Document:

Warrant
                to Purchase

              **1,000,000,**

              Shares
                of Common Stock

            

    

     

    NEITHER
      THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
      WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      AND
      NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
      TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
      ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION
      SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
      ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
      REQUIRED.

     

    Void
      after 5:30 P.M. New York City time on February 14, 2012

     

    COMMON
      STOCK PURCHASE WARRANT

     

    OF

     

    ARMITAGE
      MINING CORP. 

     

    This
      is
      to certify that, FOR VALUE RECEIVED, Galway Holdings LLC or registered assigns
      (“Holder”), is entitled to purchase, on the terms and subject to the provisions
      of this Warrant, from Armitage Mining Corp a Nevada corporation (the “Company”),
      One Million (1,000,000) shares of the common stock, par value $.001 per share
      (“Common Stock”), of the Company at an exercise price per share (the “Exercise
      Price”) of $1.00, during the period (the “Exercise Period”) commencing on the
      Availability Date, as hereinafter defined, and ending at 5:30 P.M. New York
      City
      time, on February 14, 2012; provided, however, that if such date is a day on
      which banking institutions in the State of New York are authorized by law to
      close, then on the next succeeding day on which such banks are not authorized
      to
      be closed. 

     

    (a) EXERCISE
      OF WARRANT. 

     

    (1)
      This
      Warrant may be exercised in whole at any time or in part from time to time
      during the Exercise Period by presentation and surrender of this Warrant to
      the
      Company at its principal office, or at the office of its stock transfer agent,
      if any, with the Purchase Form annexed hereto duly executed and accompanied
      by
      payment of the Exercise Price for the number of shares of Common Stock specified
      in such form. Payment of the Exercise Price shall be made by wire transfer
      or
      check (subject to collection) in the amount of the Exercise Price payable to
      the
      order of the Company. If this Warrant should be exercised in part only, the
      Company shall, upon surrender of this Warrant for cancellation, execute and
      deliver a new Warrant evidencing the rights of the Holder to purchase the
      balance of the shares of Common Stock purchasable hereunder. Upon receipt by
      the
      Company of this Warrant at its office, or by the stock transfer agent of the
      Company at its office, in proper form for exercise, the Holder shall be deemed
      to be the holder of record of the shares of Common Stock issuable upon such
      exercise, notwithstanding that the stock transfer books of the Company shall
      then be closed or that certificates representing such shares of Common Stock
      shall not then be actually delivered to the Holder; provided, however, that
      if
      payment of the Exercise Price is made by check, the Company shall not issue
      the
      Common Stock until the Company has been advised by its bank that the check
      has
      cleared. The shares of Common Stock issued or issuable upon exercise of this
      Warrant are referred to as the “Warrant Shares.”

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (2) RESERVATION
      OF SHARES. The Company hereby agrees that at all times from and after the
      Availability Date, there shall be reserved for issuance and/or delivery upon
      exercise of this Warrant such number of shares of Common Stock as shall be
      required for issuance and delivery upon exercise of this Warrant.

     

    (b) FRACTIONAL
      SHARES. No fractional shares or script representing fractional shares shall
      be
      issued upon the exercise of this Warrant. If the fraction is less than one-half
      (1⁄2), the fraction shall be dropped, and if the fraction is one-half (1⁄2) or more,
      the number of shares of Common Stock to be issued shall be rounded to the next
      higher integral number of shares.

     

    (c) EXCHANGE,
      TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without
      expense, at the option of the Holder, upon presentation and surrender hereof
      to
      the Company or at the office of its stock transfer agent, if any, for other
      Warrants of different denominations entitling the holder thereof to purchase
      in
      the aggregate the same number of shares of Common Stock purchasable hereunder.
      Subject to the provisions of this Warrant, upon surrender of this Warrant to
      the
      Company or at the office of its stock transfer agent, if any, with the
      Assignment Form annexed hereto duly executed and funds sufficient to pay any
      transfer tax, the Company shall, without charge, execute and deliver a new
      Warrant in the name of the assignee named in such instrument of assignment
      and
      this Warrant shall promptly be canceled. This Warrant may be divided or combined
      with other Warrants which carry the same rights upon presentation hereof at
      the
      office of the Company or at the office of its stock transfer agent, if any,
      together with a written notice specifying the names and denominations in which
      new Warrants are to be issued and signed by the Holder hereof. The term
“Warrant” as used herein includes any Warrants into which this Warrant may be
      divided or exchanged. Upon receipt by the Company of evidence satisfactory
      to it
      of the loss, theft, destruction or mutilation of this Warrant, and (in the
      case
      of loss, theft or destruction) of reasonably satisfactory indemnification,
      and
      upon surrender and cancellation of this Warrant, if mutilated, the Company
      will
      execute and deliver a new Warrant of like tenor. Any such new Warrant executed
      and delivered shall constitute an additional contractual obligation on the
      part
      of the Company, whether or not this Warrant so lost, stolen, destroyed, or
      mutilated shall be at any time enforceable by anyone.

