exv4w1



 






Exhibit 4.1




SECURITIES PURCHASE AGREEMENT




          SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 1, 2006, by and among
Akorn, Inc., a Louisiana corporation with headquarters located at 2500 Millbrook Drive, Buffalo
Grove, Illinois 60089 (the “Company”), and the investors listed on the Schedule of Investors
attached hereto as Exhibit A (individually, an “Investor” and collectively, the “Investors”).




WHEREAS:




          A. The Company and each Investor is executing and delivering this Agreement in reliance upon
the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933,
as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”) under the 1933 Act.




          B. Each Investor, severally and not jointly, wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of shares
of the Common Stock, no par value per share, of the Company (the “Common Stock”), set forth
opposite such Investor’s name in column two (2) on the Schedule of Investors in Exhibit A (which
aggregate amount for all Investors together shall be 4,311,669 shares of Common Stock and shall
collectively be referred to herein as the “Common Shares”) and (ii) a warrant to acquire up to that
number of additional shares of Common Stock set forth opposite such Investor’s name in column three
(3) on the Schedule of Investors (the “Warrants”), in substantially the form attached hereto as
Exhibit F (as exercised, collectively, the “Warrant Shares”)




          C. The Common Shares, the Warrants and the Warrant Shares issued pursuant to this Agreement
are collectively referred to herein as the “Securities”.




          NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:




ARTICLE I

DEFINITIONS




     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the
following terms have the meanings indicated:



          “Advice” has the meaning set forth in Section 6.5.




          “Agent” has the meaning set forth in Section 3.1(j).




          “Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144 under the Securities Act.




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          “AMEX” means the American Stock Exchange.




          “Business Day” means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York or Buffalo Grove, Illinois are authorized or required by law to
remain closed.




          “Closing” means the closing of the purchase and sale of the Securities pursuant to Section
2.1.




          “Closing Date” means the date and time of the Closing and shall be 5:00 p.m., New York City
Time, on such date as is mutually agreed to by the Company and each Investor after satisfaction of
the conditions to Closing set forth in Article V.




          “Commission” means the Securities and Exchange Commission.




          “Common Shares” means an aggregate of 4,311,669 shares of Common Stock, which are being
issued and sold by the Company to the Investors at the Closing.




          “Common Stock” means the common stock of the Company, no par value per share.




          “Company Counsel” means each of Luce, Forward, Hamilton & Scripps LLP and Jones, Walker,
Waechter, Poitevent, Carrère & Denègre, L.L.P., counsel to the Company.




          “Convertible Securities” means any stock or securities (other than Options) convertible into
or exercisable or exchangeable for Common Stock.




          “Current Securities Laws” means the rules and regulations, existing on the date hereof, of the
1933 Act and the Exchange Act, in each case as are set forth in currently disseminated
interpretations by the Commission in writing, through rules, regulations, releases, no-action
letters or published telephone interpretations.




          “Disposition” has the meaning set forth in Section 3.2(h).




          “DWAC Fees” means fees payable to the Transfer Agent’s Deposit Withdrawal Agent for the
electronic transmission of shares of Common Stock by crediting the account of an Investor’s broker
with Depository Trust Company Fast Automated Securities Transfer through the Transfer Agent’s
Deposit Withdrawal Agent Commission system.




          “Effective Date” means the date that the Registration Statement is first declared effective by
the Commission.




          “Effectiveness Period” has the meaning set forth in Section 6.1(b).




          “Eligible Market” means any of the New York Stock Exchange, AMEX, the NASDAQ National Market
or the NASDAQ Capital Market.




          “Event” has the meaning set forth in Section 6.1(d).




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          “Event Payments” has the meaning set forth in Section 6.1(d).




          “Exchange Act” means the Securities Exchange Act of 1934, as amended.




          “Excluded Events” has the meaning set forth in Section 6.1(d).




          “8-K Filing” has the meaning set forth in Section 4.5.




          “Filing Date” means the day 45 after the Closing Date.




          “Holders of Existing Rights” shall mean The John N. Kapoor Trust dated 9/20/89, AEG Partners,
LLC, current and former holders of the Series B Preferred Stock, former holders of the Series A
Preferred Stock, current and former holders of warrants issued in connection with the Series B
Preferred Stock, and current and former holders of warrants issued in connection with the Series A
Preferred Stock.




          “Indemnified Party” has the meaning set forth in Section 6.4(c).




          “Indemnifying Party” has the meaning set forth in Section 6.4(c).




          “Intellectual Property Rights” has the meaning set forth in Section 3.1(r).




          “Knowledge of the Company”, “to the knowledge of the Company”, “to the Company’s knowledge” or
any phrase of similar import shall be deemed to mean only to the actual knowledge, without
investigation or inquiry, of either of Arthur S. Przybyl, the Chief Executive Officer of the
Company, or Jeffrey A. Whitnell, the Chief Financial Officer of the Company.




          “LaSalle Bank” means LaSalle Bank, National Association.




          “Lien” means any lien, charge, claim, security interest, encumbrance, right of first refusal
or other restriction, except for any Permitted Liens.




          “Losses” means any and all losses, claims, damages, liabilities, settlement costs and
expenses, including, without limitation, costs of preparation and reasonable attorneys’ fees.




          “Material Adverse Effect” has the meaning set forth in Section 3.1(b).




          “Material Permits” has the meaning set forth in Section 3.1(t).




          “NASD” has the meaning set forth in Section 3.2(k).




          “Options” means any rights, warrants or options to subscribe for or purchase Common Stock or
Convertible Securities.




          “Permitted Liens” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction disclosed in or contemplated by the SEC Reports, and any
purchase money security interests and any Liens (i) in favor of LaSalle Bank or incurred in
connection with the Senior Credit Agreement or the transactions associated therewith, and (ii) in





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favor of Standard Mortgage Investors, LLC or incurred in connection with the Company’s
mortgage agreement with Standard Mortgage Investors, LLC.




          “Person” means any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, or joint stock company.




          “Plan of Distribution” shall mean the Plan of Distribution attached hereto as Exhibit D, which
shall be contained in the Registration Statement.




          “Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition).




          “Prospectus” means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the Registration Statement,
and all other amendments and supplements to the Prospectus including post effective amendments, and
all material incorporated by reference or deemed to be incorporated by reference in such
Prospectus.




          “Registrable Securities” means any Common Stock (including Warrant Shares) issued or issuable
pursuant to the Transaction Documents, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event with respect to the
foregoing; provided, however, that securities shall only be treated as Registrable Securities if
and only for so long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the Commission, and (B) have not been sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1933 Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation of such sale.




          “Registration Statement” means each registration statement required to be filed under Article
VI, including (in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and
all material incorporated by reference or deemed to be incorporated by reference in such
registration statement.




          “Required Effectiveness Date” means the day 105 after the Closing Date.




          “Required Senior Lenders” shall mean “Required Lenders” as such term is defined in the Senior
Credit Agreement.




          “Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424, respectively,
promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from
time to time, or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.




          “SEC Reports” has the meaning set forth in Section 3.1(f).




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          “Securities” means the Common Shares, Warrants and Warrant Shares.




          “Senior Credit Agreement” shall mean that certain Credit Agreement dated as of October 7, 2003
by and among the Company, Akorn (New Jersey), Inc., the financial institutions from time to time
party thereto, as lenders, and LaSalle Bank, as administrative agent, as such Credit Agreement may
be amended, restated, supplemented or otherwise modified from time to time.




          “Series A Preferred Stock” means the Company’s Series A 6% Participating Convertible Preferred
Stock




          “Series B Preferred Stock” means the Company’s Series B 6% Participating Convertible Preferred
Stock




          “Shares” means shares of the Company’s Common Stock.




          “Subsidiary” means any Person in which the Company, directly or indirectly, owns a majority of
the capital stock or similar interest that would be disclosable pursuant to Regulation S-K, Item
601(b)(21).




          “Trading Day” means (a) any day on which the Common Stock is listed or quoted and traded on
its primary Trading Market, (b) if the Common Stock is not then listed or quoted and traded on any
Eligible Market, then a day on which trading occurs on the NASDAQ National Market (or any successor
thereto), or (c) if trading ceases to occur on the NASDAQ National Market (or any successor
thereto), any Business Day.




          “Trading Market” means AMEX or any other Eligible Market, or any national securities exchange,
market or trading or quotation facility on which the Common Stock is then listed or quoted.




          “Transaction Documents” means this Agreement, the schedules and exhibits attached hereto, the
Warrants and the Transfer Agent Instructions.




          “Transfer Agent” means Computershare Investor Services LLC, or any successor transfer agent
for the Company.




          “Transfer Agent Instructions” means, with respect to the Company, the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E, executed by the Company and delivered to and
acknowledged in writing by the Transfer Agent.




          “Warrants” has the meaning set forth in the Preamble.




          “Warrant Shares” has the meaning set forth in the Preamble.




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ARTICLE II

PURCHASE AND SALE




     2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, such number of Common Shares and Warrants set forth
opposite such Investor’s name on Exhibit A hereto under the headings “Common Shares” and
“Warrants”. The date and time of the Closing and shall be 5:00 p.m., New York City Time, on the
Closing Date. The Closing shall take place at the offices of Luce, Forward, Hamilton & Scripps
LLP.



          The obligations of the Investors under this Agreement are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under this Agreement. Nothing contained
herein, and no action taken by any Investor hereto, shall be deemed to constitute the Investors as
a partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Investors are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated hereby, provided that such obligations or the transactions
contemplated hereby may be modified, amended or waived in accordance with this Agreement. Each
Investor shall be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement (provided, that such rights may be modified,
amended or waived in accordance with this Agreement), and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.




     2.2 Closing Deliveries.



          (a) At the Closing, the Company shall deliver or cause to be delivered to each Investor the
following:




               (i) one or more stock certificates (or facsimile copies thereof), free and clear of all
restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing
such number of Company Shares equal to the number of Shares set forth opposite such Investor’s name
on Exhibit A hereto under the heading “Common Shares,” registered in the name of such Investor;



               (ii) a Warrant, issued in the name of such Investor, pursuant to which such Investor shall
have the right to acquire such number of Warrant Shares set forth opposite such Investor’s name on
Exhibit A hereto under the heading “Warrant Shares”;



               (iii) a legal opinion of each Company Counsel, substantially in the forms attached hereto as
Exhibit C, executed by such counsel and delivered to the Investors; and



               (iv) duly executed Transfer Agent Instructions acknowledged by the Company’s transfer agent.



          (b) At the Closing, each Investor shall deliver or cause to be delivered to the Company the
purchase price set forth opposite such Investor’s name on Exhibit A hereto under the heading
“Purchase Price” in United States dollars and in immediately available funds, by





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wire transfer to an account designated in writing to such Investor by the Company for such
purpose.




ARTICLE III

REPRESENTATIONS AND WARRANTIES




     3.1 Representations and Warranties of the Company. The Company hereby represents and
warrants to the Investors as follows:



          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than those
listed in the SEC Reports. All of the capital stock or comparable equity interests of each
Subsidiary owned directly or indirectly by the Company are free and clear of any Lien and all the
issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and similar rights.




          (b) Organization and Qualification. Each of the Company and the Subsidiaries is an
entity duly organized, validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization (as applicable), with the requisite legal authority to own and
use its properties and assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its respective certificate
or articles of incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually or in the aggregate, (i)
materially and adversely affect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results of operations, assets,
business or financial condition of the Company and the Subsidiaries, taken as a whole on a
consolidated basis, or (iii) materially and adversely impair the Company’s ability to perform fully
on a timely basis its obligations under any of the Transaction Documents (any of (i), (ii) or
(iii), a “Material Adverse Effect”).




          (c) Authorization; Enforcement. The Company has the requisite corporate authority to
enter into and to consummate the transactions contemplated by each of the Transaction Documents to
which it is a party and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents to which it is a party by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been (or upon
delivery will be) duly authorized by all necessary action on the part of the Company and no further
consent or action is, or will be, required by the Company, its Board of Directors or its
stockholders. Each of the Transaction Documents to which it is a party has been (or upon delivery
will be) duly executed by the Company and is, or when delivered in accordance with the terms
hereof, will constitute, the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or affecting the
enforcement of creditors rights generally, and (ii) the




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effect of rules of law governing the availability of specific performance, injunctive relief
and other equitable remedies.




          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which it is a party by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or
other organizational or charter documents, (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of
time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is bound, or affected,
except to the extent that such conflict, default, termination, amendment, acceleration or
cancellation right (A) could not reasonably be expected to have a Material Adverse Effect or (B) is
waived pre-Closing, or (iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority to which the Company
or a Subsidiary is subject (including federal and state securities laws and regulations and the
rules and regulations of any self-regulatory organization to which the Company or its securities
are subject), or by which any property or asset of the Company or a Subsidiary is bound or
affected, except to the extent that such violation could not reasonably be expected to have a
Material Adverse Effect. The Securities (including the Warrant Shares) are duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens and shall not be subject to
preemptive or similar rights of stockholders. The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable upon exercise of the Warrants.




          (e) Capitalization. The capitalization of the Company as of September 30, 2005, is as
set forth in the most recent applicable SEC Report, increased as set forth in the next sentence.
The Company has not issued any capital stock since that date other than pursuant to (i) employee
and director benefit plans disclosed in the SEC Reports, or (ii) outstanding warrants, options or
other securities disclosed in the SEC Reports. The outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and are not subject to any enforceable
preemptive rights or similar rights to subscribe for or purchase securities granted by law.
Without limiting the foregoing, except as set forth in the SEC Reports, no preemptive right,
co-sale right, right of first refusal, registration right, or other similar right exists with
respect to the Common Shares, the Warrants or the Warrant Shares or the issuance and sale thereof.
Upon delivery, no further approval or authorization of any stockholder, the Board of Directors of
the Company or others will be required for the issuance and sale of the Common Shares, the Warrants
and the Warrant Shares, including under Trading Market rules. Except as disclosed in the SEC
Reports, or in filings with the SEC under Sections 13 or 16 of the Exchange Act with respect to
ownership of Company securities, there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Common Stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company’s stockholders.




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          (f) SEC Reports; Financial Statements. The Company has filed all reports required to
be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the twelve months preceding the date hereof (the foregoing materials (together with any materials
filed by the Company under the Exchange Act and the 1933 Act, whether or not required) being
collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The financial statements of the Company included in
the reports required to be filed by the Company under the Exchange Act for the twenty-four months
preceding the date hereof comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments. Except as disclosed in the SEC Reports, since the date of the latest audited
financial statements included within the SEC Reports, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result in a Material
Adverse Effect, (ii) the Company has not altered its method of accounting or the identity of its
auditors, (iii) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders, in their capacities as such, or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (except for repurchases by the
Company of shares of capital stock held by employees, officers, directors, or consultants pursuant
to an option of the Company to repurchase such shares upon the termination of employment or
services), and (iv) the Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock-based plans.




          (g) Absence of Litigation. Except as disclosed in the Company’s SEC Reports, there is
no action, suit, claim, or proceeding, or, to the Company’s knowledge, inquiry or investigation,
before or by any court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries that could, individually or in the aggregate, have a Material Adverse Effect.




          (h) Compliance. Neither the Company nor any Subsidiary, except in each case as could
not, individually or in the aggregate, reasonably be expected to have or result in a Material
Adverse Effect, is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received written notice of a claim that it
is in default under or that it is in violation of, any indenture, loan or




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credit agreement or any other agreement or instrument to which it is a party or by which it or
any of its properties is bound, which default has not been waived in writing, (ii) is in violation
of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of
any law, statute, rule or regulation of any governmental authority.




          (i) Title to Assets. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to the business of the Company
and the Subsidiaries and good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens that do not, individually or in the aggregate, have or result in a Material
Adverse Effect. Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in material compliance.




          (j) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor, to the
Company’s knowledge, any of its affiliates, nor any Person acting on its or, to the Company’s
knowledge, on their behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for persons engaged by, or on behalf of, any Investor or
its agents or investment advisors) relating to or arising out of the issuance of the Securities
pursuant to this Agreement. The Company shall pay, and hold each Investor harmless against, any
liability, loss or expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any such claim for fees (other than for persons
engaged by, or on behalf of, any Investor or its agents or investment advisors) arising out of the
issuance of the Securities pursuant to this Agreement. The Company acknowledges that is has
engaged Banc of America Securities LLC as placement agent (the “Agent”) in connection with the sale
of the Securities. Other than the Agent, the Company has not engaged any placement agent or other
agent in connection with the sale of the Securities.




          (k) Private Placement. Neither the Company nor any Person acting on the Company’s
behalf has, directly or indirectly, at any time within the past six months, made any offer or sale
of any security or solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant to the Transaction
Documents to be integrated with prior offerings by the Company for purposes of any applicable law,
regulation or stockholder approval provisions, including, without limitation, under the rules and
regulations of any Trading Market. The Company is not required to be registered as an “investment
company” within the meaning of the Investment Company Act of 1940, as amended. The Company is not
required to be registered as, a United States real property holding corporation within the meaning
of the Foreign Investment in Real Property Tax Act of 1980.




          (l) Form S-3 Eligibility. The Company is eligible to register the Common Shares and
the Warrant Shares for resale by the Investors using Form S-3 promulgated under the Securities Act.




