akorn (New Jersey), Inc.   None



                                     - 64 -
<PAGE>   71
                                 SCHEDULE 10.10

                              AUTHORIZED SIGNATURES



                                                Akorn, Inc.


                                                Antonio Pera, President
                                                and Chief Operating Officer


                                                John M. Kapoor,
                                                Chief Executive Officer


                                                Kevin M. Harris,
                                                Vice President,
                                                Chief Financial Officer,
                                                Secretary and Treasurer


                                                Akron (New Jersey), Inc.


                                                Antonio Pera, President
                                                Kevin M. Harris, Vice President,
                                                Secretary and Treasurer



                                     - 65 -