     

    (d) RIGHTS
      OF
      THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to
      any
      rights of a stockholder in the Company, either at law or equity, and the rights
      of the Holder are limited to those expressed in the Warrant and are not
      enforceable against the Company except to the extent set forth in this
      Warrant.

     

    (e) ANTI-DILUTION
      PROVISIONS. If the Company shall, (i) pay a dividend or make a distribution
      on
      its shares of Common Stock in shares of Common Stock (ii) subdivide or
      reclassify its outstanding Common Stock into a greater number of shares, or
      (iii) combine or reclassify its outstanding Common Stock into a smaller number
      of shares or otherwise effect a reverse split, the Exercise Price in effect
      at
      the time of the record date for such dividend or distribution or the effective
      date of such subdivision and the number of shares of Common Stock (or other
      securities) issuable upon exercise of this Warrant shall be proportionately
      adjusted to reflect such transaction. Whenever the Exercise Price payable upon
      exercise of this Warrant is adjusted pursuant to this Section, the number of
      Warrant Shares purchasable upon exercise of this Warrant shall simultaneously
      be
      adjusted by multiplying the number of shares of Common Stock issuable upon
      exercise of this Warrant in effect on the date thereof by the Exercise Price
      in
      effect on the date thereof and dividing the product so obtained by the Exercise
      Price, as adjusted. In no event shall the Exercise Price per share be less
      than
      the par value per share, and, if any adjustment made pursuant to this Section
      shall in an exercise price of less than the par value per share, then, in such
      event, the Exercise Price per share shall result be the par value per share.
      Such adjustment shall be made successively whenever any event listed in this
      Section shall occur.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (f) OFFICER’S
      CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the
      provisions of this Warrant, the Company shall forthwith file in the custody
      of
      its Secretary or an Assistant Secretary at its principal office and with its
      stock transfer agent, if any, an officer’s certificate showing the adjusted
      Exercise Price and the adjusted number of shares of Common Stock issuable upon
      exercise of each Warrant, determined as herein provided, setting forth in
      reasonable detail the facts requiring such adjustment. Each such officer’s
      certificate shall be made available at all reasonable times for inspection
      by
      the Holder, and the Company shall, forthwith after each such adjustment, mail,
      by first class mail, a copy of such certificate to the Holder at the Holder’s
      address set forth in the Company’s Warrant Register.

     

    (g) RESERVED
      

     

    (h) REGISTRATION
      PURSUANT TO THE SECURITIES ACT OF 1933.

     

    (1)  For
      a
      period commencing on the date this Warrant is issued and terminating on February
      14, 2012, if 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 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 use commercially reasonable efforts to include
      the
      shares of the Company’s Common Stock issuable upon the exercise of this Warrant
      in such registration statement.

     

    (2)  The
      following provision of this Section shall also be applicable:

     

    (A)  The
      Company shall bear the entire cost and expense of any registration made pursuant
      to this; provided, however, the Holder shall bear the fees of his own counsel
      and accountants and any transfer taxes or underwriting or brokers’ discounts or
      commissions applicable to the Warrant Shares sold by him pursuant
      thereto.

     