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          (m) Listing and Maintenance Requirements. The Company has not, in the twelve months
preceding the date hereof, received written notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company is in compliance with all
such listing and maintenance requirements.




          (n) Registration Rights. Except as disclosed in or contemplated by the SEC Reports,
the Company has not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the Commission or any
other governmental authority that have not been satisfied or waived.




          (o) Application of Takeover Protections. There is no control share acquisition,
business combination, poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s charter documents or the laws of its state of
incorporation that is or could become applicable to any of the Investors as a result of the
Investors and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including, without limitation, as a result of the Company’s issuance of the
Securities and the Investors’ ownership of the Securities.




          (p) Disclosure. The Company confirms that neither it nor any officers, directors or
Affiliates, has provided any of the Investors or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information (other than the existence and terms
of the issuance of Securities, as contemplated by this Agreement). The Company understands and
confirms that each of the Investors will rely on the foregoing representations, the SEC Reports and
other information, if any, produced by the Investors investigation of the Company in effecting
transactions in securities of the Company. All disclosure provided by the Company to the Investors
in this Agreement regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on the behalf of the Company are true
and correct in all material respects and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. To the Company’s knowledge,
no event or circumstance has occurred or information exists with respect to the Company or any of
its Subsidiaries or its or their business, properties, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed. The Company acknowledges and agrees
that no Investor makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in the Transaction
Documents.




          (q) Acknowledgment Regarding Investors’ Purchase of Securities. Based upon the
assumption that the transactions contemplated by this Agreement are consummated in all material
respects in conformity with the Transaction Documents, the Company acknowledges and agrees that
each of the Investors is acting solely in the capacity of an arm’s length purchaser with respect to
the Transaction Documents and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the




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transactions contemplated hereby and any advice given by any Investor or any of their
respective representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the Investors’ purchase of the
Securities. The Company further represents to each Investor that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its representatives.




          (r) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and which the failure
to so have does not have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a written notice that any of such
Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. All such Intellectual Property Rights are enforceable and, to the Company’s
knowledge, there is no existing infringement by another Person of any of the Intellectual Property
Rights.




          (s) Insurance. The Company and the Subsidiaries are insured against such losses and
risks and in such amounts as are prudent and customary in the businesses and location in which the
Company and the Subsidiaries are engaged. To the Company’s knowledge, neither the Company nor any
Subsidiary has been notified that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.




          (t) Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits does not, individually or in the aggregate, have
or result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any written notice of proceedings relating to the revocation or
modification of any Material Permit.




          (u) Internal Accounting Controls. The Company maintains a system of internal control
over financial reporting (as such term is defined in the Exchange Act) sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with management’s general or
specific authorizations, and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset accountability. The Company’s
certifying officers are responsible for establishing and maintaining disclosure controls and
procedures (as defined in the Exchange Act) for the Company and they have (a) designed such
disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under their supervision, to ensure that material information relating to the Company is
made known to the certifying officers by others within those entities, particularly during the
periods since December 31, 2003 in which the Company’s filings under the Exchange Act have been
prepared; (b) evaluated the effectiveness of the Company’s disclosure controls and procedures and
presented in the Company’s filings under the Exchange Act their conclusions about the effectiveness
of the disclosure controls and




12









 







procedures, as of the end of the periods covered by such filings since December 31, 2003 under
the Exchange Act based on such evaluation; and (c) since the last evaluation date referred to in
(b) above, there has been no change in the Company’s internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting (as such term is defined in the Exchange Act) or, to the Company’s
knowledge, in other factors that could significantly affect the Company’s internal control over
financial reporting, and no significant deficiencies or material weaknesses in internal controls
over financial reporting have been identified.




          (v) Sarbanes-Oxley Act. To the Company’s knowledge, the Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date.




     3.2 Representations and Warranties of the Investors. Each Investor hereby, as to
itself only and for no other Investor, represents and warrants to the Company as follows:



          (a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, including the purchase by such Investor of the Securities
hereunder, has been duly authorized by all necessary action on the part of such Investor. This
Agreement has been duly executed and delivered by such Investor and constitutes the valid and
binding obligation of such Investor, enforceable against it in accordance with its terms, except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors rights generally, and (ii) the
effect of rules of law governing the availability of specific performance, injunctive relief and
other equitable remedies.




          (b) No Public Sale or Distribution; Investment Intent. Such Investor understands that
none of the Securities have been registered under the Securities Act by reason of a claimed
exemption under the provisions of the 1933 Act which depends, in part, on the Investor’s intent in
connection therewith. Such Investor represents that it is (i) acquiring the Common Shares and the
Warrants and (ii) upon exercise of the Warrants will acquire the Warrant Shares issuable upon
exercise thereof, in the ordinary course of business for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution thereof, except pursuant
to sales registered under the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws, and such Investor does not have a
present arrangement to effect any distribution of the Securities to or through any person or
entity; provided, however, that, except as set forth in Sections 3.2(h) and 4.8, by
making the representations herein, such Investor does not agree to hold any of the Securities for
any minimum or other specific term and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an exemption under the Securities
Act.




13









 








          (c) Investor Status. At the time such Investor was offered the Securities, it was,
and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act.




          (d) Experience of such Investor. Such Investor, either alone or together with its
representatives has such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment. Such Investor is able to
bear the economic risk of an investment in the Securities and is able to afford a complete loss of
such investment.




          (e) Access to Information. Such Investor acknowledges that it has been provided and
has carefully reviewed the Company’s SEC Reports, including without limitation the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2004 and the additional risk factors
specific to the Securities, the Common Stock, and all other information regarding the Company which
such Investor has requested or desired to know and has been afforded: (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities and the merits and
risks of investing in the Securities; (ii) access to information (other than material non-public
information) about the Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional information that the
Company possesses or can acquire without unreasonable effort or expense that is necessary to make
an informed investment decision with respect to the investment. Neither such inquiries nor any
other investigation conducted by or on behalf of such Investor or its representatives or counsel
shall modify, amend or affect such Investor’s right to rely on the truth and accuracy of the
Company’s representations and warranties contained in the Transaction Documents. Such Investor
acknowledges and agrees that the Company does not make and has not made any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in the Transaction Documents.




          (f) No Governmental Review. Such Investor understands that no United States federal
or state agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability of the investment in
the Securities nor have such authorities passed upon or endorsed the merits of the offering of the
Securities.




          (g) No Conflicts. The execution, delivery and performance by such Investor of this
Agreement and the consummation by such Investor of the transactions contemplated hereby and thereby
do not, and will not, (i) result in a violation of the certificate or articles of incorporation,
Bylaws or other organizational or charter documents of such Investor or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of (with or without notice, lapse of time or both), any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree or other restriction of any court or government




14









 







authority (including federal and state securities laws) applicable to such Investor, except in
the case of clauses (ii) and (iii) above, for such that are not material and do not otherwise
affect the ability of such Investor to consummate the transactions contemplated hereby.




          (h) Illegal Transactions. Neither the Investor nor any person acting on its behalf or
at its direction has engaged in any purchase or sale of Common Stock (including without limitation
any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning
of Rule 16a-1(h) under the Exchange Act) during the 5 Trading Days immediately preceding the date
of this Agreement.




          (i) No Legal, Tax or Investment Advice. Such Investor understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company to the Investor in
connection with the purchase of the Securities constitutes legal, tax or investment advice. Such
Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of the Securities. Such Investor
understands that the Agent has acted solely as the agent of the Company in this placement of the
Securities, and that the Agent makes no representation or warranty with regard to the merits of
this transaction or as to the accuracy of any information such Investor may have received in
connection therewith. Such Investor acknowledges that he has not relied on any information or
advice furnished by or on behalf of the Agent. Such Investor further acknowledges that Company
Counsel has acted solely as legal counsel to the Company in connection with the transactions
contemplated by this Agreement and that Company Counsel has not acted as counsel for such Investor
in connection therewith.




          (j) Private Placement. Such Investor represents that (i) such Investor was contacted
regarding the sale of the Securities by the Agent (or an authorized agent or representative
thereof) with whom such Investor had a prior substantial pre-existing relationship and (ii) no
Securities were offered or sold to it by means of any form of general solicitation or general
advertising, and in connection therewith such Investor did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio, whether closed circuit or generally available;
or (B) attend any seminar, meeting or industry investor conference whose attendees were invited by
any general solicitation or general advertising.




          (k) No Broker; Agent. Except as otherwise specifically set forth in such Investor’s
Registration Statement Questionnaire, such Investor represents and warrants that such Investor is
not (a) a broker or dealer admitted to membership in the National Association of Securities
Dealers, Inc. (“NASD”), (b) a controlling stockholder of an NASD member, or (c) a person associated
with a member of the NASD; provided, however, that any exception to the foregoing set forth in such
Investor’s Registration Statement Questionnaire shall be appropriately disclosed in the Plan of
Distribution. Such Investor acknowledges that (a) the Company has engaged, consented to and
authorized the Agent in connection with the transactions contemplated by this Agreement, and (b)
the Company shall pay the Agent a commission and reimburse the Agent’s expenses. Such Investor
represents and warrants that it has not engaged, consented to nor authorized any broker, finder or
intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. Such Investor shall indemnify and
hold harmless the Company from and




15









 







against all fees, commissions or other payments owing to any such person or firm acting on
behalf of such Investor hereunder.




ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES




     4.1 Transfer Restrictions.



          (a) The Investors covenant that the Securities will only be disposed of pursuant to an
effective registration statement under, and in compliance with the requirements of, the Securities
Act or pursuant to an available exemption from the registration requirements of the Securities Act,
and in compliance with any applicable state securities laws. The Investors further expressly agree
that any sale by the Investor of Common Shares and Warrant Shares pursuant to the Registration
Statement shall be sold in a manner described under the Plan of Distribution, and, if then required
to do so, the Investor will deliver a copy of the Prospectus contained in the Registration
Statement to the purchaser or purchasers, directly or through the Investor’s broker, in connection
with such sale, in each case in compliance with the requirements of the 1933 Act and Exchange Act
applicable to such sale. In connection with any transfer of Securities other than pursuant to an
effective registration statement or to the Company, or pursuant to Rule 144(k) except as otherwise
set forth herein, the Company requires the transferor to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require registration under
the Securities Act.




          (b) The Investors agree to the imprinting, so long as is required by this Section 4.1(b), of
the following legend on any certificate evidencing Securities:





THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE
WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.


Certificates evidencing Securities shall not be required to contain such legend or any other legend
(i) after a transfer pursuant to a Registration Statement that is effective under the Securities
Act covering the resale of such Securities, (ii) following any sale of such Securities pursuant to
Rule 144, (iii) if such Securities are eligible for sale under Rule 144(k), (iv) if such legend is
not required under applicable requirements of the Securities Act (including controlling


16









 






judicial interpretations and pronouncements issued by the Staff of the Commission) in an opinion of
(x) Company Counsel, or (y) counsel to an Investor, the form and substance of which opinion shall
be reasonably satisfactory to the Company, or (v) as otherwise set forth in Section 4.1(c) below.
The Company shall cause its counsel to issue the written confirmation included in the Transfer
Agent Instructions to the Transfer Agent on the Effective Date.




          (c) On the basis of, and subject to, compliance by each Investor with the covenants set forth
in Section 4.1(a) above and elsewhere in this Agreement, upon the Effective Date, the Company shall
as soon as practicable (but not later than three Trading Days) after surrender of legended
certificates by each investor to the Company and notice of such surrender has been provided by such
investor pursuant to Section 7.4 below cause certificates evidencing Common Shares and Warrant
Shares previously issued to such Investor to be replaced with certificates which do not bear the
restrictive legends specified above in Section 4.1(b), and all Common Shares and Warrant Shares
subsequently issued shall not bear the restrictive legend specified above in Section 4.1(b). Each
Investor acknowledges that the removal of the restrictive legends from certificates representing
Common Shares and Warrant Shares is predicated upon the Company’s reliance on the Investor’s
compliance with its covenants in Section 4.1(a) above and elsewhere in this Agreement. The Company
may not make any notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section 4.1, except for stop orders provided for in
Section 6.5 below. Notwithstanding the foregoing, the Company shall have no obligation to cause
certificates evidencing Common Shares and Warrant Shares to be issued without, or replaced with
certificates which do not bear, the restrictive legends as set forth in this Section 4.1(c) during
any period that disposition of Registrable Securities is to be discontinued pursuant to Section 6.5
below.




     4.2 Furnishing of Information. As long as any Investor owns Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the
Exchange Act.



     4.3 Integration. The Company shall not, and shall use its commercially reasonably
efforts to ensure that no Affiliate thereof shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Investors or that would
be integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market.



     4.4 Reservation of Securities. The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction Documents. In the
event that at any time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company shall promptly take
such actions as may be required to increase the number of authorized shares.



     4.5 Securities Laws Disclosure; Publicity. The Company shall, on or before 8:30 a.m.,
New York time, on the first Trading Day following execution of this Agreement, issue a



17









 







press release acceptable to the Investors disclosing all material terms of the transactions
contemplated hereby (the “Press Release”). On the Closing Date, or earlier if required to comply
with applicable securities laws, including the requirements of Form 8-K, and the Company shall file
a Current Report on Form 8-K with the Commission (the “8-K Filing”) describing the terms of the
transactions contemplated by the Transaction Documents and including as exhibits to such Current
Report on Form 8-K this Agreement and the form of Warrants, in the form required by the Exchange
Act. Thereafter, the Company shall timely (or pursuant to a valid extension of such time of
filing) file any filings and notices required by the Commission or applicable law with respect to
the transactions contemplated hereby and provide copies thereof to the Investors promptly after
filing. Except with respect to the 8-K Filing and the Press Release referenced above (a copy of
which will be provided to the Investors for their review as early as practicable prior to its
filing), the Company shall, at least two Trading Days prior to the filing or dissemination of any
disclosure required by this paragraph, provide a copy thereof to the Investors for their review.
The Company and the Investors shall consult with each other in issuing any press releases or
otherwise making public statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions contemplated hereby, and
neither party shall issue any such press release or otherwise make any such public statement,
filing or other communication without the prior consent of the other, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication. The Company shall not
publicly disclose the name of any Investor, or include the name of any Investor in any press
release without the prior written consent of such Investor. Notwithstanding the foregoing, the
Company may make any securities filings regarding the transactions contemplated hereby, including
the names of the Investors, to the extent the Company reasonably believes the same to be prudent in
connection with its disclosure obligations, its past practices and as otherwise required by law or
any securities exchange upon which the Company’s securities may be listed. The Company shall not,
and shall cause each of its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Investor with any material nonpublic information regarding
the Company or any of its Subsidiaries from and after the issuance of the above referenced Press
Release without the express written consent of such Investor.



     4.6 Use of Proceeds. The Company intends to use the net proceeds from the sale of the
Securities for general corporate purposes. The Company also may use a portion of the net proceeds,
currently intended for general corporate purposes, to acquire or invest in technologies, products
or services that complement its business, although the Company has no present plans or commitments
and is not currently engaged in any material negotiations with respect to these types of
transactions. Pending these uses, the Company intends to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade securities, or as otherwise pursuant to
the Company’s customary investment policies.



     4.7 Certain Existing Rights. The Investors hereby acknowledge that the Company has
previously granted certain rights to the Holders of Existing Rights, including, among other rights,
registration rights, rights to acquire Common Stock and rights to receive dividends (in cash or
Common Stock), as disclosed in the SEC Reports. The Investors hereby agree that, notwithstanding
any other representations, warranties, covenants or agreements set forth in the Transaction
Documents, none of the existing rights of any of the Holders of Existing Rights shall



18









 







breach, negate or conflict with any of the representations, warranties, covenants or
agreements set forth in the Transaction Documents. The Investors further agree that the Company,
in its sole discretion, has the right to renegotiate, settle, payoff or retire any of the existing
rights or obligations to the Holders of Existing Rights and that such actions shall not breach,
negate or conflict with any of the representations, warranties, covenants or agreements set forth
in the Transaction Documents.



     4.8 Market Stand-Off. Such Investor agrees that from the time such Investor was first
contacted by the Agent regarding the transactions contemplated hereby, until the issuance of the
Press Release pursuant to Section 4.5 above, such Investor has not and shall not, directly or
indirectly, through related parties or otherwise, sell or purchase or otherwise deal in or with any
equity security of the Company.



     4.9 Prohibited Transactions. The Investors will not use any of the Shares acquired
pursuant to this Agreement, or the Warrant Shares acquired pursuant to the Warrant, to cover any
short position in the Common Stock of the Company if doing so would be in violation of applicable
Current Securities Laws. The Investor will comply with all applicable Current Securities Laws in
the holding and sale of the Securities.



ARTICLE V

CONDITIONS




     5.1 Conditions Precedent to the Obligations of the Investors. The obligation of each
Investor to acquire Securities at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:



          (a) Representations and Warranties. The representations and warranties of the Company
contained herein shall be true and correct in all material respects as of the date when made and as
of the Closing as though made on and as of such date; and




          (b) Performance. The Company and each other Investor shall have performed, satisfied
and complied in all material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.




          (c) LaSalle Bank Waiver and Consent. The Company shall have received a waiver and
consent from LaSalle Bank to this Agreement and the transactions contemplated hereby.




          (d) Additional Listing Application. The Registrable Securities shall have been
approved for listing on AMEX.




     5.2 Conditions Precedent to the Obligations of the Company. The obligation of the
Company to sell the Securities at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:



19









 





          (a) Representations and Warranties. The representations and warranties of the
Investors contained herein shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made on and as of such date; and




          (b) Performance. The Investors shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investors at or prior to the Closing.




          (c) LaSalle Bank Waiver and Consent. The Company shall have received a waiver and
consent from LaSalle Bank to this Agreement and the transactions contemplated hereby.




          (d) Additional Listing Application. The Registrable Securities shall have been
approved for listing on AMEX.




ARTICLE VI

REGISTRATION RIGHTS




     6.1 Shelf Registration.



          (a) As promptly as possible, and in any event on or prior to the Filing Date, the Company
shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of
all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such registration shall
be on another appropriate form in accordance with the Securities Act and the Exchange Act and as
consented to by the Investors) and shall contain (except if otherwise directed by the Investors or
the Commission) the Plan of Distribution.




          (b) The Company shall use its reasonable best efforts to cause the Registration Statement to
be declared effective by the Commission as promptly as possible after the filing thereof, but in
any event prior to the Required Effectiveness Date, and shall use its reasonable best efforts to
keep the Registration Statement continuously effective under the Securities Act until the earlier
of the date that all Registrable Securities covered by such Registration Statement have been sold
or can be sold publicly under Rule 144(k) (the “Effectiveness Period”).




          (c) The Company shall notify the Investors in writing promptly (and in any event within three
Business Days) after receiving notification from the Commission that the Registration Statement has
been declared effective.




          (d) Should an Event (as defined below) occur, then on every monthly anniversary thereof until
the applicable Event is cured and on the date of such cure, as total and complete relief for the
damages suffered therefrom by the Investors (which remedy shall be the exclusive remedy available
under this Agreement, at law or in equity), the Company shall pay to each Investor an amount in
cash, as liquidated damages and not as a penalty, equal to $0.045 per Common Share then owned. The
payments to which an Investor shall be entitled pursuant to this Section 6.1(d) are referred to
herein as “Event Payments”. Any Event Payments payable




20









 







pursuant to the terms hereof shall apply on a pro-rata basis for any portion of a month prior
to the cure of an Event. In the event the Company fails to make Event Payments in a timely manner,
such Event Payments shall bear interest at the rate of 1% per month (prorated for partial months)
until paid in full. All pro rated calculations made pursuant to this paragraph shall be based upon
the actual number of days in such pro rated month. In no event shall the Company be obligated to
pay aggregate Event Payments in an amount greater than the dollar amount equal to Ten percent of
total purchase price. For avoidance of doubt, the parties hereto agree that the Event Payments set
forth in this Section 6.1(d) relate solely to the Common Shares to be issued under this Agreement
and not to the Warrants or Warrant Shares issuable hereunder, for which there will be no damages
under this Section 6.1(d).




          For such purposes, each of the following shall constitute an “Event”:




               (i) the Registration Statement, insofar as it required to cover Common Shares, is not filed on
or prior to the Filing Date or is not declared effective on or prior to the Required Effectiveness
Date; provided, however, that the Company shall have no liability hereunder for a failure to meet
the deadlines set forth herein caused by a delay resulting from the actions or inactions of the
Investors;



               (ii) except (A) as provided for in Section 6.1(e), (B) if the Company is involved in a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act, or (C) a merger or
consolidation of the Company or a sale of more than one-half of the assets of the Company in one or
a series of related transactions, unless following such transaction or series of transactions, the
holders of the Company’s securities prior to the first such transaction continue to hold at least
50% of the voting rights and equity interests of the surviving entity or acquirer (clauses (B) and
(C), collectively, the “Excluded Events”), the Common Stock is not listed or quoted, or is
suspended from trading, on an Eligible Market for a period of five Trading Days (which need not be
consecutive Trading Days) during the Effectiveness Period so long as any of the Investors hold any
Common Shares; or



               (iii) after the Registration Statement is filed with and declared effective by the Commission
and prior to the expiration of the Effectiveness Period so long as any of the Investors hold any
Common Shares, such Registration Statement ceases to be effective for 20 Trading Days in a 365 day
period without being succeeded within 15 trading days by an amendment to such Registration
Statement or by a subsequent Registration Statement filed with and declared effective by the
Commission.



          Notwithstanding the foregoing, the Company and each Investor hereby acknowledge that (i) the
Investor’s right to receive Event Payments in cash is subordinate to the Company’s obligations
under the Senior Credit Agreement as in effect on the date hereof, (ii) the Company cannot make any
Event Payments in cash to the Investors pursuant to this Section 6.1(d) without (x) the prior
written consent of the Required Senior Lenders or (y) unless the Company’s obligations under the
Senior Credit Agreement are satisfied.




          (e) Notwithstanding anything in this Agreement to the contrary, after 60 consecutive Trading
Days of continuous effectiveness of the initial Registration Statement filed and declared effective
pursuant to this Agreement, the Company may, by written notice to the




21









 







Investors, suspend sales under a Registration Statement after the Effective Date thereof
and/or require that the Investors immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement if the Company is engaged
in a material merger, acquisition or sale and the Board of Directors determines in good faith, by
appropriate resolutions, that, as a result of such activity, (A) it would be materially detrimental
to the Company (other than as relating solely to the price of the Common Stock) to maintain a
Registration Statement at such time and (B) it is in the best interests of the Company to defer
proceeding with such registration at such time. Upon receipt of such notice, each Investor shall
immediately discontinue any sales of Registrable Securities pursuant to such registration until
such Investor has received copies of a supplemented or amended Prospectus or until such Investor is
advised in writing by the Company that the then-current Prospectus may be used and has received
copies of any additional or supplemental filings that are incorporated or deemed incorporated by
reference in such Prospectus. In no event, however, shall this right be exercised to suspend sales
beyond the period during which (in the good faith determination of the Company’s Board of
Directors) the failure to require such suspension would be materially detrimental to the Company.
The Company’s rights under this Section 6(e) may be exercised for a period of no more than 20 days
at a time and not more than three times in any twelve-month period, without such suspension being
considered as part of an Event Payment determination. Immediately after the end of any suspension
period under this Section 6(e), the Company shall take all necessary actions (including filing any
required supplemental prospectus) to restore the effectiveness of the applicable Registration
Statement and the ability of the Investors to publicly resell their Registrable Securities pursuant
to such effective Registration Statement.




          (f) The Company shall not, from the date hereof until the Effective Date of the Registration
Statement, prepare and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of its equity
securities.




     6.2 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:



          (a) Not less than three Trading Days prior to the filing of a Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to the Investors copies of
all such documents proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Investors. The Company
shall reflect in each such document when so filed with the Commission such comments as the
Investors may reasonably propose. Notwithstanding any other provision of this Agreement, the
Company will have no obligation to deliver or make available to any Investor any Registration
Statement or Prospectus containing any material, nonpublic information unless such Investor
specifically consents in advance to receive such material, nonpublic information in writing and
such Investor has executed an agreement to keep such material, nonpublic information confidential
and refrain from trading in any Company security for so long as such information remains material,
nonpublic information.




          (b) (i) Subject to Section 6.1(e), prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the




22









 







Prospectus used in connection therewith as may be necessary to keep the Registration Statement
continuously effective, as to the applicable Registrable Securities for the Effectiveness Period
and prepare and file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably
possible, and in any event within 15 Trading Days (except to the extent that the Company reasonably
requires additional time to respond to accounting comments), to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto and as promptly as
reasonably possible provide the Investors true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to the disposition of
all Registrable Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Investors thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.




          (c) Notify the Investors as promptly as reasonably possible, and (if requested by the
Investors confirm such notice in writing no later than two Trading Days thereafter, of any of the
following events: (i) any Registration Statement or any post-effective amendment is declared
effective; (ii) the Commission or any other Federal or state governmental authority requests any
amendment or supplement to any Registration Statement or Prospectus or requests additional
information related thereto; (iii) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (iv) the
Company receives notice of any suspension of the qualification or exemption from qualification of
any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any
Proceeding for such purpose; or (v) the financial statements included in any Registration Statement
become ineligible for inclusion therein or any statement made in any Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue
in any material respect or any revision to a Registration Statement, Prospectus or other document
is required so that it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.




          (d) Use its reasonable best efforts to avoid the issuance of or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of any Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, as soon as possible.




          (e) If requested by an Investor, provide such Investor, without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including financial statements and
schedules, and all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such documents with the
Commission.




          (f) Subject to the limitations set forth in Section 6.2(a), promptly deliver to each Investor,
without charge, a reasonable number of copies of the Prospectus or Prospectuses




23









 







(including each form of prospectus) and each amendment or supplement thereto as such Persons
may reasonably request. The Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Investors in connection with the offering
and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement
thereto to the extent permitted by federal and state securities laws and regulations.




          (g) (i) In the time and manner required by each Trading Market, prepare and file with such
Trading Market an additional shares listing application covering all of the Registrable Securities;
(ii) take all steps necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the Investors evidence of such
listing; and (iv) except as a result of the Excluded Events, during the Effectiveness Period,
maintain the listing of such Registrable Securities on each such Trading Market or another Eligible
Market.




          (h) Prior to any public offering of Registrable Securities, use its reasonable best efforts to
register or qualify or cooperate with the selling Investors in connection with the registration or
qualification (or exemption from such registration or qualification) of such Registrable Securities
for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United
States as any Investor requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective for so long as required, but not to exceed the duration of the
Effectiveness Period, and to do any and all other acts or things reasonably necessary or advisable
to enable the disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so subject.




          (i) Cooperate with the Investors to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent permitted by this Agreement
and under law, of all restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Investors may reasonably request.




          (j) Upon the occurrence of any event described in Section 6.2(c)(v), as promptly as reasonably
possible, prepare a supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading.




          (k) Cooperate with any reasonable due diligence investigation undertaken by the Investors in
connection with the sale of Registrable Securities, including, without limitation, by making
available documents and information; provided that the Company will not deliver or




24









 







make available to any Investor material, nonpublic information unless such Investor
specifically requests in advance to receive material, nonpublic information in writing and such
Investor has executed an agreement to keep such material, nonpublic information confidential and
refrain from trading in any Company security for so long as such information remains material,
nonpublic information.




          (l) Comply with all rules and regulations of the Commission applicable to the registration of
the Registrable Securities.



     6.3 Expenses.



          (a) Registration Expenses. The Company shall pay all fees and expenses incident to
the performance of or compliance with Article VI of this Agreement by the Company, including
without limitation (a) all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in connection with applicable
state securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and delivery expenses,
(d) fees and disbursements of counsel for the Company and up to an aggregate of $5,000 for fees and
disbursements of counsel to the Investors, (e) fees and expenses of all other Persons retained by
the Company in connection with the consummation of the transactions contemplated by this Agreement,
and (f) all listing fees to be paid by the Company to the Trading Market.




          (b) Selling Expenses. All underwriting discounts and selling commissions applicable
to the sale of Registrable Securities and the aggregate fees and expenses of legal counsel for all
Investors relating to the sale of securities registered by or on behalf of Investors shall be borne
by such Investors pro rata on the basis of the number of securities so registered.




     6.4 Indemnification.



          (a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Investor, the officers, directors,
partners, members, agents and employees of each of them, each Person who controls any such Investor
(within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, partners, members, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all Losses, as incurred,
arising out of or relating to any untrue or alleged untrue statement of a material fact contained
in the Registration Statement, any Prospectus or any form of Company prospectus or in any amendment
or supplement thereto or in any Company preliminary prospectus, or arising out of or relating to
any omission or alleged omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in the light of the circumstances under which they were made) not misleading, except to
the extent, but only to the extent, that (A) such untrue statements, alleged untrue statements,
omissions or alleged omissions are based solely upon information regarding such Investor furnished
in writing to the Company by such Investor for use therein, or to the extent that such information
relates to such Investor or such Investor’s proposed method of distribution of Registrable
Securities, or (B) in the case of an occurrence of




25









 







an event of the type specified in Section 6.2(c)(iii)-(v), the use by such Investor of an
outdated or defective Prospectus after the Company has notified such Investor in writing that the
Prospectus is outdated or defective and prior to the receipt by such Investor of the Advice
contemplated in Section 6.5. The Company shall notify the Investors promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement. Notwithstanding the foregoing, the Company shall not
be liable to an Investor under this Section 6.4(a) to the extent that Losses giving rise to an
indemnification obligation hereunder are the result of fraud committed by such Investor.




          (b) Indemnification by Investors. Each Investor shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of
the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as determined by a
court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely
out of any untrue statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely
out of any omission of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading to the extent, but only
to the extent, that such untrue statement or omission is contained in any information so furnished
by such Investor to the Company specifically for inclusion in such Registration Statement or such
Prospectus or to the extent that (i) such untrue statements or omissions are based solely upon
information regarding such Investor furnished to the Company by such Investor expressly for use
therein, or to the extent that such information relates to such Investor or such Investor’s
proposed method of distribution of Registrable Securities and was reviewed and expressly approved
by such Investor expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 6.2(c)(iii)-(v), the use by such Investor of an outdated or
defective Prospectus after the Company has notified such Investor in writing that the Prospectus is
outdated or defective and prior to the receipt by such Investor of the Advice contemplated in
Section 6.5. In no event shall the liability of any selling Investor hereunder be greater in
amount than the dollar amount of the net proceeds received by such Investor upon the sale of the
Registrable Securities giving rise to such indemnification obligation, except in the event of fraud
by such Investor and such fraud gave rise in whole or in part to such Losses. Notwithstanding the
foregoing, no Investor shall be liable under this Section 6.4(b) to the extent that Losses giving
rise to such indemnification obligation are the result of fraud committed by the Company.




          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees
and expenses incurred in connection with defense thereof.




26









 








          An Indemnified Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding after prompt notice of such proceeding pursuant to the
preceding paragraph; or (iii) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to immediately exist if
the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have
the right to assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Party). It being understood, however, that the Indemnifying Party shall not, in
connection with any one such Proceeding be liable for the fees and expenses of more than one
separate firm of attorneys at any time for all Indemnified Parties, which firm shall be appointed
by a majority (calculated by reference to the amount originally invested by each Investor) of the
Indemnified Parties if the Company is the Indemnifying Party. The Indemnifying Party shall not be
liable for any settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.




          All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten
Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to indemnification hereunder;
provided, that the Indemnifying Party (i) shall have no obligation to pay such expenses should the
Indemnified Party fail to provide prompt notice of a claim for indemnification under this Section
and (ii) may require an Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).




          (d) Contribution. If a claim for indemnification under Section 6.4(a) or (b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in
connection with the actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge,




27









 







access to information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 6.4(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the indemnification provided
for in this Section was available to such party in accordance with its terms.




          The parties hereto agree that it would not be just and equitable if contribution pursuant to
this Section 6.4(d) were determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 6.4(d), no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds
actually received by such Investor from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Investor has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the
event of fraud by such Investor and such fraud gave rise in whole or in part to such Losses. In
addition, no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.




          The indemnity and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.




     6.5 Dispositions. Each Investor agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement. Each Investor further agrees that,
upon receipt of a notice from the Company of the occurrence of any event of the kind described in
Sections 6.2(c)(iii), (iv) or (v), such Investor will discontinue disposition of such Registrable
Securities under the Registration Statement until such Investor’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by Section 6.2(j), or
until it is advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce
the provisions of this paragraph.



     6.6 No Piggyback on Registrations. Except as disclosed in or contemplated by the SEC
Reports, neither the Company nor any of its security holders (other than the Investors in such
capacity pursuant hereto) may include securities of the Company in the Registration Statement other
than the Registrable Securities, and the Company shall not after the date hereof enter into any
agreement providing any such right to any of its security holders.



     6.7 Piggy-Back Registrations. If at any time during the Effectiveness Period there is
not an effective Registration Statement covering all of the Registrable Securities and the Company
shall determine to prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the



28









 







Securities Act) or their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company shall send to each
Investor written notice of such determination and if, within ten days after receipt of such notice,
any such Investor shall so request in writing, the Company shall include in such registration
statement all or any part of such Registrable Securities such Investor requests to be registered.



     6.8 No Restraint on Registration. The Investors shall have no right to take any
action to restrain, enjoin or otherwise delay any registration pursuant to this Agreement as a
result of any controversy that may arise with respect to the interpretation or implementation of
this Agreement



ARTICLE VII

MISCELLANEOUS




     7.1 Termination. This Agreement may be terminated by the (i) Company, (ii) any
Investor (but only with regards to such Investor), or (iii) a majority (calculated by reference to
the amount to be invested by each Investor) of the Investors, by written notice to the other
parties, if the Closing has not been consummated by the third Business Day following the date of
the Company’s receipt of the final notice of the approval or disapproval by AMEX of the listing of
the Registrable Securities pursuant to the Company’s additional listing application filed pursuant
to Section 6.2(g) above.



     7.2 Fees and Expenses. At the Closing, the Company shall pay to the Investors an
aggregate of $75,000 for legal fees and expenses incurred by the Investors in connection with their
due diligence and the preparation and negotiation of the Transaction Documents. Except as
expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all Transfer Agent fees, DWAC Fees (provided
the Transfer Agent is participating in the Depository Trust Company Fast Automated Securities
Transfer program), stamp taxes and other taxes and duties levied in connection with the sale and
issuance of their applicable Securities.