    (B)  In
      connection with any registration statement filed by the Company pursuant to
      this
      Section in which a holder has registered for sale Warrant Shares, the holder
      shall, and by acceptance of this Warrant, agrees to, indemnify and hold harmless
      the Company and each of its directors, officers, employees and agents, each
      underwriter and each other person, if any, who controls the Company, the
      underwriter and each other seller and such underwriter’s and such seller’s
      directors, officers, stockholders, partners, employees, agents and affiliates
      from and against any and all losses, claims, damages or liabilities, joint
      or
      several, to which they or any of them may become subject under the Securities
      Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of
      1934, as amended, or other federal or state statutory law or regulation, at
      common law or otherwise, insofar as such losses, claims, damages or liabilities
      (or actions in respect thereof), which are collectively referred to as “Losses,”
to which they or any of them may become subject under the Securities Act, the
      Exchange Act, or other federal or state statutory law or regulation, at common
      law or otherwise, insofar as such losses, claims, damages, or liabilities (or
      actions in respect thereof) arise out of or are based upon (i) any untrue
      statement or alleged untrue statement of a material fact contained in the
      registration statement, or any amendment thereof, or in any preliminary
      prospectus or the prospectus, or any amendment thereof or supplement thereto,
      or
      in a Blue Sky Application, or (ii) the omission or the alleged omission to
      state
      in any such registration statement, preliminary prospectus or prospectus,
      amendment thereof or supplement thereto, or Blue Sky Application a material
      fact
      required to be stated therein or necessary to make the statements made therein
      not misleading, in each case to the extent, but only to the extent, that the
      same was made therein or omitted therefrom in reliance upon and in conformity
      with written information furnished to the Company by or on behalf of such holder
      specifically for use in the preparation thereof, and agrees to reimburse each
      such indemnified party for any legal or other expenses reasonably incurred
      by it
      in connection with investigating or defending against any such loss, claim,
      damage, liability or action. The indemnify provided for in this Section shall
      remain in full force and effect regardless of any investigation made by or
      on
      behalf of the indemnified party and shall survive any transfer of the Warrant
      Shares by the indemnified party. This indemnity agreement will be in addition
      to
      any liability that the holder may otherwise have.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (C)  Within
      five (5) days after receipt by an indemnified party under this Section of notice
      of the commencement of any action, such indemnified party shall, if a claim
      in
      respect thereof is to be made against an indemnifying party under either of
      such
      sections, notify the indemnifying party in writing of the commencement thereof;
      the failure so to notify the indemnifying party shall relieve the indemnifying
      party from any liability under this Section as to the particular item for which
      indemnification is then being sought, unless such indemnifying party has
      otherwise received actual notice of the action at least thirty (30) days before
      any answer or response is required by the indemnifying party in its defense
      of
      such action, but will not relieve it from any liability that it may have to
      any
      indemnified party otherwise than under this Section. If any such action is
      brought against any indemnified party and it notifies the indemnifying party
      of
      the commencement thereof, the indemnifying party will be entitled to participate
      therein and, to the extent that it may elect by written notice delivered to
      the
      indemnified party promptly after receiving the aforesaid notice from such
      indemnified party, to assume the defense thereof; provided, that if the
      defendants in any such action include both the indemnified party and the
      indemnifying party and either (i) the indemnifying party or parties agree,
      or
      (ii) in the opinion of counsel for the indemnifying parties, representation
      of
      both the indemnifying party or parties and the indemnified party or parties
      by
      the same counsel is inappropriate under applicable standards of professional
      conduct because of actual or potential conflicting interests between them,
      then
      the indemnified party or parties shall have the right to select separate counsel
      to assume such legal defense and to otherwise participate in the defense of
      such
      action. The indemnifying party will not be liable to such indemnified party
      under this Section for any legal or other expenses subsequently incurred by
      such
      indemnified party in connection with the defense thereof unless (x) the
      indemnified party shall have employed counsel in connection with the assumption
      of legal defenses in accordance with the proviso to the immediately preceding
      sentence (it being understood, however, that the indemnifying party shall not
      be
      liable for the expenses of more than one separate counsel in each jurisdiction
      which counsel is approved by indemnified parties (whether pursuant to this
      Warrant, or other Warrants issued by the Company or other agreements if the
      claim relates to the same or similar allegations) holding a majority of the
      shares as to which indemnification is claimed), (ii) the indemnifying party
      shall not have employed counsel to represent the indemnified party within a
      reasonable time after notice of commencement of the action, or (iii) the
      indemnifying party has authorized the employment of counsel for the indemnified
      party at the expense of the indemnifying party. In no event shall an
      indemnifying party be liable under this Section for any settlement, effected
      without its written consent, which consent shall not be unreasonably withheld,
      of any claim or action against an indemnified party.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (D)  If
      the
      indemnification provided for in this Section shall for any reason be unavailable
      to an indemnified party under this Section in respect of any Losses, then,
      in
      lieu of the amount paid or payable under said Section the indemnified party
      and
      the indemnifying party under said Section shall contribute to the aggregate
      Losses (including legal or other expenses reasonably incurred in connection
      with
      investigating the same) (i) in such proportion as is appropriate to reflect
      the
      relative fault of the Company and the prospective sellers of Warrant Shares
      covered by the registration statement which resulted in such Loss or action
      in
      respect thereof, with respect to the statements, omissions or action which
      resulted in such Loss or action in respect thereof, as well as any other
      relevant equitable considerations, or (ii) if the allocation provided by clause
      (i) above is not permitted by applicable law, in such proportion as shall be
      appropriate to reflect the relative benefits received by the Company, on the
      one
      hand, and such prospective sellers, on the other hand, from their sale of
      Warrant Shares; provided, that, for purposes of this clause (ii), the relative
      benefits received by any prospective sellers shall be deemed not to exceed
      (and
      the amount to be contributed by any prospective seller shall not exceed) the
      amount received by such seller. 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 obligations, if any, of the holders of Warrant Shares
      to
      contribute as provided in this Section are several in proportion to the relative
      value of their respective Warrant Shares covered by such registration statement
      and not joint. In addition, no person shall be obligated to contribute hereunder
      any amounts in payment for any settlement of any action or Losses effected
      without such person’s consent.

     

    (E)  Neither
      the giving of any notice by any holder nor the making of any request for
      prospectuses shall impose any upon any holder making such request any obligation
      to sell any Warrant Shares or exercise any Warrants.

     

    (F)  In
      connection with any registration statement filed pursuant to this Section the
      Company shall supply prospectuses and qualify the Warrant Shares for sale in
      such states as the Company is otherwise qualifying shares of Common Stock being
      registered thereunder, provided, that the Company shall not be required to
      qualify or register the Warrant Shares in any jurisdiction where such
      qualification or registration would require the Company to submit generally
      to
      the jurisdiction of such state.