     7.3 Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules. At or after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction Documents.



     7.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City



29









 







time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any
Trading Day, (c) the Trading Day following the date of deposit with a nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The addresses and facsimile numbers for such notices and communications are those set
forth on the signature pages hereof, or such other address or facsimile number as may be designated
in writing hereafter, in the same manner, by any such Person.



     7.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and each of the
Investors or, in the case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair the exercise of any
such right. Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of Investors under Article
VI may be given by Investors holding at least a majority of the Registrable Securities to which
such waiver or consent relates.



     7.6 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.



     7.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of the
Investors. Any Investor may assign its rights under this Agreement to any Person to whom such
Investor assigns or transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that apply to the
Investors and the assignor shall remain liable for the continued performance of all its obligations
under this Agreement. Notwithstanding anything to the contrary herein, Securities may be assigned
to any Person in connection with a bona fide margin account or other loan or financing arrangement
secured by such Securities.



     7.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except that each Indemnified Party
is an intended third party beneficiary of Section 6.4 and (in each case) may enforce the provisions
of such Sections directly against the parties with obligations thereunder.



     7.9 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE OF
LOUISIANA SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND



30









 







INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH
RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND
AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY
CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY
THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH
PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE
SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW. THE COMPANY AND INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.



     7.10 Survival. The representations and warranties contained herein shall survive the
Closing for a period of one (1) year. All covenants in this Agreement shall survive the Closing
indefinitely (or for such shorter period as may be expressly set forth herein).



     7.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect
as if such facsimile signature page were an original thereof.



     7.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.



     7.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Investor exercises a right, election, demand or option owed to such Investor by the Company
under a Transaction Document and the Company does not timely perform its related obligations within
the periods therein provided (including any applicable cure period), then, prior



31









 







to the performance by the Company of the Company’s related obligation, such Investor may
rescind or withdraw, in its sole discretion from time to time upon written notice to such Seller,
any relevant notice, demand or election in whole or in part without prejudice to its future actions
and rights.



     7.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and
hold harmless the Company for any losses in connection therewith, including a customary and
reasonable bond, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.



     7.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Investors and the Company will be
entitled to seek specific performance under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation (other than in connection with any action for temporary
restraining order) the defense that a remedy at law would be adequate.



     7.16 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or other securities or
rights convertible into, or entitling the holder thereof to receive directly or indirectly shares
of Common Stock), combination or other similar recapitalization or event occurring after the date
hereof (except for dividends which accrue on the Company’s Series B Preferred Stock in accordance
with the Company’s Restated Articles of Incorporation), each reference in any Transaction Document
to a number of shares or a price per share shall be amended to appropriately account for such
event.



     7.17 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under any Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of the obligations of
any other Investor under any Transaction Document. The decision of each Investor to purchase
Securities pursuant to this Agreement has been made by such Investor independently of any other
Investor and independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of the Subsidiary which may have been made
or given by any other Investor or by any agent or employee of any other Investor, and no Investor
or any of its agents or employees shall have any liability to any other Investor (or any other
person) relating to or arising from any such information, materials, statements or opinions.
Nothing contained herein or in any Transaction Document, and no action taken by any Investor
pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption



32









 







that the Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each Investor
acknowledges that no other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no other Investor will be acting as agent of such Investor in
connection with monitoring its investment hereunder. Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the rights arising out
of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any
other Investor to be joined as an additional party in any proceeding for such purpose.



[SIGNATURE PAGES TO FOLLOW]




33









 








          IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first indicated above.




	 	 	 	 	 
	 	 	AKORN, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Name: Jeffrey A. Whitnell
	 	 	Title: Chief Financial Officer






	 	 	 
	 

	 	Address for Notice:
	 

	 	2500 Millbrook Drive
	 

	 	Buffalo Grove, Illinois 60089
	 
	 	 
	 

	 	Facsimile No.: (847) 279-6151
	 

	 	Telephone No.: (847) 279-6123
	 

	 	Attn: Chief Financial Officer
	 
	 	 
	 

	 	With a copy to: Luce, Forward, Hamilton & Scripps LLP
	 

	 	Facsimile: (619) 645-5339
	 

	 	Telephone: (619) 699-2526
	 

	 	Attn: Kurt L. Kicklighter, Esq






 









 





Investor Signature Page



By its execution and delivery of this signature page, the undersigned Investor hereby joins in and
agrees to be bound by the terms and conditions of the Securities Purchase Agreement dated as of
March 1, 2006 (the “Purchase Agreement”) by and among Akorn, Inc. and the Investors (as defined
therein), as to the number of shares of Common Stock and Warrants set forth below, and authorizes
this signature page to be attached to the Purchase Agreement or counterparts thereof.




	 	 	 	 	 	 	 	 	 
	 	 	Name of Investor:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By: 	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	     Name:	 	 
	 	 	     Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Telephone No.:	 	 
	 

	 	 	 	 
	 	 
	 	 	Facsimile No.:	 	 
	 

	 	 	 	 
	 	 
	 	 	Number of Shares:	 	 
	 

	 	 	 	 
	 	 
	 	 	Number of Warrants:	 	 
	 

	 	 	 	 
	 	 
	 	 	Aggregate Purchase Price: $	 	 
	 

	 	 	 	 
	 	 





 









 






	 	 	 
	Exhibits:
	 	 
	 
	A

	 	Schedule of Investors
	B

	 	Instruction Sheet For Investors
	C

	 	Opinion of Company Corporate Counsel
	D

	 	Plan of Distribution
	E

	 	Company Transfer Agent Instructions
	F

	 	Form of Warrant






 









 






Exhibit A




Schedule of Investors




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investor	 	Common Shares	 	Warrants	 	 	Purchase Price	 
	Atlas Master Fund, Ltd.
	 	 	67,892	 	 	 	23,762	 	 	$	305,514.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Visium Balanced Fund, LP
	 	 	140,257	 	 	 	49,090	 	 	$	631,156.50	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Visium Long Bias Offshore
Fund, LTD
	 	 	115,418	 	 	 	40,396	 	 	$	519,381.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Visium Long Bias Fund, LP
	 	 	21,452	 	 	 	7,508	 	 	$	96,534.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Visium Balanced Offshore
Fund, LTD
	 	 	154,981	 	 	 	54,244	 	 	$	697,414.50	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Capital Ventures
International
	 	 	225,000	 	 	 	78,750	 	 	$	1,012,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Jennison Health Sciences
Fund
	 	 	975,000	 	 	 	341,250	 	 	$	4,387,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Pacific Select Fund,
Health Sciences Portfolio
	 	 	145,000	 	 	 	50,750	 	 	$	652,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	LB I Group Inc.
	 	 	666,667	 	 	 	233,334	 	 	$	3,000,001.50	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Merlin Biomed Round Table
Fund, LP
	 	 	11,000	 	 	 	3,850	 	 	$	49,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Merlin Biomed II, LP
	 	 	45,000	 	 	 	15,750	 	 	$	202,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Merlin Biomed, LP
	 	 	155,000	 	 	 	54,250	 	 	$	697,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Merlin Biomed
International Limited
	 	 	189,000	 	 	 	66,150	 	 	$	850,500.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Nite Capital, L.P.
	 	 	222,223	 	 	 	77,779	 	 	$	1,000,003.50	 







 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investor	 	Common Shares	 	Warrants	 	 	Purchase Price	 
	UBS O’Connor LLC

	 	 	222,223	 	 	 	77,779	 	 	$	1,000,003.50	 
	FBO O’Connor

PIPES Corporate

Strategies Master Ltd.
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	H&Q Healthcare Investors
	 	 	577,778	 	 	 	202,223	 	 	$	2,600,001.00	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	H&Q Life
Sciences Investors
	 	 	311,111	 	 	 	108,889	 	 	$	1,399,999.50	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Broadfin Healthcare
Fund, LP
	 	 	66,667	 	 	 	23,334	 	 	$	300,001.50	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL
	 	 	4,311,669	 	 	 	1,509,088	 	 	$	19,402,510.50	 
	 
	 	 	 	 	 	 	 	 	 	 







 









 





Exhibit B




INSTRUCTION SHEET FOR INVESTOR




(to be read in conjunction with the entire Securities Purchase Agreement)



A. Complete the following items in the Securities Purchase Agreement:





	 	1.	 	Complete and execute the Investor Signature Page. The Agreement must be
executed by an individual authorized to bind the Investor.






	 	2.	 	Exhibit B-1 — Stock Certificate Questionnaire:






Provide the information requested by the Stock Certificate Questionnaire;




	 	3.	 	Exhibit B-2 — Registration Statement Questionnaire:






Provide the information requested by the Registration Statement Questionnaire.




	 	4.	 	Exhibit B-3 — Investor Certificate:






Provide the information requested by the Certificate for Corporate, Partnership, Trust,
Foundation and Joint Investors (B-3).




	 	5.	 	Return, via facsimile, the signed Securities Purchase Agreement including the
properly completed Exhibits B-1 through B-3, to:




Luce, Forward, Hamilton & Scripps LLP

Del Mar Gateway

11988 El Camino Real, Suite 200

San Diego, CA 92130-2592

Facsimile: (858) 523-4309

Telephone: (858) 720-6334

Attn: Jason A. Femrite





	 	6.	 	After completing instruction number five (5) above, deliver the original signed
Securities Purchase Agreement including the properly completed Exhibits B-1 through
B-3 to:




Luce, Forward, Hamilton & Scripps LLP

Del Mar Gateway

11988 El Camino Real, Suite 200

San Diego, CA 92130-2592

Facsimile: (858) 523-4309

Telephone: (858) 720-6334

Attn: Jason A. Femrite




 









 







B. Instructions regarding the transfer of funds for the purchase of Shares and Warrants will be
telecopied to the Investor by the Company at a later date.



C. Upon the resale of any Shares by the Investor after the Registration Statement covering any
Shares is effective, as described in the Purchase Agreement, the Investor:





	 	(i)	 	must deliver a current prospectus, and annual and quarterly reports of the
Company to the buyer (prospectuses, and annual and quarterly reports may be obtained
from the Company at the Investor’s request); and
	 
	 	(ii)	 	must send a letter in the form of Exhibit D to the Company and the Company’s
transfer agent so that the Shares may be properly transferred.





 









 





Exhibit B-1




AKORN, INC.




STOCK CERTIFICATE QUESTIONNAIRE




               Please provide us with the following information:



	 	 	 
	1. The exact name that the Securities are to be registered in (this is
the name that will appear on the stock certificate(s)). You may use a
nominee name if appropriate:
	 	 
	 

	 	 
	 
	 	 
	2. The relationship between the Investor of the Securities and the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 
	 
	 	 
	3. The mailing address, telephone and telecopy number of the
Registered Holder listed in response to item 1 above:
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	4. The Tax Identification Number of the Registered Holder listed in
response to item 1 above:
	 	 
	 

	 	 





 









 





Exhibit B-2




AKORN, INC.




REGISTRATION STATEMENT QUESTIONNAIRE




          The attached questionnaire requests information to be used to prepare a Registration
Statement on Form S-3 (the “Registration Statement”) to be filed with the Securities and Exchange
Commission in connection with a proposed public offering of common stock of Akorn, Inc. (the
“Company”). The questionnaire is being distributed to each person who holds or has rights to
securities being registered pursuant to the Registration Statement.




          The italicized terms in the questionnaire are defined in the Appendix to the questionnaire.
These definitions are important in assisting you to complete the questionnaire properly.




          Due to the compressed timeline required to file the Registration Statement, to be named as a
selling securityholder in the prospectus, beneficial owners shall complete and deliver the
questionnaire by no later than March 3, 2006. Beneficial owners that do not complete the
questionnaire and deliver it to the Company by such date may be delayed in being named as selling
securityholders in the prospectus and may not be permitted to sell any registrable securities
pursuant to the Registration Statement until they are named as selling securityholder.




          The information you supply in response to the questionnaire will be used to assure that
certain data to be included in the Registration Statement will be correct. Please exercise great
care in completing the questionnaire. Under certain circumstances, selling security holders are
subject to personal liability if the Registration Statement misrepresents a material fact or omits
a material fact. Your best defense, if the Registration Statement is defective, is that you
exercised due diligence as to the accuracy of the Registration Statement. Certain legal
consequences arise from being named as a selling securityholder in the Registration Statement and
the related prospectus.




          All questions should be answered. If the answer to any question is “0” or “no” or “none,”
please so state. Should you fail to provide any answer, we will assume such answer is negative.
Unless a question otherwise states, answers should be given as of the date you complete the
questionnaire.




 









 





QUESTIONNAIRE




          The undersigned beneficial owner (the “Selling Securityholder” or “you”) of registrable
securities hereby gives notice to the Company of its intention to sell or otherwise dispose of
registrable securities beneficially owned by it and listed below in Question 3 pursuant to the
Registration Statement.




          If the Selling Securityholder transfers all or any portion of the registrable securities
listed in Question 3 after the date on which such information is provided to the Company, the
Selling Securityholder agrees to notify the Company at the time of the transfer.




          If the Selling Securityholder receives any information from the Company regarding the
Registration Statement or the related prospectus, including copies and drafts thereof, the Selling
Securityholder acknowledges that such material may contain material non-public information. The
Selling Securityholder understands that the Company shall request the Selling Securityholder’s
prior written consent to provide such information, including copies and drafts of the Registration
Statement and the related prospectus, and that the Company shall be under no obligation to provide
such information to the Selling Securityholder unless such Selling Securityholder agrees to (i)
receive such information and (ii) refrain from trading in any Company security for so long as such
information remains material, nonpublic information. The Selling Securityholder accepts that,
should the Selling Securityholder agree to receive such information, Selling Securityholder waives
any obligations, representations or covenants of the Company which would prevent it, or any of its
respective officers, directors, employees and agents, from providing Selling Securityholder with
any material, nonpublic information regarding the Company.




          The undersigned hereby provides the following information to the Company and represents and
warrants that such information is accurate and complete:




	 	 	 	 	 	 	 
	 

	 	 	1.	 	 	(a) Full name of the Selling Securityholder exactly as it should appear in the
Registration Statement:
	 
	 	 	 	 	 	 
	 	 	 






	 	(b)	 	Full legal name of registered holder (if not the same as (a) above) through
which registrable securities listed in Question 3 below are held:





	 	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	2.	 	 	Address for notices to Selling Securityholder:
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 





	 	 	 	 	 
	 

	 	Telephone:	 	 
	 

	 	 

	 

	 	Fax:	 	 
	 

	 	 

	 

	 	Contact Person:	 	 
	 

	 	 






 









 





	 	 	 	 	 
	3.	 	Beneficial ownership of registrable securities [Source: Form S-3 Item 7; Reg. S-K Item 507]:
	 
	 	 	 	 
	 

	 	(a)
	 	Type and principal amount of registrable securities beneficially owned:
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	4.	 	(a)Identify the person or persons (a person may be an entity) who has voting
and/or investment control over the Selling Securityholder. In this context, a person
who has “voting control” includes a person who has or shares the power to vote, or
direct the voting of, securities issued by the Selling Securityholder. A person who has
“investment control” includes a person who has or shares the power to dispose, or
direct the disposition of, securities issued by the Selling Securityholder. In some
cases, the appropriate response may be that no person has voting and/or investment
control over the Selling Securityholder, in which case, please respond to (c) below.
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	(b)
	 	If the person identified above does not file periodic reports
with the SEC, identify the natural person with voting and/or investment control
over such person identified above.
	 
	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 

	 	(c)
	 	If there is no person or persons (a person may be an entity) who has voting
and/or investment control over the Selling Securityholder, indicate whether
there is a committee or board of directors that holds the voting and/or
investment control over the Selling Securityholder, and name the natural
persons that comprise such committee or board.
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	 





	 	 	 	 	 
	5.

	 	(a)
	 	Is the Selling Securityholder a registered broker-dealer?
	 
	 	 	 	 
	 	 	                     Yes                                No
	 
	 	 	 	 
	 

	 	(b)
	 	Is the Selling Securityholder directly or indirectly an affiliate or
associate of any member firm of the National Association of Securities Dealers,
Inc. (the “NASD”)?
	 
	 	 	 	 
	 	 	                     Yes                                No
	 
	 	 	 	 
	 	 	If “Yes,” identify the affiliated registered broker-dealer.






 









 






	 	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	(c)
	 	Have you made any subordinated loan to any member firm of the NASD?
	 
	 	 	 	 
	 	 	Yes                               No                    
	 
	 	 	 	 
	                    If the answer is “Yes,” please set forth the details of such loan, including the
original amount(s), date(s), interest rate(s), other material terms, and amount(s)
outstanding as of March 1, 2006.

	 
	 	 	 	 
	 

	 	(d)
	 	Are you aware of any holder of securities of the Company or any subsidiary,
other than the officers and directors of the Company, who is, or directly or
indirectly is an affiliate or associate of, a member firm of the NASD?
	 
	 	 	 	 
	 	 	Yes                               No                    






                    If the answer is “Yes,” please set forth below the name of such person, the number and
class of securities held, the date such securities were acquired, the price paid, and the
nature of the affiliation or association (all to the extent known to you).





	6.	 	Please list the number of shares of Common Stock of the Company beneficially
owned, directly or indirectly, as of March 1, 2006, by the persons named below (other
than any shares which the persons named below have the right to acquire through the
exercise of any option, warrant, or other right or the conversion of a security).
Please note that the answers stated below should include the shares listed in Question
4. [Source: Form S-3 Item 7; Reg. S-K Item 507].





	 	 	 
	Person	 	Number of Shares Beneficially Owned
	Selling Securityholder
	 	 
	 

	 	 
	 
	 	 
	Selling Securityholder’s spouse*
	 	 
	 

	 	 
	 
	 	 
	Selling Securityholder’s minor children*
	 	 
	 

	 	 
	 
	 	 
	Any other relative of Selling
Securityholder or of Selling
Securityholder’s spouse who shares
Selling Securityholder’s home (naming
each such relative)*
	 	 
	 

	 	 
	 
	 	 
	Any other associate of Selling Securityholder (naming each such associate)
	 	 
	 

	 	 





 



* Please refer to the definition of beneficial ownership in the Appendix regarding the views of
the Securities and Exchange Commission and some courts with respect to securities held by family
members.




 









 









	 	7.	 	Please list below the indicated information concerning any option, warrant, or other
right to acquire, or any security convertible into, shares of Common Stock of the
Company, or of any subsidiary of the Company, or any stock appreciation or similar
right, beneficially owned, directly or indirectly, as of March 1, 2006, by each
person listed in Question 6. Please list each option, warrant, right, or
convertible security separately. [Source: Form S-3 Item 7; Reg. S-K Item 507].





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Description	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	of Option,	 	 	Number of Shares	 	 	 	 	 	 	 	 	 	 
	 	 	Warrant,	 	 	which may be	 	 	 	 	 	 	 	 	 	 
	 	 	Right, or	 	 	Acquired on	 	 	Exercise or	 	 	Date First	 	 	 	 
	 	 	Convertible	 	 	Exercise or	 	 	Conversion	 	 	Exercisable or	 	 	Termination	 
	Person	 	Security	 	 	Conversion	 	 	Price	 	 	Convertible	 	 	Date	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






	 	8.	 	Was any security included in answer to Question 6 or 7 because the beneficial owner
had the right to acquire beneficial ownership pursuant to the power to revoke, or the
automatic termination of, a trust, discretionary account, or similar arrangement?






Yes                                No                    



               If the answer is “Yes,” please set forth the affected number of securities and the details
concerning the right to acquire beneficial ownership, including exact dates when the right first
comes into existence and number of shares as to which the right relates. [Source: Form S-3 Item 7;
Reg. S-K Item 507].




	 	9.	 	Do you know of any person or entity other than such persons or entities listed
in the Company’s Proxy Statement for the 2005 Annual Meeting of Shareholders, which
owns beneficially (including by virtue of any right to acquire securities) more than 5%
of the shares of the outstanding Common Stock of the Company?






Yes                                No                    



               If the answer is “Yes,” please state the name of such person or entity, identify the class of
voting security, state the number of shares beneficially owned, and provide details concerning any
right to acquire beneficial ownership. When two or more persons act as a partnership, limited
partnership,



 









 




syndicate, or other group for the purpose of acquiring, holding, or disposing of securities of
the Company, such partnership, syndicate, or group must be considered as one “person.”
[Source: Form S-3 Item 7; Reg. S-K Item 507].





	10.	 	As to the securities indicated as being beneficially owned in answer to Question 6,
7, 8, or 9, does any person other than the person identified as the beneficial owner
have






	 	(a)	 	the sole or shared power to vote or to direct the vote of any of such securities?
	 
	 	 	 	Yes                                No                    





or





	 	(b)	 	the sole or shared power to dispose or to direct the disposition of any of such
securities?
	 
	 	 	 	Yes                                No                    





               If the answer is “Yes” to either of the foregoing questions, please set forth below the name
and address of each person who has either such power or with whom the indicated beneficial owner
shares either such power, together with the number of shares to which such right relates. [Source:
Form S-3 Item 7; Reg. S-K Item 507].




	 	11.	 	Except as set forth below, neither the Selling Securityholder nor any of its
affiliates, officers, directors or principal equity holders (owners of 5% of more of
the equity securities of the Selling Securityholder) now has, proposes to have, or has
held any position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years. [Source: Form S-3
Item 7; Reg. S-K Item 507].
	 
	 	 	 	State any exceptions here:





      




      





	 	12.	 	Except as set forth below, when distributed pursuant to the Registration
Statement, the Selling Securityholder (including its donees or pledgees) intends to
distribute its registrable securities listed above in Question 3 only as follows (if at
all): (1)·On any national securities exchange or quotation service at which our Common
Stock may be listed or quoted at the time of sale; (2) In the over-the-counter market;
(3) In private transactions; (4) Through options; (5) By pledge to secure debts and
other obligations; (6) In ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchases; (7) In block trades in which the broker-dealer will
attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; (8) Through purchases by a broker-dealer as
principal and resale by the




 









 






	 	 	 	broker-dealer for its account; (9) In settlement of short sales; (10)Through the
sale of a specified number of shares at a stipulated price per share by agreement
between broker-dealers and the selling shareholders; (11) or a combination of any of
the above methods. [Source: Form S-3 Item 8; Reg. S-K Item 508].
	 
	 	 	 	State any exceptions here:





      




      





	 	13.	 	Do you intend to sell any shares of Common Stock pursuant to a registration
statement other than the Registration Statement to which this questionnaire relates?
	 
	 	 	 	Yes                               No                    






If the answer is “Yes,” please state the number of shares of Common Stock, the expected
manner of sale, and the estimated date of the sale.




	 	14.	 	Did you pay any premium on any insurance policy obtained in connection with the
proposed offering which insures or indemnifies directors or officers of the Company
against any liability they may incur in connection with the registration, offering, or
sale of the Common Stock to be registered?
	 
	 	 	 	Yes                               No                    






If the answer is “Yes,” please state the premium paid. [Source: Form S-3 Item 14; Reg. S-K
Item 5011 Instr.].



 









 





THE REMAINING QUESTIONS NEED ONLY BE ANSWERED IF YOU BELIEVE YOU

MAY BENEFICIALLY OWN 5% OR MORE OF THE COMPANY’S SHARES OF COMMON

STOCK. IF YOU DO NOT NEED TO ANSWER THE FOLLOWING QUESTIONS, PLEASE

TURN TO THE FINAL PAGE OF THIS QUESTIONNAIRE.





	 	15.	 	Please describe any transaction since January 1, 2003, or any proposed transaction
to which the Company or any subsidiary was, is, or is to be a party and in which





               (a) you,



               (b) any immediate family member, or



               (c) any firm, corporation, or other entity in which you or any immediate family member had,
have, or will have a position or relationship


had, have, or will have any direct or indirect interest, and indicate the nature and amount of such
interest and the amount of such transaction.




               This question applies to any transaction with the Company or any subsidiary, whether or not in
the ordinary course of business, other than transactions which arise solely out of a person’s
status with respect to the Company or to a subsidiary and such person receives no extra or special
benefit (e.g., dividends in the case of a stockholder or salaries or stock options in the case of a
director, officer, or employee). [Source: Form S-3 Item 7; Reg. S-K Item 507].




	 	16.	 	Do you know of any arrangement whereby more than 5% of the shares of the
outstanding Common Stock of the Company is held or is to be held subject to any voting
trust or similar agreement?
	 
	 	 	 	Yes                                No                     
	 




If the answer is “Yes,” please describe such arrangement.

 









 




The answers I have supplied to the questions in this questionnaire are true, complete, and correct
to the best of my knowledge after reasonable inquiry. I will promptly notify Jeffrey A. Whitnell,
the Company’s Chief Financial Officer, if any event of which I become aware should occur between
now and the termination of the distribution of securities pursuant to the proposed public offering
that would cause the answer to any question to change or cause the Registration Statement to
contain a misrepresentation or omission of a material fact.



By signing below, the undersigned consents to the disclosure of the information contained herein,
and in any corrected, amended or supplemental responses thereto, and the inclusion of such
information in the Registration Statement and the related prospectus. The undersigned understands
that such information will be relied upon by the Company in connection with the preparation or
amendment of the Registration Statement and the related prospectus.



By signing below, the undersigned acknowledges and agrees to maintain any information it
receives from the Company relating to the Registration Statement or the related prospectus, or any
amendment or supplement thereto, including drafts and copies thereof, confidential, and that it
will not trade in the Company’s common stock based upon such information between the date any
information it receives from the Company relating to the Registration Statement or the related
prospectus, or any amendment or supplement thereto, including drafts and copies thereof, is
provided to it and 72 hours after the date the Registration Statement or the applicable amendment
or supplement thereto is filed with the SEC.




	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 

	 	 

	 	 

	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	Its:
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 





PLEASE RETURN THE COMPLETED AND EXECUTED QUESTIONNAIRE TO:




Akorn, Inc.

2500 Millbrook Drive

Buffalo Grove, IL 60089

Attention: CFO

Fax: 847.279.6123

Email: jeff.whitnell@akorn.com




with a copy to:




Luce, Forward, Hamilton & Scripps LLP

600 West Broadway, Suite 2600

San Diego, CA 92101

Attention: Edwin Astudillo

Fax: 619.645.5397

Email: eastudillo@luce.com




 









 





APPENDIX



Affiliate–An “affiliate” of a specified person is a person that directly, or through one or more
intermediaries, controls, or is controlled by, or is under common control with, the person
specified.



Associate–The term “associate” means (1) any corporation or organization (except the Company and
subsidiaries) of which you are an officer or partner, or of which you are, directly or indirectly,
the owner beneficially of 10% or more of any class of equity securities, (2) any trust or other
estate in which you have a beneficial interest or as to which you serve as trustee or in a similar
fiduciary capacity, or (3) your spouse, or any relative of yours or of your spouse who shares your
home or who is a director or officer of the Company or of any subsidiary.



Beneficially–The term “beneficially” as applied to an interest in securities describes any interest
in the securities in question which entitles you to any of the rights or benefits of ownership,
even though you are not the holder or owner of record. Interests in securities held in an estate,
trust, or partnership, or by a nominee, are examples of beneficial interests.



If you have any contract, understanding, relationship, agreement, or other arrangement with any
other person with respect to securities, pursuant to which you obtain benefits substantially
equivalent to the ownership of securities, you should consider such securities as “beneficially
owned” by you. For purposes of this questionnaire, you will be regarded as having benefits
substantially equivalent to ownership of securities if:




     (a) directly or indirectly, through any contract, arrangement, understanding, relationship, or
otherwise you have or share: (i) voting power, which includes the power to vote, or to direct the
voting of, the security; or (ii)investment power, which includes the power to dispose of, or to
direct the disposition of, the security; or



     (b) you have the right to acquire beneficial ownership of the security, including but not
limited to any right to acquire: (i) through the exercise of any option, warrant, or right; (ii)
through the conversion of a security; (iii) pursuant to a power to revoke a trust, discretionary
account, or similar arrangement; or (iv) pursuant to the automatic termination of a trust,
discretionary account, or similar arrangement; or



     (c) you can apply income from securities to meet expenses which you otherwise would meet from
other sources.


You are also considered to be the beneficial owner of a security if you, directly or indirectly,
create or use a trust, proxy, power of attorney, pooling arrangement, or any other contract,
arrangement, or device with the purpose or effect of divesting yourself of beneficial ownership of
such security or preventing the vesting of such beneficial ownership as part of a plan or scheme to
evade the reporting requirements pf Section 13(d) or 13(g) of the Securities Exchange Act. If you
have any reason to believe that any interest you have in securities, however remote, might be
described as a beneficial interest, please describe such interest.



The Securities and Exchange Commission has taken the view, with which some courts have agreed, that
a person may be regarded as the beneficial owner of securities held in the name of the person’s
spouse, minor children, or other relatives of the person or the person’s spouse who share the
person’s home, if such relationship results in such person obtaining benefits substantially
equivalent to ownership of such securities. We will assume, however, that you do not consider that
you beneficially own any securities you list in answer to Questions 1, 2, and 3 as being owned by
such persons. If you do consider that you are the beneficial owner of such securities, please list
them as being owned by both you and such other person, and indicate that such securities are listed
more than once.



Immediate Family Member–The term “immediate family member” includes your spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and
sisters-in-law.



Subsidiary–The term “subsidiary” includes: Akorn (New Jersey), Inc.




 









 





Exhibit B-3




AKORN, INC.




CERTIFICATE FOR CORPORATE, PARTNERSHIP,

TRUST, FOUNDATION AND JOINT INVESTORS




          If the investor is a corporation, partnership, trust, pension plan, foundation, joint Investor
(other than a married couple) or other entity, an authorized officer, partner, or trustee must
complete, date and sign this Certificate.




CERTIFICATE




          The undersigned certifies that the representations and responses below are true and accurate:




          (a) The investor has been duly formed and is validly existing and has full power and authority
to invest in the Company. The person signing on behalf of the undersigned has the authority to
execute and deliver the Securities Purchase Agreement on behalf of the Investor and to take other
actions with respect thereto.




          (b) Indicate the form of entity of the undersigned:




               ___ Limited Partnership



               ___ General Partnership



               ___ Corporation



          ___ Revocable Trust (identify each grantor and indicate under what circumstances the trust is
revocable by the grantor):



 




 





 





 





(Continue on a separate piece of paper, if necessary.)




          ___ Other type of Trust (indicate type of trust and, for trusts other than pension trusts,
name the grantors and beneficiaries):


 





 





 





 





(Continue on a separate piece of paper, if necessary.)




          ___ Other form of organization (indicate form of organization (___).




          (c) Indicate the approximate date the undersigned entity was formed: ___.




 









 








          (d) In order for the Company to offer and sell the Units in conformance with state and federal
securities laws, the following information must be obtained regarding your investor status. Please
initial each category applicable to you as an investor in the Company.




	 	 	 	 	 
	 

	 	___
	 	1. A bank as defined in Section 3(a)(2) of the Securities Act, or any savings
and loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity;
	 
	 	 	 	 
	 

	 	___
	 	2. A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;
	 
	 	 	 	 
	 

	 	___
	 	3. An insurance company as defined in Section 2(13) of the Securities Act;
	 
	 	 	 	 
	 

	 	___
	 	4. An investment company registered under the Investment Company Act of 1940 or
a business development company as defined in Section 2(a)(48) of that Act;
	 
	 	 	 	 
	 

	 	___
	 	5. A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act of
1958;
	 
	 	 	 	 
	 

	 	___
	 	6. A plan established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivisions, for the benefit
of its employees, if such plan has total assets in excess of $5,000,000;
	 
	 	 	 	 
	 

	 	___
	 	7. An employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
	 
	 	 	 	 
	 

	 	___
	 	8. A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;
	 
	 	 	 	 
	 

	 	___
	 	9. An organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed for
the specific purpose of acquiring the Shares, with total assets in excess of
$5,000,000;
	 
	 	 	 	 
	 

	 	___
	 	10. A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of the Exchange Act;
	 
	 	 	 	 
	 

	 	___
	 	11. An entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list the
equity owners of the undersigned, and the investor category which each such






 









 






	 	 	 	 	 
	 

	 	 	 	equity owner satisfies:
	 

	 	 	 	 

	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	(Continue on a separate piece of paper, if necessary.)






               Please set forth in the space provided below the (i) states, if any, in the U.S. in which you
maintained your principal office during the past two years and the dates during which you
maintained your office in each state, (ii) state(s), if any, in which you are incorporated or
otherwise organized and (iii) state(s), if any, in which you pay income taxes.



 





 





 





Dated: ___________________________________________________________, 2006




	 	 	 
	 

Name of investor

	 	 
	 
	 	 
	 

Signature and title of authorized officer, partner or trustee

	 	 






 









 






Exhibit C




OPINION OF COMPANY CORPORATE COUNSEL




 









 








Exhibit C-1




FORM OF LUCE FORWARD OPINION




 









 








DRAFT





THE FOLLOWING IS A DISCUSSION DRAFT OF AN OPINION BEING CONSIDERED FOR ISSUANCE
BY LUCE, FORWARD, HAMILTON & SCRIPPS LLP. ISSUANCE OF ANY FINAL OPINION IS SUBJECT
TO: (A) SATISFACTION OF ALL NECESSARY TRANSACTION CONDITIONS; (B) SATISFACTORY
COMPLETION OF ALL NECESSARY DUE DILIGENCE INQUIRIES; (C) REVIEW OF FINAL DRAFTS OF
DOCUMENTS OPINED UPON; (D) CONSENT BY THE FIRM’S CLIENT; AND (E) REVIEW AND FORMAL
APPROVAL OF THE FINAL OPINION BY AUTHORIZED MEMBERS OF THE FIRM. THIS DRAFT HAS
NOT BEEN APPROVED FOR ISSUANCE AS A FINAL OPINION.



March ____, 2006




To the Investors (as defined in the Securities Purchase Agreement (as defined below))

c/o Banc of America Securities LLC

9 West 57th Street

New York, NY 10019




Banc of America Securities LLC

9 West 57th Street

New York, NY 10019




     Re: Offering of Common Stock and Warrants of Akorn, Inc.