     

    (3)  As
      a
      condition to the inclusion of the Warrant Shares of the holder of this Warrant,
      in any registration statement pursuant to this Section the holder
      shall:

     

    (A)  furnish
      the information and indemnification as set forth in this Section, together
      with
      any additional information which the Company may request in order to enable
      it
      to file the registration statement and update such information immediately
      upon
      the occurrence of any events or condition which make the information concerning
      the holder inaccurate in any material respect;

     

    (B)  not
      sell
      any Warrant Shares pursuant to the registration statement except in the manner
      set forth in the registration statement;

     

    (C)  comply
      with the prospectus delivery requirements and the provisions of Regulation
      M of
      the Commission pursuant to the Securities Act; 

     

    (D)  not
      sell
      or otherwise transfer or distribute any Warrant Shares if the holder possesses
      any material nonpublic information concerning the Company; 

     

    (E)  not
      sell
      or otherwise transfer any Warrant Shares pursuant to a registration statement
      upon receipt of advice from the Company that the registration statement is
      no
      longer current until the holder is advised that the Warrant Shares may be sold
      pursuant to the registration statement; and

     

    (F)  agree
      to
      indemnity and confidentiality provisions and the restrictions on sale set forth
      in this Warrant.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (4)
      (A)
The
      term
“Excusable Reason” means the occurrence of negotiations with respect to material
      agreements prior to the announcement of the execution of the agreement or the
      termination of the negotiations and other similar material corporate events
      to
      which the Company is a party or expects to be a party if, in the reasonable
      judgment of the Company, disclosure of the negotiations or other event would
      be
      adverse to the best interests of the Company provided that the Company is
      continuing to treat such negotiations as confidential and provided further
      that
      the period during which the Company is precluded from filing the registration
      statement (or suspended the use of an effective registration statement) as
      a
      result of any Excusable Reason has not exceeded one hundred twenty (120) days
      in
      any twelve month period.

     

    (B)  Any
      information relating to an Excusable Reason shall be deemed to be confidential
      information regardless of whether it is expressly marked as confidential.
      Information that is or becomes available to a holder of Warrant Shares from
      a
      public source or is disclosed to a holder of Warrant Shares by a third-party
      source who has the right to disclose such information shall not be deemed to
      be
      confidential information for purposes of this Section. Each holder shall
      indemnify and hold harmless the Company, its officer, directors and counsel
      from
      and against any Losses which they may incur as a result of any breach of the
      provisions of this Section.

     

    (C)  Notwithstanding
      any provisions of this Section of this Warrant, the Company shall not be
      required to file a registration statement or take any action to cause a
      registration statement to become effective for an Excusable Reason, and, if
      the
      registration statement covering Warrant Shares has been declared effective,
      the
      Company shall notify the holder, and the holder shall not sell any Warrant
      Shares pursuant to a registration statement or otherwise as long as an Excusable
      Reason exists.

     

    (5) Nothing
      in this Section shall be construed to restrict the ability of any Selling Holder
      to sell Warrant Shares in a transaction which is exempt from registration
      pursuant to Rule 144 of the Commission pursuant to Securities Act.

     

    (6) The
      Company’s agreements with respect to Warrants or Warrant Shares in this Section
      shall continue in effect regardless of the exercise and surrender of this
      Warrant.

     

    (7) The
      provisions of this Section relate to the Warrant Shares, and no holder shall
      have any right to register or require the Company to register the
      Warrants.

     

    (i) TRANSFER
      TO COMPLY WITH THE SECURITIES ACT. This Warrant or the Warrant Shares or any
      other security issued or issuable upon exercise of this Warrant may not be
      sold
      or otherwise disposed of except as follows:

     

    (1)  To
      a
      person who, in the opinion of counsel for the Company, is a person to whom
      this
      Warrant or Warrant Shares may legally be transferred without registration and
      without the delivery of a current prospectus under the Securities Act and in
      compliance with applicable state securities laws with respect thereto and then
      only against receipt of an agreement of such person to comply with the
      provisions of this Section with respect to any resale or other disposition
      of
      such securities which agreement shall be satisfactory in form and substance
      to
      the Company and its counsel; or

     

    (2)  To
      any
      person upon delivery of a prospectus then meeting the requirements of the
      Securities Act and state securities laws relating to such securities and the
      offering thereof for such sale or disposition.