Ladies and Gentlemen:



We have acted as counsel to Akorn, Inc., a Louisiana corporation (“Akorn”), and special counsel to
Akorn (New Jersey), Inc., an Illinois corporation (“Akorn-NJ” and together with Akorn, the
“Companies”), for the purpose of rendering certain opinions, set forth herein, in connection with
the offering (the “Offering”) by Akorn in a private placement to certain accredited investors
(each, an “Investor”) of an aggregate of (i) 4,311,669 shares of Akorn’s common stock, no par value
(“Common Stock”), and (ii) warrants to purchase shares of Akorn’s Common Stock (“Warrants”). Akorn
has engaged Banc of America Securities LLC (the “Placement Agent”) as placement agent for the
Offering on a “best efforts” basis. This opinion letter is being delivered pursuant to Section 2.2
(iii) of the Securities Purchase Agreement (as defined below).



We understand that in this transaction, and in the review and acceptance of this opinion letter,
you are represented by independent counsel of your choosing with expertise in the relevant subject
matter.





	1.	 	Factual Examination.






	 	1.1	 	Documents




 









 











          (a) Transaction Documents. In connection with this opinion, we have examined and
relied upon copies of the following documents (collectively, the “Transaction Documents”):




               (i) Securities Purchase Agreement dated March 1, 2006 executed by Akorn and each Investor (the
“Securities Purchase Agreement”);



               (ii) Form of Warrant to be executed by Akorn with respect to each Investor (the “Warrant”);
and



               (iii) Placement Agent Letter dated February 1, 2006 executed by Akorn and the Placement Agent
(the “Placement Agent Letter”).



          (b) Company Documents. In connection with this opinion we have also examined and
relied upon the following documents (collectively, the “Company Documents”):



               (i) Restated Articles of Incorporation of Akorn as certified by the Louisiana Secretary of
State as of February 21, 2006 (“Akorn Articles”);



               (ii) Articles of Incorporation of Akorn-NJ, certified by the Illinois Secretary of State as of
February 21, 2006 (“Akorn-NJ Articles”);



               (iii) Amended and Restated Bylaws of Akorn, as certified by the Secretary of Akorn (“Akorn
Bylaws”);



               (iv) Bylaws of Akorn-NJ, as certified by the Secretary of Akorn-NJ (“Akorn-NJ Bylaws”);



               (v) Certificate of Good Standing from the Louisiana Secretary of State for Akorn dated
February 21, 2006;



               (vi) Certificate of Good Standing from the Illinois Secretary of State for Akorn-NJ dated
February 21, 2006;



               (vii) Certificate of Good Standing from the Illinois Secretary of State for Akorn dated
February 21, 2006;



               (viii) Short Form Standing Certificate from the Treasurer of New Jersey for Akorn-NJ dated
February 22, 2006;



               (ix) Certificate of Officers of Akorn dated March ___, 2006 (“Akorn Officers’ Certificate”);



               (x) Certificate of Officers of Akorn-NJ dated March ___, 2006 (“Akorn-NJ Officers’
Certificate” and together with the Akorn Officers’ Certificate, the “Officers’ Certificates”);



 









 





               (xi) Certificate of Secretary of Akorn dated March ___, 2006 (“Akorn Secretary’s
Certificate”);



               (xii) Certificate of Secretary of Akorn-NJ dated March ___, 2006 (“Akorn-NJ Secretary’s
Certificate” and together with the Akorn Secretary’s Certificate, the “Secretaries’ Certificates”);



               (xiii) Resolutions of the Board of Directors of Akorn dated February 28, 2006, as certified by
the Secretary of Akorn;



               (xiv) the Stock Ledger of Akorn-NJ, as certified by the Secretary of Akorn-NJ (the “Stock
Ledger”); and



               (xv) Akorn’s Annual Report on Form 10-K for the period ended December 31, 2004, filed on March
31, 2005 (“Form 10-K”), and Akorn’s Quarterly Report on Form 10-Q for the period ended September
30, 2005, filed on November 7, 2005 (“Form 10-Q”), with the Securities and Exchange Commission (the
“SEC”).




	 	1.2	 	Scope of Inquiry; Certain Assumptions.





          (a) For purposes of this opinion, we have examined only the Transaction Documents and the
Company Documents. We have assumed the correctness of all factual matters set forth therein. We
have not conducted any: (i) investigation or examination of factual matters; (ii) investigation or
examination of the title to, or nature or extent of, any real or personal property, or inspection
of any such property; or (iii) docket or other search of the records of any court, administrative
tribunal, recording or filing office, or other public entity.




          (b) In rendering this opinion, we have assumed: (i) the genuineness of all signatures (if any)
on all documents reviewed by us; (ii) that the Transaction Documents have been executed by Akorn
and delivered by Akorn to the Placement Agent and/or Investors, as applicable; (iii) that the
Transaction Documents have been or will be duly authorized, executed, and delivered by and on
behalf of all the parties thereto and will be the legal, valid and binding obligations of all the
parties (other than Akorn) once executed and delivered; (iv) the conformity to authentic original
documents of all documents submitted to us as copies; (v) that the copies of the Transaction
Documents and the Company Documents provided to us are complete and correct copies which conform to
authentic original documents, and contain the entire agreement of the parties thereto, that there
are no other documents or oral agreements or other circumstances that would in any way alter the
provisions of the Transaction Documents and/or the Company Documents, and that there has not been
any mutual mistake of fact or misunderstanding, fraud, duress or undue influence with respect
thereto; (vi) that each natural person executing or who has executed the Transaction Documents or
the Company Documents is or was competent to do so; (vii) that receipt of a facsimile copy or other
electronic or physical copy of Akorn’s signature pages to the Transaction Documents which contain
the signature of Akorn’s respective authorized officers shall constitute due execution of the
Transaction Documents; (viii) that the act of faxing copies of Akorn’s duly executed signature
pages to the Transaction Documents to the Investor’s independent counsel shall constitute delivery
of the Transaction Documents; (ix) the accuracy, completeness and authenticity of all certificates
on




 









 







which we have relied, and that any such certificates dated as of an earlier date are still accurate
as of the date hereof; (x) that Akorn has filed all required franchise tax returns, if any, and
paid all required taxes, if any, under the applicable statutes and under any other applicable
governmental rule; (xi) all statutes, judicial and administrative decisions, and rules and
regulations of governmental agencies constituting the laws which are the subject of this opinion
letter, as set forth in Section 4, are generally available (i.e., in terms of access and
distribution following publication or other release) to lawyers practicing in the State of
California, and are in a format that makes legal research reasonably feasible; (xii) the
constitutionality or validity of a relevant statute, rule, regulation or agency action is not in
issue unless a reported decision in the jurisdiction(s) whose laws are the subject of this opinion
letter, as set forth in Section 4, has specifically addressed but not resolved, or has established,
its unconstitutionality or invalidity; (xiii) Akorn will obtain all permits and governmental
approvals required in the future, and take all actions similarly required, relevant to the
performance of the Transaction Documents; and (xiv) all parties to the Transaction Documents will
act in accordance with, and will refrain from taking action that is forbidden by, the terms and
conditions of the Transaction Documents.




          (e) In rendering the opinions set forth in Paragraphs 2.1 and 2.2, we have relied exclusively
with your permission upon the Officers’ Certificate and certificates referred to in Sections
1.1(b)(v-viii).




          (f) We have also assumed: (i) that the Placement Agent and the Investors (collectively, the
“Other Parties”), if applicable, are duly formed, validly existing and in good standing under the
laws of the jurisdiction of its formation; (ii) that each of the Other Parties is fully authorized
and qualified under its charter, organizational documents and all applicable laws and regulations
of the jurisdiction of its formation to transact business generally and to purchase stock and enter
into transactions of the nature provided for in the Transaction Documents; (iii) if required by
California law or the law of any other jurisdiction because of its connection to this transaction,
that each of the Other Parties is properly qualified to do business within the State of California
and each such other jurisdiction; (iv) that each of the Other Parties has the organizational power
and authority to execute, deliver and carry out the terms of the Transaction Documents and has duly
and validly authorized the execution, delivery and performance by it of the Transaction Documents
to which each of the Other Parties is a party; (v) that the execution, delivery and performance of
the Transaction Documents by each of the Other Parties will not violate any law, rule, regulation,
writ or order to which it is subject; (vi) that each of the Other Parties has extended
consideration and value under the Transaction Documents to which it is a party; and (vii) that all
other conditions precedent to the execution, effectiveness and performance under the Transaction
Documents to which each of the Other Parties is subject or by which each of the Other Parties is
benefited have been or will be satisfied or waived and that each of the Other Parties will fulfill
its obligations under the Transaction Documents to which it is a party.




          (g) We have also assumed: (i) that Akorn is and was at all relevant times a legal entity duly
formed, validly existing and in good standing under the laws of the jurisdiction of its formation,
with full power, authority and legal capacity to execute, deliver and perform its obligations under
the Transaction Documents to which it is or is to become a party, and to own, lease and operate its
properties and to carry on its business as now conducted; (ii) the individuals




 









 







executing the Transaction Documents on behalf of Akorn have been duly authorized and empowered to
do so; (iii) all of the outstanding shares of capital stock of Akorn has been duly authorized and
validly issued and are fully paid and nonassessable and are not subject to any enforceable
preemptive or similar rights granted by law; (iv) Akorn’s execution, delivery and performance of
the Transaction Documents and the actions required thereunder do not and will not result in the
violation of any existing Louisiana corporate law; (v) no consent approval, authorization or order
of, or registration or filing with any Louisiana corporate governmental authority is required by
Akorn for the performance of its obligations at the closing of transactions contemplated by the
Transaction Documents as may be required under the state securities or blue sky laws governing the
purchase and distribution of securities; and (vi) that the Transaction Documents do not and at all
relevant times did not violate any provision of Akorn’s organizational documents or otherwise cause
a default under any document or agreement to which Akorn is or was a party. We understand that you
will be receiving or have received an opinion from independent counsel for Akorn with regard to the
above matters related to Akorn.




          (h) Where we render an opinion “to our knowledge” or concerning an item “known to us” or our
opinion otherwise refers to our knowledge, it means that: (i) we have conducted no independent
investigation of the matters set forth in connection therewith; (ii) we have not conducted a
litigation search or other search or investigation with respect to any pending items of litigation
or orders or decrees; (iii) with respect to factual matters we have relied solely upon the
statements, representations and warranties set forth in the Officers’ Certificates and Transaction
Documents; (iv) by your acceptance of this opinion letter you acknowledge that you have also relied
upon certifications of Akorn or other due diligence conducted by you and you have not relied solely
on this opinion letter as to such matters; and (v) no inference as to our knowledge of the
existence or absence of facts or other matters is to be drawn from the fact of our representation
or any other matter; but that, during and in the course of our representation of Akorn in
connection with this transaction, no information has come to the attention of the attorneys who
rendered legal services in connection with that representation (namely, Kurt L. Kicklighter, Jason
A. Femrite and Chad R. Ensz) as of the date hereof which gives us current actual knowledge to the
contrary.



2. Opinion. On the basis of the foregoing, but subject to the additional qualifications,
assumptions and limitations set forth below, we are of the opinion that, as of the date hereof:




     2.1 Based solely upon the good standing certificate referred to in Section 1.1(b)(vii) above,
Akorn is duly qualified to do business and is in good standing as a foreign corporation in
Illinois.



     2.2 Based solely upon the Akorn-NJ Articles and the good standing certificate referred to in
Section 1.1(b)(vi) above, Akorn-NJ was incorporated under the laws of the State of Illinois on June
3, 1999, and is validly existing and in good standing under the laws of the State of Illinois.
Based solely upon the short form standing certificate referred to in Section 1.1 (b) (viii) above,
Akorn-NJ is duly qualified to do business and is in good standing as a foreign corporation in the
State of New Jersey.



 









 





     2.3 Akorn-NJ has the corporate power and corporate authority under the Illinois Business
Corporation Act to own, pledge, mortgage and operate its properties, to lease any properties it
operates under lease and to conduct its business as described in the Form 10-K.



     2.4 The authorized capital stock of Akorn consists of one hundred fifty million (150,000,000)
shares of common stock, no par value per share, and five million (5,000,000) shares of Preferred
Stock, $1.00 par value per share. Akorn has not issued any capital stock since November 7, 2005,
the date on which the Form 10-Q was filed with the SEC, other than as disclosed in or contemplated
by any materials filed in the twelve months preceding the date hereof by Akorn with the SEC under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of
1933, as amended (the “Securities Act”), including exhibits incorporated by reference to previous
filings, whether or not required (the foregoing materials collectively referred to herein as “SEC
Reports”).



     2.5 Based solely upon our review of the Stock Ledger and Akorn-NJ Officers’ Certificate, Akorn
is the holder of record of 100% of the issued and outstanding shares of common stock of Akorn-NJ.
All of the issued and outstanding shares of common stock of Akorn-NJ are, to our knowledge, (i)
validly issued, fully paid and non-assessable, and (ii) were not issued in violation of or subject
to any preemptive or similar rights.



     2.6 Upon execution and delivery, each of the Transaction Documents executed by Akorn will
constitute the legal, valid and binding obligation of Akorn, enforceable against Akorn in
accordance with its terms.



     2.7 The execution, delivery, performance of, and compliance with the Transaction Documents by
Akorn and the consummation by Akorn of the transactions contemplated by such agreements do not and
will not either by itself or upon notice or the passage of time or both (i) to our knowledge, (A)
result in any violation of, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under any agreement, indenture or lease or other instrument to
which Akorn is a party which is attached as an exhibit to Form 10-K or any Current Report on Form
8-K filed by Akorn subsequent to the filing of the Form 10-K, or (B) result in the creation of any
lien, security interest or encumbrance on the assets or properties of Akorn pursuant to, any
contract, agreement, instrument, judgment or decree binding upon Akorn which, individually or in
the aggregate, would have a material adverse effect on the business, assets, financial condition,
prospects or results of operation of Akorn, (ii) assuming compliance with all applicable federal
and state securities laws, result in a violation of any federal law, rule or regulation to which
Akorn is subject, or by which any property or asset of Akorn is bound or affected, or (iii)
result in any violation of any order, judgment, injunction or decree of which we have knowledge of
any court or governmental authority.



     2.8 No approval, authorization, consent, registration, or filing with any federal court,
regulatory, administrative or other governmental body is required for the execution and delivery of
the Transaction Documents or the consummation of the transactions contemplated thereby, except
which have been received, and except under the Securities Act, and such as may be required under
applicable “Blue Sky” laws in connection with the issuance of the shares of Common Stock, the
Warrants, the shares of Common Stock underlying the Warrants, or the



 









 







shares of Common Stock issued as Replacement Common Stock (as defined in Section 6.1 of the
Securities Purchase Agreement) (collectively, the “Securities”).



     2.9 To our knowledge, except as disclosed in the SEC Reports, there are no actions, suits or
proceedings pending or threatened against or affecting Akorn, in any court of law or in equity, or
before any arbitrator, administrative agency or other governmental authority, which challenge the
validity of any action taken or to be taken by Akorn pursuant to the Transaction Documents or the
transactions contemplated thereby.



     2.10 To our knowledge, there are no agreements or arrangements, which have not been waived or
complied with, under which Akorn is obligated to register the sale of any of its securities under
the Securities Act because of the transactions contemplated by the Transaction Documents, except as
contained in the Transaction Documents.



     2.11 Assuming the accuracy of the representations and warranties of Akorn set forth in Section
3.1 of the Securities Purchase Agreement and of the Investors in Section 3.2 of the Securities
Purchase Agreement, the offer, issuance and sale of the Securities are exempt from the registration
requirements of the Securities Act.


3. Qualifications, Assumptions and Limitations. Our opinion above is subject to and
limited by the following qualifications, assumptions and limitations, in addition to those set
forth elsewhere in this letter:




     3.1 The effect of bankruptcy, insolvency, reorganization, moratorium, liquidation,
receivership, assignment for the benefit of creditors, fraudulent conveyance or transfer,
marshaling and other laws relating to or affecting the rights and remedies of creditors generally.



     3.2 The effect of general principles of equity, whether considered in a proceeding in equity
or at law, including concepts of materiality, reasonableness, good faith and fair dealing, and the
discretion of the court before which a proceeding is brought, and including limitations of law or
equity upon the availability of specific enforcement, injunctive relief, other equitable remedies
or any particular remedy at law.



     3.3 The unenforceability or ineffectiveness under certain circumstances of contractual
provisions relating to: severability; self-help; summary remedies without notice or opportunity
for hearing or correction; penalties, forfeitures, late payment charges, increased interest rates
upon default, liquidated damages, prepayment charges and acceleration of future amounts due (other
than principal) without appropriate discount to present value (and in connection with these matters
we also draw your attention to the provisions of California Civil Code § 1671 (liquidated damages);
attorneys’ fees to the extent inconsistent with California Civil Code Section 1717; indemnity and
release, limitations upon liability, exculpation and related provisions, to the extent contrary to
public policy or prohibited by law or providing for indemnity, release, limitations upon liability
or exculpation of a party against or with respect to its own wrongful or negligent acts;
cumulation, election or non-exclusivity of remedies, or non-waiver of remedies by a failure or
delay of exercise; waiver of defense, setoff, counterclaim, recoupment or marshaling rights;
integration, and ineffectiveness of oral modifications; restraints on trade; survival of terms,



 









 







provisions or agreements after termination of agreements or satisfaction of obligations; or waiver
or relinquishment of (i) broadly or vaguely stated rights, (ii) unknown future rights or defenses,
(iii) defenses to obligations, including, but not limited to, statutes of limitation, rights of
redemption, notices of acceleration and default, or (iv) the benefits of statutory, regulatory or
constitutional law or other rights granted by law, where any of the foregoing is contrary to public
policy or otherwise prohibited, limited or made unenforceable by law.