     

    (j)
      CASHLESS EXERCISE

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (1)
      Except as described below, if a Registration Statement registering shares
      issuable upon the exercise of this Warrant is effective and the Holder may
      sell
      its shares of Common Stock upon exercise hereof pursuant to the Registration
      Statement, this Warrant may be exercisable in whole or in part for cash only
      as
      set forth in this Warrant. If no such Registration Statement is
      available
      during
      the Effective Period, then payment upon exercise may be made at the option
      of
      the Holder either in (i) cash, by wire transfer or certified or official
      bank check payable to the order of the Company equal to the applicable aggregate
      Exercise Purchase Price, (ii) by cashless exercise in accordance with
      Section (b) below or (iii) by a combination of any of the
      foregoing methods, for the number of Common Stock specified in such form (as
      such exercise number shall be adjusted to reflect any adjustment in the total
      number of shares of Common Stock issuable to the holder per the terms of this
      Warrant) and the holder shall thereupon be entitled to receive the number of
      duly authorized, validly issued, fully-paid and non-assessable shares of Common
      Stock determined as provided herein. 

    

    (2)
      If
      the Purchase Form elects a "cashless" exercise, the Holder shall thereby be
      entitled to receive a number of shares of Common Stock equal to (x) the excess
      of the Current Market Value (as defined below) over the total cash exercise
      price of the portion of the Warrant then being exercised, divided by (y) the
      Market Price of the Common Stock as of the trading day immediately prior to
      the
      date of exercise. For the purposes of this Warrant, the term "Current Market
      Value" shall be an amount equal to the Market Price of the Common Stock as
      of
      the trading day immediately prior to the Exercise Date, multiplied by the number
      of shares of Common Stock specified in such Purchase Form, and "Market Price
      of
      the Common Stock" shall be the average of the closing bid price of the Common
      Stock (as reported by Bloomberg L.P. for the Principal Market) for the 5 Trading
      days prior to the exercise date. Principal Market shall mean the
      American Stock Exchange, SmallCap, Nasdaq National Market System, OTC Bulletin
      Board, or New York Stock Exchange (whichever of the foregoing is at the time
      the
      principal trading exchange or market for the Common Stock. The
      Holder may employ the cashless exercise feature described in this Section only
      if during the Exercise Period a registration statement registering the shares
      issuable upon exercise of this Warrant is not effective. 

    

     

    

     

    Dated
      as
      of February 14, 2007

     

    ARMITAGE
      MINING CORP., 

    

    By:/s/
       Michael
      Potts              

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    PURCHASE
      FORM

     

    The
      undersigned, pursuant to the provisions set forth in the attached Warrant hereby
      irrevocably elects to purchase (check applicable box):

    

    ___ ________
      shares of the Common Stock covered by such Warrant; or

    ___ the
      maximum number of shares of Common Stock covered by such Warrant pursuant to
      the
      cashless exercise procedure set forth in such Warrant. 

    

    The
      undersigned herewith makes payment of the full purchase price for such shares
      at
      the price per share provided for in such Warrant, which is $___________. Such
      payment takes the form of (check applicable box or boxes):

    ___ $__________
      in lawful money of the United States; and/or

    ___ the
      cancellation of the Warrant to the extent necessary, in accordance with the
      formula set forth in such Warrant, to exercise this Warrant with respect to
      the
      maximum number of shares of Common Stock purchasable pursuant to the cashless
      exercise procedure set forth in such Warrant. 

    

    The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to _____________________________________________________
      whose
      address is
      __________________________________________________________________________________________________________________________________________________________________________

    

    The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the “Securities Act”), or pursuant to an exemption from registration
      under the Securities Act.

    
      	
              Dated:___________________

            	
               

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

               

              ____________________________________

              ____________________________________

              (Address)

            

    

    

     

    

     

    _________________________________________
      

     

     

     

    
      
         

      

      
        8Exhibit 10.1
                                                                    ------------

--------------------------------------------------------------------------------

                                  CHATTEM, INC.
                                  -------------
                            (a Tennessee corporation)

                    1.625% Convertible Senior Notes due 2014

                               PURCHASE AGREEMENT

Dated:  April 4, 2007

--------------------------------------------------------------------------------

<PAGE>

                                  Chattem, Inc.

                            (a Tennessee corporation)

                                   $85,000,000
                    1.625% Convertible Senior Notes due 2014

                               PURCHASE AGREEMENT

                                                                   April 4, 2007

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
      Incorporated

North Tower
World Financial Center
New York, New York 10281

Ladies and Gentlemen:

         Chattem,  Inc., a Tennessee  corporation (the "Company"),  confirms its
agreement  with  Merrill  Lynch & Co.,  Merrill  Lynch,  Pierce,  Fenner & Smith
Incorporated  ("Merrill  Lynch" or the "Initial  Purchaser") with respect to the
issue and sale by the Company and the  purchase  by the  Initial  Purchaser,  of
$85,000,000  aggregate  principal  amount of the  Company's  1.625%  Convertible
Senior Notes due 2014 (the  "Securities"),  and with respect to the grant by the
Company to the Initial  Purchaser of the option described in Section 2(b) hereof
to purchase all or any part of an  additional  $15,000,000  principal  amount of
Securities to cover over-allotments, if any. The aforesaid $85,000,000 principal
amount of Securities  (the "Initial  Securities") to be purchased by the Initial
Purchaser and all or any part of the $15,000,000  principal amount of Securities
subject to the option described in Section 2(b) hereof (the "Option Securities")
are hereinafter called, collectively, the "Securities". The Securities are to be
issued  pursuant  to an  indenture  to  be  dated  as of  April  11,  2007  (the
"Indenture") between the Company and U.S. Bank, National Association, as trustee
(the "Trustee").  Securities  issued in book-entry form will be issued to Cede &
Co. as nominee of the  Depository  Trust  Company  ("DTC")  pursuant to a letter
agreement,  to be dated as of the Closing Time (as defined in Section 2(c)) (the
"DTC Agreement"), among the Company, the Trustee and DTC.