     3.4 The unenforceability of contractual provisions or contracts found by a court to be or to
have been unconscionable or against public policy.



     3.5 The assumption that all rights and remedies under the Transaction Documents will be
enforced in good faith and in a commercially reasonable manner and in accordance with applicable
California law, notwithstanding any contrary provision in the Transaction Documents, which contrary
provisions may be unenforceable.



     3.6 We advise you that an opinion as to enforceability of remedies means only that some
remedies are available under the agreement in question, and not necessarily that every provision in
the agreement will be enforced by a court in all circumstances.



     3.7 We render no opinion as to the effect on the enforceability of rights and/or remedies
under the Transaction Documents or the enforcement of rights and/or remedies of the Transaction
Documents under the laws of states or other jurisdictions other than California.



     3.8 We express no opinion as to the enforceability of any provision relating to: (a) consent
to, establishment of, or waiver of objections to, jurisdiction or venue; (b) choice of law; (c)
mandatory arbitration; (d) consent to, waiver of, establishment of a method for, or irrevocable
appointment of an agent for, service of process; (e) waiver of rights to attack or appeal a
judgment; (f) establishment of, changes in, or waiver of, measures or methods of proof or rules of
evidence or judicial or arbitration procedure; or (g) waiver of jury trial.



     3.9 We express no opinion as to (a) your compliance with any state or federal law, rule or
regulation that may, because of the nature of your business, be applicable to the Offering; (b)
compliance with or the effect of any federal or state laws, rules or regulations applicable to
Akorn or Akorn-NJ by virtue of the nature or extent of the business or operations of Akorn or
Akorn-NJ or their affiliates, including any state or federal pharmaceutical or drug-related laws,
rules or regulations; (c) the accuracy or effect of any matter of fact set forth in the Transaction
Documents, except to such extent that any such matter is also set forth as part of our opinion
above; (d) compliance with or the effect of any (i) income or franchise tax or other laws, rules or
regulations relating to taxation, (ii) export control, trade regulation or antitrust laws, (iii)
Federal Reserve Board margin regulations, (iv) pension and employee benefit laws and regulations,
(v) laws and regulations on filing and notice requirements such as Hart-Scott-Rodino and
Exon-Florio, (vi) fiduciary duty requirements, (vii) statutes, ordinances, administrative
decisions, and rules and regulations of counties, towns, municipalities and special political
subdivisions, and judicial decisions to the extent that they deal with any thereof, (viii)
racketeering laws and regulations and criminal and civil forfeiture laws, and other laws of general
application providing for criminal prosecution, (ix) health and safety laws and regulations, or (x)
labor laws and



 









 







regulations; (e) any documents (including exhibits to the Transaction Documents) or the effect
thereof other than the enumerated Transaction Documents, or (f) the effect of laws relating to
permissible rates of interest.



     3.10 Our opinion set forth in Section 2.7 is based upon our consideration of only those
statutes, rules and regulations known to us which, in our experience, are normally applicable to
companies in transactions such as those contemplated by the Transaction Documents.



     3.11 In rendering the opinions set forth in Section 2.5 relating to the fully paid status of
the issued and outstanding shares of capital stock of Akorn-NJ, we have relied, without independent
verification, solely on the Akorn-NJ Officers’ Certificate to the effect that Akorn-NJ has received
the full consideration approved by the Board of Directors for all issued shares of the capital
stock of Akorn-NJ.



     3.12 In rendering the opinion set forth in Section 2.5 relating to the validity of the
issuance of the issued and outstanding capital stock of Akorn-NJ, we have relied, without further
investigation, solely on our review of the Stock Ledger provided to us by Akorn-NJ and statements
in the Akorn-NJ Officers’ Certificate relating to the capitalization of Akorn-NJ.



     3.13 We express no opinion with respect to any matters which require us to perform a
mathematical calculation or make a financial or accounting determination.



     3.14 In rendering the opinion expressed in Section 2.10 relating to obligations to register
the sale of any of Akorn’s other securities because of the transactions contemplated by the
Transaction Documents, we have assumed that notice of the registration statement to be filed in
connection with the Transaction Documents has been or will timely be sent to (i) the Holders of
Registrable Securities (as those terms are defined in the Registration Rights Agreement between
Akorn and certain purchasers, dated October 7, 2003); (ii) AEG Partners LLC (“AEG”), in connection
with the Warrant Purchase and Registration Agreement between Akorn and AEG, dated June 18, 2003;
(iii) the John N. Kapoor Trust Dated September 20, 1989 (the “Trust”), in connection with the
Registration Rights Agreement between Akorn and the Trust, dated July 12, 2001; and (iv) the Trust,
in connection with the Stock Registration Rights Agreement between Akorn and the Trust, dated
November 15, 1990.



4. Laws Relevant to Opinion; Matters Post-Dating Opinion




     4.1 This opinion letter relates solely to the laws of the State of California (other than laws
relating to conflicts or choice of law and applicable federal law in effect on the date hereof (but
subject, however, to the exclusion of certain laws as set forth elsewhere herein). Other than with
respect to our opinions referenced in Sections 2.2 and 2.3 (implicating Illinois general
corporation law), we have not examined and do not opine with respect to the applicability or effect
of any other laws.



     4.2 We have assumed, but do not opine, that the Transaction Documents are governed entirely by
and would be interpreted and enforced under the internal laws of the State of California, without
regard to principles of conflict of laws. We express no opinion as to which



 









 







state’s law governs any aspect of any Transaction Document. We call your attention to the fact
that some of the Transaction Documents provide that they are governed by the laws of a state or
states other than California. We express no opinion as to the effect of such provisions or such
laws. In light of such provisions, however, we advise you that California law may not apply. We
also advise you that to the extent that the Transaction Documents are not legal, valid, binding and
enforceable in accordance with the laws of the state(s) referred to therein, they may not be legal,
valid, binding and enforceable in, or under the laws of, the State of California.



     4.3 We express no opinion with respect to laws becoming effective after the date hereof. This
opinion relates only to matters as of the date hereof, and we express no opinion with respect to
any transaction, transfer, conveyance, obligation or performance occurring after the date hereof.
We disclaim any obligation to advise you of any events occurring or coming to our attention or any
developments in areas covered by this opinion that occur after the date of this opinion.



5. Use and Reliance



This opinion is provided at your request and solely to you for use in connection with the Offering.
This opinion may not be relied upon or used by any other person or for any other purpose, nor may
it be exhibited, quoted from or referred to, or copies delivered to any other person, without our
prior written consent.




Very truly yours,




Luce, Forward, Hamilton & Scripps LLP




LFHS/KLK



 









 





Exhibit C-2




FORM OF JONES WALKER OPINION







 









 










March ___, 2006




To the Investors (as defined in the Securities Purchase Agreement (as defined below))

c/o Bank of America Securities LLC

9 West 57th Street

New York, NY 10019




Banc of America Securities LLC

9 West 57th Street

New York, NY 10019




     Re: Offering of Common Stock and Warrants of Akorn, Inc.



Ladies and Gentlemen:




     We have acted as special Louisiana counsel to Akorn, Inc., a Louisiana corporation (“Akorn”),
for the limited purpose of rendering certain opinions as to matters of Louisiana law set forth
below in connection with the offering (the “Offering”) by Akorn in a private placement to certain
accredited investors (each, an “Investor”) of an aggregate of (i) up to 10,000,000 shares of
Akorn’s common stock, no par value (“Common Stock”), and (ii) warrants to purchase shares of
Akorn’s Common Stock (“Warrants”). Akorn has engaged Banc of America Securities LLC (the
“Placement Agent”) as placement agent for the Offering on a “best efforts” basis. This opinion
letter is being delivered pursuant to Section 2.2 (iii) of the Securities Purchase Agreement (as
defined below). Capitalized terms used but not defined herein have the meanings given to them in
the Securities Purchase Agreement.



     In connection with rendering these opinions, we have examined and relied upon photocopies or
electronically transmitted copies of the following documents (collectively, the “Transaction
Documents”):




     Securities Purchase Agreement dated ___ 2006, executed by Akorn and each Investor
(the “Securities Purchase Agreement”);



 









 





Banc of America Securities LLC

February 23, 2006

Page 2





     Form of Warrant to be executed by Akorn with respect to each Investor pursuant to the
Securities Purchase Agreement (the “Warrant”); and




     Placement Agent Letter dated February 1, 2006 executed by Akorn and the Placement Agent
(the “Placement Agent Letter”).




     In connection with rendering these opinions we have also examined and relied upon photocopies
or electronically transmitted copies of the following documents (collectively, the “Company
Documents”):




     Restated Articles of Incorporation of Akorn as certified by the Louisiana Secretary of
State as of ___, 2006 (“Akorn Articles”);




     Amended and Restated Bylaws of Akorn, as certified by the Secretary of Akorn (“Akorn
Bylaws”);




     Certificate of Good Standing from the Louisiana Secretary of State for Akorn dated
February 22, 2006;




     Certificate of Officers of Akorn dated ___, 2006 (“Akorn Officers’ Certificate”);




     Certificate of Secretary of Akorn dated ___, 2006 (“Akorn Secretary’s
Certificate”);




     Resolutions of the Board of Directors of Akorn dated ___, 2006, as certified by
the Secretary of Akorn;




     Akorn’s Annual Report on Form 10-K for the period ended December 31, 2004, filed on
March 31, 2005 (“Form 10-K”).



     For purposes of these opinions, we have examined only the Transaction Documents and the
Company Documents. We have assumed the correctness of all factual matters set forth in the
Transaction Documents and the Company Documents, and we have conducted no independent investigation
or examination of factual matters, including, but not limited to, factual matters contained in
representations, warranties and acknowledgments in any documents.



     In rendering these opinions, we have assumed without independent verification (i) the
genuineness of all signatures on all documents reviewed by us; (ii) the conformity to authentic
original documents of all documents submitted to us as copies; (iii) that the Transaction Documents
executed and delivered by the parties today are the same in all respects material to the opinions
delivered herein as the versions thereof furnished to us on ___, 2006 by Luce, Forward,
Hamilton & Scripps LLP and identified by them as the final execution versions of the Transaction
Documents and are complete and correct copies and contain the entire



 









 





Banc of America Securities LLC

February 23, 2006

Page 3



agreement of the parties thereto necessary for us to render the opinions contemplated herein,
and that there are no other documents nor any oral agreements or other circumstances that would in
any way alter or vary the provisions of the Transaction Documents; (iv) that each natural person
executing or who has executed the Transaction Documents or the Company Documents is or was
competent to do so; (v) the accuracy, completeness and authenticity of certificates of public
officials; (vi) that the certificates of public officials dated as of an earlier date are still
accurate as of the date hereof; (vii) that Akorn has filed all required franchise tax returns, if
any, and paid all required taxes, if any, under the applicable statutes and under any other
applicable governmental rule; (viii) Akorn will obtain all permits and governmental approvals
required in the future, and take all actions similarly required, relevant to the performance of the
Transaction Documents; and (ix) all parties to the Transaction Documents will act in accordance
with, and will refrain from taking action that is forbidden by, the terms and conditions of the
Transaction Documents.




     On the basis of the foregoing, but subject to the additional qualifications and assumptions
set forth below, we are of the opinion that, as of the date hereof:



     1. Akorn is a corporation, duly incorporated, validly existing and in good standing under the
laws of Louisiana, the state of its incorporation.



     2. Akorn has corporate power and corporate authority to own, lease, license and operate its
properties and assets and to conduct its business, as such properties, assets and businesses are
described in the Form 10-K.



     3. The authorized capital stock of Akorn consists of one hundred fifty million shares of
common stock, no par value per share, and five million shares of preferred stock, $1.00 par value
per share. No securities of Akorn are entitled to any enforceable preemptive or similar rights
granted by law.



     4. The Common Shares to be sold pursuant to the Purchase Agreement have been duly authorized
and, when issued and delivered to the Investors against payment therefor in accordance with the
terms of the Securities Purchase Agreement, will be validly issued, fully paid and nonassessable
and free of any enforceable preemptive or similar rights granted by law.



     5. Akorn has full corporate power and authority to enter into the Securities Purchase
Agreement and the Placement Agent Letter and to issue, sell and deliver the Common Shares to the
Investors as provided in the Securities Purchase Agreement.



     6. The Securities Purchase Agreement and the Placement Agent Letter have been duly authorized
by Akorn.



     7. Akorn’s execution, delivery and performance of the Securities Purchase Agreement and the
Placement Agent Letter do not and will not (i) violate the Articles of Incorporation or Bylaws of
Akorn, (ii) result in any violation of any existing Louisiana corporate



 









 





Banc of America Securities LLC

February 23, 2006

Page 4



law, applicable to Akorn (assuming compliance with all applicable state securities and blue
sky laws).




     8. No consent, approval, authorization or order of, or registration or filing with any
Louisiana corporate governmental authority is required on the part of Akorn for the performance by
Akorn of its obligations at the closing of the transactions contemplated by the Securities Purchase
Agreement, except as may be required under the state securities or blue sky laws governing the
purchase and distribution of the Shares in connection with the purchase and sale of the Shares.



     Our opinions above are subject to and limited by the following qualifications and assumptions,
in addition to those set forth above:



     (a) This opinion relates solely to the internal laws of the State of Louisiana (other than (i)
laws relating to conflicts of law or choice of law, (ii) parish, city or other local laws or
ordinances, and (iii) the Louisiana Securities Law) in effect on the date hereof (“Louisiana Law”)
and no opinion is given herein as to the effect of any other law.



     (b) The opinions given in paragraphs 4, 5, 7 and 8 above do not address the effect of Section
9 of the Warrants.



     (c) We express no opinion as to (a) your compliance with any state or federal law, rule or
regulation that may, because of the nature of your business, be applicable to the Offering; (b)
compliance with or the effect of any federal laws, rules or regulations or any state pharmaceutical
or drug-related laws, rules or regulations applicable to Akorn by virtue of the nature of extent of
the business or operations of Akorn or its affiliates; (c) the accuracy or effect of any matter of
fact set forth in the Transaction Documents, except to such extent that any such matter is also set
forth as part of our opinion above; (d) compliance with or the effect of any (i) income or
franchise tax or other laws, rules or regulations relating to taxation, (ii) export control, trade
regulation or antitrust laws, (iii) pension and employee benefit laws and regulations, (iv) laws
and regulations on filing and notice requirements such as Hart-Scott-Rodino and Exon-Florio, (v)
fiduciary duty requirements, (vi) racketeering laws, and regulations and criminal and civil
forfeiture laws, and other laws of general application providing for criminal prosecution, (vii)
health and safety laws and regulations, or (viii) labor laws and regulations; or (e) any documents
(including exhibits to the Transaction Documents) or the effect thereof other than the enumerated
Transaction Documents.



     This opinion is provided at your request and solely to you for use for the purpose expressed
in the first paragraph hereof. This opinion may not be relied upon or used by any



 









 





Banc of America Securities LLC

February 23, 2006

Page 5



other person or for any other purpose, nor may it be exhibited, quoted from or referred to, or
copies delivered to any other person, without our prior written consent.









 









 








Exhibit D




PLAN OF DISTRIBUTION



The selling stockholders, and any of their pledgees, assignees and successors-in-interest
(including successors by gift, partnership distribution or other non-sale-related transfer effected
after the date of this prospectus), may, from time to time, sell any or all of their shares of
common stock on any stock exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed prices, at market prices at the time of sale, at
varying prices determined at the time of sale or at negotiated prices. The selling stockholders
may use any one or more of the following methods when selling shares:





	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;






	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;






	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;






	•	 	an exchange distribution in accordance with the rules of the applicable exchange;






	•	 	privately negotiated transactions;






	•	 	short sales;






	•	 	broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price
per share;






	•	 	a combination of any such methods of sale; and






	•	 	any other method permitted pursuant to applicable law.





          The selling stockholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus. The selling stockholders are not obligated to, and
there is no assurance that the selling stockholders will, sell all or any of the shares we are
registering. The selling stockholders may transfer, devise or gift such shares by other means not
described in this prospectus.




          The selling stockholders may also engage in short sales against the box, puts and calls and
other transactions in our securities or derivatives of our securities and may sell or deliver
shares in connection with these trades.




          Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved. Any profits on
the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be
underwriting discounts or commissions under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of shares will be borne
by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act. The selling stockholders that are





 









 







also
broker-dealers are “underwriters” within the meaning of the
Securities Act. LBI Group Inc. and Capital Ventures International,
each a selling stockholder, is an affiliate of a broker-dealer. LBI
Group Inc. and Capital Ventures International purchased the securities convertible or exercisable into the shares of common stock
being offered by it under this prospectus in the ordinary course of business, and at the time of
the purchase of such securities that are convertible or exercisable into the shares of common stock
being offered for resale under this prospectus, neither LBI Group
Inc. nor Capital Ventures International had any agreement or understanding,
directly or indirectly, with any person to distribute such securities or the shares of common stock
issuable upon conversion or exercise.