         The  Securities  are  convertible,  subject  to certain  conditions  as
described in the Offering Memorandum (as defined below),  prior to maturity into
shares of common stock,  without par value,  of the Company (the "Common Stock")
in accordance with the terms of the Securities and the Indenture.

         On or prior to the  Closing  Time (as  defined  in Section  2(c)),  the
Company  will  enter  into a  registration  rights  agreement  with the  Initial
Purchaser (the "Registration  Rights Agreement"),  pursuant to which, subject to
the conditions  set forth therein,  the Company will be required to file and use
its commercially  reasonable  efforts to have declared  effective a registration
statement (the "Registration  Statement") under the 1933 Act to register resales
of the  Securities  and the  shares of Common  Stock  issuable  upon  conversion
thereof.

                                       1
<PAGE>

         The Company  understands that the Initial Purchaser proposes to make an
offering of the  Securities  on the terms and in the manner set forth herein and
agrees that the Initial  Purchaser  may resell,  subject to the  conditions  set
forth herein,  all or a portion of the  Securities  to  purchasers  ("Subsequent
Purchasers")  at any time after this  Agreement has been executed and delivered.
The Securities are to be offered and sold through the Initial  Purchaser without
being  registered under the Securities Act of 1933, as amended (the "1933 Act"),
in reliance upon exemptions  therefrom.  Pursuant to the terms of the Securities
and the  Indenture,  investors  that  acquire  Securities  may  only  resell  or
otherwise  transfer such Securities if such Securities are hereafter  registered
under the 1933 Act or if an exemption from the registration  requirements of the
1933 Act is  available  (including  the  exemption  afforded by Rule 144A ("Rule
144A")  of the  rules  and  regulations  promulgated  under  the 1933 Act by the
Securities and Exchange Commission (the "Commission")).

         The Company has (a)  prepared and  delivered  to the Initial  Purchaser
copies  of  a  preliminary   offering   memorandum  dated  April  3,  2007  (the
"Preliminary  Offering Memorandum") and (b) has prepared and will deliver to the
Initial Purchaser,  as promptly as possible prior to the Closing Time, copies of
a  final  offering   memorandum   dated  April  4,  2007  (the  "Final  Offering
Memorandum"),  each for use by such  Initial  Purchaser in  connection  with its
solicitation  of  purchases  of,  or  offering  of,  the  Securities.  "Offering
Memorandum"  means,  with  respect  to any  date  or  time  referred  to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, as amended and supplemented at such
time),  including  exhibits  thereto,  if any,  and any  documents  incorporated
therein by  reference,  which has been  prepared and delivered by the Company to
the Initial  Purchaser in connection  with its  solicitation of purchases of, or
offering of, the Securities.

         All references in this Agreement to financial  statements and schedules
and other  information  which is  "contained,"  "included"  or  "stated"  in the
Offering Memorandum (or other references of like import) shall be deemed to also
include all such financial  statements and schedules and other information which
are incorporated by reference in the Offering Memorandum;  and all references in
this Agreement to amendments or supplements to the Offering  Memorandum shall be
deemed to also include the filing after the date of such Offering  Memorandum of
any document  under the  Securities  Exchange Act of 1934, as amended (the "1934
Act") which is incorporated by reference in the Offering Memorandum.

SECTION 1.        Representations and Warranties by the Company.
                  ---------------------------------------------

     (a) Representations and Warranties.  The Company represents and warrants to
the Initial  Purchaser as of the date hereof and as of Closing Time  referred to
in Section 2(c) hereof,  and as of each Date of Delivery (if any) referred to in
Section 2(b) hereof, and agrees with the Initial Purchaser, as follows:

          (i)  Disclosure  Package  and  Final  Offering  Memorandum.  As of the
     Applicable  Time (as defined below),  neither (x) the Preliminary  Offering
     Memorandum as of the Applicable  Time as  supplemented by the final pricing
     term  sheet,  in the form  attached  hereto  as  Schedule  B (the  "Pricing
     Supplement")  and as otherwise  supplemented  or amended at such time,  all
     considered together (collectively,  the "Disclosure Package"),  nor (y) any
     individual   Supplemental  Offering  Materials  (as  defined  below),  when
     considered  together  with the  Disclosure  Package,  included  any  untrue
     statement of a material fact or omitted to state a material fact  necessary
     in order to make the statements  therein, in the light of the circumstances
     under which they were made, not  misleading.  "Applicable  Time" means 5:30
     P.M.  (Eastern  time) on April 4, 2007 or such  other time as agreed by the
     Company and Merrill Lynch.