          The selling stockholders may from time to time pledge or grant a security interest in some or
all of the shares of common stock owned by them and, if they default in the performance of any of
their secured obligations, the pledgees or secured parties may offer and sell the shares of common
stock from time to time under this prospectus as it may be supplemented from time to time, or under
an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee
or other successors in interest as selling stockholders under this prospectus.




          The selling stockholders also may transfer the shares of common stock in other circumstances,
in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.




          The selling stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their
shares of common stock, nor is there an underwriter or coordinating broker acting in connection
with a proposed sale of shares of common stock by any selling stockholder. If we are notified by
any selling stockholder that any material arrangement has been entered into with a broker-dealer
for the sale of shares of common stock, if required, we will file a supplement to this prospectus.
If the selling stockholders use this prospectus for any sale of the shares of common stock, they
will be subject to the prospectus delivery requirements of the Securities Act.




          The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may
apply to sales of our common stock and activities of the selling stockholders.





 









 








Exhibit E




COMPANY TRANSFER AGENT INSTRUCTIONS




Computershare Investor Services LLC

2 North LaSalle Street

Chicago, IL 60602




Attention: Ladies and Gentlemen:




          Reference is made to that certain Securities Purchase Agreement, dated as of March 1, 2006
(the “Agreement”), by and among Akorn, Inc., a Louisiana corporation (the “Company”), and the
investors named on the Schedule of Investors attached thereto (collectively, the “Holders”),
pursuant to which the Company is issuing to the Holders shares (the “Common Shares”) of Common
Stock of the Company, no par value per share (the “Common Stock”), and Warrants (the “Warrants”),
which are exercisable into shares of Common Stock.




          This letter shall serve as our irrevocable authorization and direction to you (provided that
you are the transfer agent of the Company at such time) to issue shares of Common Stock upon
transfer or resale of the Common Shares.




          You acknowledge and agree that so long as you have previously received (a) written
confirmation from the Company’s legal counsel that either (i) a registration statement covering
resales of the Common Shares and the Warrant Shares has been declared effective by the Securities
and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”)
and such confirmation has not been rescinded, or (ii) sales of the Common Shares and the Warrant
Shares may be made in conformity with Rule 144 under the 1933 Act (“Rule 144”), (b) if applicable,
a copy of such registration statement, and (c) either (x) notice from the Company of the surrender
of stock certificates for the purpose of having such certificates replaced with certificates which
do not bear the restrictive legends pursuant to Section 4.1(c) of the Agreement, or (y) notice from
legal counsel to the Company or any Holder that a transfer of Common Shares and/or Warrant Shares
has been effected either pursuant to the registration statement (and a prospectus delivered to the
transferee) or pursuant to Rule 144, then, unless otherwise required by law, within three (3)
Business Days of your receipt of the notice referred to in (c), you shall issue the certificates
representing the Common Shares and the Warrant Shares to the Holders (in the case of (c)(x)) or to
the transferees registered in the names of such transferees (in the case of (c)(y)), and such
certificates shall not bear any legend restricting transfer of the Common Shares and the Warrant
Shares thereby and should not be subject to any stop-transfer restriction, except as set forth in
Section 6.5 of the Agreement.




          A form of written confirmation (to be used in connection with any sale) from the Company’s
outside legal counsel that a registration statement covering resales of the Common Shares and the
Warrant Shares has been declared effective by the SEC under the 1933 Act is attached hereto as
Exhibit A.




 









 








          Please be advised that the Holders are relying upon this letter as an inducement to enter into
the Agreement and, accordingly, each Holder is a third party beneficiary to these instructions.




     Please execute this letter in the space indicated to acknowledge your agreement to act in
accordance with these instructions. Should you have any questions concerning this matter, please
contact me at (847) 279-6151.



	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	AKORN, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 
	 	 
	 	 	     Name: Jeffrey A. Whitenell
	 	 	     Title: Chief Financial Officer






THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this ___ day of ___ 2006




COMPUTERSHARE INVESTOR SERVICES LLC




	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	     Name:	 	 	 	 
	 

	 	 

	 	 
	 

	 	     Title:	 	 	 	 
	 

	 	 
	 	 






Enclosures




 









 








Exhibit A




Form of Written Confirmation




Computershare Investor Services, LLC

2 North LaSalle Street

Chicago, IL 60602




RE: Akorn, Inc.




Ladies and Gentlemen:



We are counsel to Akorn, Inc., a Louisiana corporation (the “Company”), and we understand that each
of the investors listed on Exhibit A attached hereto and incorporated herein by reference
(collectively, the “Holders”) holds equity securities of the Company as further described on
Exhibit A.



In connection with the Company’s obligations under a Securities Purchase Agreement, dated as of
___, 2006, by and among the Company and certain of the Holders (the “Securities Purchase
Agreement”), on ___, 2006, the Company filed a Registration Statement on Form S-3 (File No.
___) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities (as defined below), which names the Holders as selling
stockholders thereunder.



For purposes of this letter, the term “Registrable Securities” shall mean ___; provided,
however, that securities shall only be treated as Registrable Securities if and only for so long as
they (A) have not been disposed of pursuant to a registration statement declared effective by the
Commission, and (B) have not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”), so that all
transfer restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.



In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by
telephone that the SEC has entered into an order declaring the Registration Statement effective
under the Securities Act at _:00 p.m. PDT on ___, 2006, and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or threatened by, the
SEC.



Based on the foregoing, we are of the opinion that the Registrable Securities are available for
resale under the Securities Act pursuant to the Registration Statement.



Very truly yours,




 









 








Exhibit F




FORM OF WARRANT





 










 







NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.




Akorn, Inc.




WARRANT




			
	Warrant No. [ ]
	 	Dated: March___, 2006






     Akorn, Inc., a Louisiana corporation (the “Company”), hereby certifies that, for value
received, [Name of Holder] or its registered assigns (the “Holder”), is entitled to purchase from
the Company up to a total of [___]1 shares of common stock, no par value per share
(the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the
“Warrant Shares”) at an exercise price equal to $5.40 per share (as adjusted from time to time as
provided in Section 9, the “Exercise Price”), at any time and from 180 days from the date hereof
and through and including the date that is five years from the date of issuance hereof (the
“Expiration Date”), and subject to the following terms and conditions. This Warrant (this
“Warrant”) is one of a series of similar warrants issued pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, by and among the Company and the Purchasers
identified therein (the “Purchase Agreement”). All such warrants are referred to herein,
collectively, as the “Warrants.”



     1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given to such terms in
the Purchase Agreement.



     2. Registration of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.



     3. Registration of Transfers. Subject to the restrictions on transfer set forth on
the first page hereof and in Section 16(a) below, the Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at
its address specified herein. Upon any such registration or transfer, a new warrant to purchase





 




			
	1	 	35% warrant coverage




 









 









Common Stock, in substantially the form of this Warrant (any such new warrant, a “New
Warrant”), evidencing the portion of this Warrant so transferred shall be issued to the transferee
and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a
holder of a Warrant.




     4. Exercise and Duration of Warrants.



          (a) This Warrant shall be exercisable by the registered Holder at any time and from time to
time on or after the date that is 180 days from the date hereof to and including the Expiration
Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value; provided that, if the average of
the Closing Prices for the five Trading Days immediately prior to (but not including) the
Expiration Date exceeds the Exercise Price on the Expiration Date, provided further that, if on the
Expiration date, there is no effective Registration Statement covering the resale of the Warrant
Shares, then this Warrant shall be deemed to have been exercised in full (to the extent not
previously exercised) on a “cashless exercise” basis at 6:30 P.M. New York City time on the
Expiration Date. Notwithstanding anything to the contrary herein, the Expiration Date shall be
extended for each day following the Effective Date that the Registration Statement is not
effective.




          (b) A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in
the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed, and (ii)
payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being
exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice
only if a “cashless exercise” may occur at such time pursuant to Section 10 below), and the date
such items are delivered to the Company (as determined in accordance with the notice provisions
hereof) is an “Exercise Date.” The Holder shall not be required to deliver the original Warrant in
order to effect an exercise hereunder. Execution and delivery of the Exercise Notice shall have
the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.




     5. Delivery of Warrant Shares.



          (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than
three Trading Days after the Exercise Date) issue or cause to be issued and cause to be delivered
to or upon the written order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise, which certificate shall bear
restrictive legends as required under the Purchase Agreement. The Holder shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. In lieu of delivering
physical certificates for the Warrant Shares issuable upon any exercise of this Warrant, provided
the Company’s Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer (“FAST”) program, and that any legend upon the certificates for the
Warrant Shares shall have been removed pursuant to the Purchase Agreement, upon request of the
Holder, the Company shall use commercially reasonable efforts




2









 




to cause its transfer agent to electronically transmit such Warrant Shares by crediting the
account of the Holder’s broker with DTC through its Deposit Withdrawal Agent Commission system
(provided that the same time limitations herein as for stock certificates shall apply).




          (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion
of the number of Warrant Shares. Upon surrender of this Warrant following one or more partial
exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares.




          (c) In addition to any other rights available to a Holder, if the Company fails to deliver to
the Holder a certificate representing Warrant Shares by the third Trading Day after the date on
which delivery of such certificate is required by this Warrant, and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Shares that the Holder anticipated receiving
from the Company (a “Buy-In”), then the Company shall, within three Trading Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly honor its obligation
to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash
to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving
rise to the Company’s obligation to deliver such certificate.




          (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares;
provided, however, that that the Company shall be under no obligation to issue and deliver Warrant
Shares to any transferee of Holder if the transferee is an individual or entity to whom the Warrant
or Warrant Shares could not be sold under applicable securities laws or an exemption therefrom.
Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.




     6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue
or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect
of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which may



3









 




be payable in respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.




     7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable bond or indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe.



     8. Reservation of Warrant Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (after giving effect to the adjustments
and restrictions of Section 9, if any). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
The Company will take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law or regulation, or of
any requirements of any securities exchange or automated quotation system upon which the Common
Stock may be listed.



     9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this Section
9.



          (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.




          (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to holders of Common Stock (i) evidences of its indebtedness, (ii) any
security (other than a distribution of Common Stock covered by the preceding paragraph),




4









 




(iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each
case, “Distributed Property”), then in each such case the Holder shall be entitled upon exercise of
this Warrant for the purchase of any or all of the Warrant Shares, to receive the amount of
Distributed Property which would have been payable to the Holder had such Holder been the holder of
such Warrant Shares on the record date for the determination of stockholders entitled to such
Distributed Property. The Company will at all times set aside in escrow and keep available for
distribution to such holder upon exercise of this Warrant a portion of the Distributed Property to
satisfy the distribution to which such Holder is entitled pursuant to the preceding sentence.




          (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i)
the Company effects any merger or consolidation of the Company with or into another Person, (ii)
the Company effects any sale of all or substantially all of its assets in one or a series of
related transactions, (iii) any tender offer or exchange offer approved by the Company’s Board of
Directors (whether by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (other than as a result of a subdivision or combination of
shares of Common Stock covered by Section 9(a) above) (in any such case, a “Fundamental
Transaction”), then the Holder shall have the right thereafter to receive, upon exercise of this
Warrant, the same amount and kind of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon
exercise in full of this Warrant (the “Alternate Consideration”). The aggregate Exercise Price for
this Warrant will not be affected by any such Fundamental Transaction, but the Company shall
apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.
At the Holder’s request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction. If any Fundamental Transaction constitutes or results in (a) a “going
private” transaction as defined in Rule 13e-3 under the Exchange Act, or (b) an acquisition
primarily for cash, or (c) an acquisition, merger or sale with or into a Person not traded on an
Eligible Market, then the Company (or any such successor or surviving entity) will redeem this
Warrant from the Holder for a purchase price, payable in cash on the closing date of such “going
private” transaction, equal to the Black Scholes value of the remaining unexercised portion of this
Warrant on the closing date of such “going private” transaction.




5









 








          (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased
upon exercise of this Warrant shall be increased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such adjustment.




          (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Common
Stock.




          (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company at its expense will promptly compute such adjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in detail the facts upon which such adjustment is
based. Upon written request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company’s Transfer Agent.




          (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary (other than warrants, options, restricted stock or other
stock awards granted to officers, employees or directors of the Company), (ii) authorizes or
approves, enters into any agreement contemplating or solicits stockholder approval for any
Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of
the affairs of the Company, then the Company shall deliver to the Holder a notice describing the
material terms and conditions of such transaction, at least ten calendar days prior to the
applicable record or effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will take all steps
reasonably necessary in order to insure that the Holder is given the practical opportunity to
exercise this Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any defect therein shall
not affect the validity of the corporate action required to be described in such notice.




     10. Payment of Exercise Price. The Holder shall pay the Exercise Price by: (i)
delivery of immediately available funds, or (ii) notifying the Company in an Exercise Notice of its
election to utilize cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:



	 	 	 	 	 
	 

	 	 	 	X = Y [(A-B)/A]
	 
	 	 	 	 
	 

	 	where:
	 	X = the number of Warrant Shares to be issued to the Holder.






6









 






	 	 	 	 	 
	 

	 	 	 	Y = the number of Warrant Shares with respect to which this Warrant
is being exercised.
	 
	 	 	 	 
	 

	 	 	 	A = the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) the Exercise Date.
	 
	 	 	 	 
	 

	 	 	 	B = the Exercise Price.






     For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to
have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.



     11. Limitation on Exercise.



          (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common
Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by such Holder and
its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
“Maximum Percentage”) of the total number of issued and outstanding shares of Common Stock
(including for such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated the limitation set
forth in this paragraph and determined that issuance of the full number of Warrant Shares requested
in such Exercise Notice is permitted under this paragraph. The Company’s obligation to issue
shares of Common Stock in excess of the limitation referred to in this Section shall be suspended
(and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time,
if any, as such shares of Common Stock may be issued in compliance with such limitation, but in no
event later than the Expiration Date. By written notice to the Company, the Holder may waive the
provisions of this Section or increase or decrease the Maximum Percentage to any other percentage
specified in such notice, but (i) any such waiver or increase will not be effective until the 61st
day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease
will apply only to the Holder and not to any other holder of Warrants.




     12. Fractional Shares. The Company shall not be required to issue or cause to be
issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant,
the number of Warrant Shares to be issued will be rounded up to the nearest whole share.



7









 





     13. Notices. Any and all notices or other communications or deliveries hereunder
(including without limitation any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in the Purchase Agreement prior to 6:30
p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in the Purchase Agreement on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The address for such notices or communications shall be as
set forth in the Purchase Agreement.



     14. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon
30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its corporate trust or
stockholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.



     15. No Voting Rights. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company until the Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become deliverable, as
provided herein.



     16. Miscellaneous.



          (a) Subject to the restrictions on transfer set forth on the first page hereof and in this
Section 16(a), this Warrant may be assigned by the Holder; provided, however, that that the Holder
may not transfer this Warrant to any transferee if such transferee is an individual or entity to
whom the Warrant and/or Warrant Shares could not be sold under applicable securities laws or an
exemption therefrom. This Warrant may not be assigned by the Company except to a successor in the
event of a Fundamental Transaction. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant
may be amended only in writing signed by the Company and the Holder and their successors and
assigns.




          (b) The Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the generality of the




8









 




foregoing, the Company (i) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, (ii) will take all such action as may be reasonably
necessary or appropriate in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its
stockholder books or records in any manner which interferes with the timely exercise of this
Warrant.




          (c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW
YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH
OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE
ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR
OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO
A TRIAL BY JURY.




          (d) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.




          (e) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.




     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.



	 	 	 
	 

	 	AKORN, INC.






9









 





	 	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 





10









 





FORM OF EXERCISE NOTICE



(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the
foregoing Warrant)




To: Akorn, Inc.



The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by Akorn, Inc., a
Louisiana corporation (the “Company”). Capitalized terms used herein and not otherwise defined
have the respective meanings set forth in the Warrant.




     1. The Warrant is currently exercisable to purchase a total of                      Warrant Shares.



     2. The undersigned Holder hereby exercises its right to purchase                      Warrant
Shares pursuant to the Warrant.



     3. The Holder intends that payment of the Exercise Price shall be made as (check one):



	 	 	 	 	 
	 

	 	 	 	“Cash Exercise” under Section 10
	 

	 	 	 	 
	 

	 	 	 	“Cashless Exercise” under Section 10
	 

	 	 	 	 





     4. If the holder has elected a Cash Exercise, the holder shall pay the sum of $                     to
the Company in accordance with the terms of the Warrant.



     5. Pursuant to this exercise, the Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.



     6. Following this exercise, the Warrant shall be exercisable to purchase a total of
                     Warrant Shares.



	 	 	 	 	 	 	 	 	 
	Dated:	 	 	 	,	 	Name of Holder:
	 

	 	 	 	 
	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	(Print)	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)






11









 





FORM OF ASSIGNMENT




[To be completed and signed only upon transfer of Warrant]




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                         the right represented by the within Warrant to purchase                      shares
of Common Stock of Akorn, Inc. to which the within Warrant relates and appoints                     
attorney to transfer said right on the books of Akorn, Inc. with full power of substitution in the
premises.



Dated: _________, ______




	 	 	 
	 

	 	 
	 

	 	(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
	 
	 	 
	 

	 	 
	 

	 	Address of transferee
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	In the presence of:
	 	 
	 
	 	 
	 


	 	 







12