                                       2
<PAGE>

          "Supplemental  Offering  Materials" means any "written  communication"
     (within  the  meaning  of the  1933 Act  Regulations  (as  defined  below))
     prepared  by or on behalf of the  Company,  or used or  referred  to by the
     Company, that constitutes an offer to sell or a solicitation of an offer to
     buy the Securities  other than the Preliminary  Offering  Memorandum or the
     Final Offering  Memorandum or amendments or supplements  thereto (including
     the  Pricing  Supplement),  including,  without  limitation,  any  "written
     communication" used during any road show relating to the Securities.

          As of its issue date and as of the  Closing  Time (and,  if any Option
     Securities  are  purchased,  at the Date of Delivery),  the Final  Offering
     Memorandum will not include an untrue  statement of a material fact or omit
     to state a material fact necessary in order to make the statements therein,
     in the  light  of  the  circumstances  under  which  they  were  made,  not
     misleading.

          The  representations and warranties in this subsection shall not apply
     to statements in or omissions from the Disclosure Package, any supplemental
     offering  materials or the Final Offering  Memorandum made in reliance upon
     and in  conformity  with  written  information  furnished to the Company by
     Merrill Lynch expressly for use therein.

          (ii) Incorporated Documents. The Offering Memorandum as delivered from
     time to time shall  incorporate  by reference the most recent Annual Report
     of the Company on Form 10-K filed with the  Commission  and each  Quarterly
     Report of the Company on Form 10-Q and each  Current  Report of the Company
     on Form 8-K filed with the  Commission  since the end of the fiscal year to
     which such Annual Report relates.  The documents  incorporated or deemed to
     be  incorporated  by reference in the Offering  Memorandum at the time they
     were or hereafter are filed with the Commission complied and will comply in
     all material  respects with the  requirements of the 1934 Act and the rules
     and regulations of the Commission thereunder (the "1934 Act Regulations").

          (iii)  Independent  Accountants.  The  accountants who expressed their
     opinion with respect to the financial  statements and supporting  schedules
     included in the  Disclosure  Package and Final  Offering  Memorandum  are a
     registered public accounting firm and independent  public  accountants with
     respect to the Company and its subsidiaries  within the meaning of the 1933
     Act and the rules and regulations thereunder (the "1933 Act Regulations").

          (iv) Financial Statements. The financial statements, together with the
     related schedules and notes,  included in the Disclosure  Package and Final
     Offering Memorandum,  present fairly in all material respects the financial
     position of the Company and its subsidiaries at the dates indicated and the
     statement of operations, shareholders' equity and cash flows of the Company
     and its  subsidiaries  for the  periods  specified,  except as noted in the
     notes thereto;  said financial  statements have been prepared in conformity
     with  generally  accepted  accounting  principles  ("GAAP")  applied  on  a
     consistent basis throughout the periods involved. The supporting schedules,
     if any, included in the Disclosure  Package and Final Offering  Memorandum,
     present  fairly in  accordance  with GAAP the  information  required  to be
     stated  therein.  The selected  financial  data included in the  Disclosure
     Package  and Final  Offering  Memorandum  present  fairly  in all  material
     respects the  information  shown  therein and have been compiled on a basis
     consistent with that of the audited  financial  statements  included in the
     Disclosure Package and Final Offering  Memorandum.  The pro forma financial
     statements  of the  Company  and its  subsidiaries  and the  related  notes
     thereto  included  in  the  Disclosure   Package  and  the  Final  Offering
     Memorandum present fairly the information shown therein, have been prepared
     in accordance  with the  Commission's  rules and guidelines with respect to
     pro forma financial statements and have been properly compiled on the bases

                                       3
<PAGE>

     described therein,  and the assumptions used in the preparation thereof are
     reasonable and the adjustments  used therein are appropriate to give effect
     to the transactions and circumstances referred to therein.

          (v) No Material Adverse Change in Business. Since the respective dates
     as of which  information  is  given in the  Disclosure  Package  and  Final
     Offering Memorandum, except as otherwise stated therein, (A) there has been
     no material adverse change in the condition,  financial or otherwise, or in
     the earnings, business affairs or business prospects of the Company and its
     subsidiaries  considered as one  enterprise,  whether or not arising in the
     ordinary course of business (a "Material Adverse  Effect"),  (B) there have
     been no transactions entered into by the Company or its subsidiaries, other
     than those in the  ordinary  course of business,  which are  material  with
     respect to the Company and its  subsidiaries  considered as one enterprise,
     and (C) there has been no dividend or  distribution  of any kind  declared,
     paid or made by the Company on any class of its capital stock.

          (vi) Good  Standing of the Company and its  Subsidiaries.  Each of the
     Company  and its  subsidiaries  has  been  duly  organized  and is  validly
     existing and in good  standing  under the laws of the  jurisdiction  of its
     organization,  has corporate  power and authority to own, lease and operate
     its  properties  and to conduct its business as described in the Disclosure
     Package and Final  Offering  Memorandum  and is duly qualified as a foreign
     corporation  to  transact   business  and  is  in  good  standing  in  each
     jurisdiction in which such qualification is required,  whether by reason of
     the  ownership  or leasing of property or the conduct of  business,  except
     where the failure so to qualify or to be in good standing  would not result
     in a  Material  Adverse  Effect;  except  as  otherwise  disclosed  in  the
     Disclosure  Package and Final  Offering  Memorandum,  all of the issued and
     outstanding  capital stock of each  subsidiary has been duly authorized and
     validly  issued,  is  fully  paid  and  non-assessable  and is owned by the
     Company,  directly or through subsidiaries,  free and clear of any security
     interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
     outstanding  shares  of  capital  stock of any  subsidiary  was  issued  in
     violation of any preemptive or similar rights of any securityholder of such
     subsidiary.

          (vii)  Capitalization  and  Other  Capital  Stock  Matters.  The total
     shareholders'  equity  of the  Company  is as set  forth in the  Disclosure
     Package and Final Offering Memorandum in the column entitled "Actual" under
     the caption  "Capitalization" as of the respective dates set forth therein,
     and the  actual,  authorized,  issued and  outstanding  number of shares of
     Common  Stock  of the  Company  is as set  forth  in the  section  entitled
     "Description of Capital Stock" in the Disclosure Package and Final Offering
     Memorandum as of the date set forth therein, and there have been no changes
     to such amounts (except for subsequent issuances,  if any, pursuant to this
     Agreement, pursuant to reservations,  agreements, employee stock or benefit
     plans referred to in the Disclosure  Package and Final Offering  Memorandum
     or pursuant to the exercise of convertible  securities or options  referred
     to in the Disclosure  Package and Final Offering  Memorandum or repurchases
     of  Common  Stock  pursuant  to  a  board  of  directors  authorized  stock
     repurchase program).  The Common Stock conforms in all material respects to
     the  description  thereof  set forth in the  Disclosure  Package  and Final
     Offering  Memorandum.  All of the  outstanding  shares of Common Stock have
     been duly authorized and validly issued,  are fully paid and  nonassessable
     and have been issued in compliance with federal and state  securities laws.
     Upon  issuance  and  delivery of the  Securities  in  accordance  with this
     Agreement and the  Indenture,  the  Securities  will be  convertible at the
     option of the holder thereof into shares of Common Stock in accordance with
     the terms of the Securities  and the Indenture;  the shares of Common Stock
     issuable upon  conversion of the Securities  have been duly  authorized and
     reserved for  issuance  upon such  conversion  by all  necessary  corporate
     action and such shares, when issued upon such conversion in accordance with
     the terms of the Securities,  will be validly issued and will be fully paid
     and  non-assessable;  no holder of such  shares will be subject to personal

                                       4
<PAGE>

     liability by reason of being such a holder; and the issuance of such shares
     upon such conversion will not be subject to the preemptive or other similar
     rights of any securityholder of the Company. None of the outstanding shares
     of Common Stock were issued in violation of any preemptive  rights,  rights
     of first  refusal or other  similar  rights to  subscribe  for or  purchase
     securities of the Company.  There are no authorized or outstanding options,
     warrants,  preemptive  rights,  rights of first  refusal or other rights to
     purchase, or equity or debt securities  convertible into or exchangeable or
     exercisable for, any capital stock of the Company or its subsidiaries other
     than  those  described  in  the  Disclosure   Package  and  Final  Offering
     Memorandum  (except  for  subsequent  issuances,  if any,  pursuant to this
     Agreement,  pursuant to  reservations,  agreements,  employee benefit plans
     referred to in the  Disclosure  Package and Final  Offering  Memorandum  or
     pursuant to the exercise of convertible  securities or options  referred to
     in the Disclosure Package and Final Offering  Memorandum).  The description
     of the  Company's  stock  option,  stock  bonus  and other  stock  plans or
     arrangements, and the options or other rights granted thereunder, set forth
     or incorporated  by reference in the Disclosure  Package and Final Offering
     Memorandum,  accurately  and fairly  describes  such  plans,  arrangements,
     options and rights in all material respects.

          (viii) Stock Exchange Listing. The Common Stock is registered pursuant
     to Section  12(b) of the 1934 Act and is listed on the Nasdaq Global Select
     Market (the "NASDAQ"),  and the Company has taken no action designed to, or
     likely to have the effect of,  terminating  the  registration of the Common
     Stock under the 1934 Act or delisting the Common Stock from the NASDAQ, nor
     has the Company received any notification that the Commission or the NASDAQ
     is contemplating terminating such registration or listing.

          (ix)  Corporate  Power.  The Company has  corporate  right,  power and
     authority  to execute and  deliver  this  Agreement,  the  Securities,  the
     Indenture,  and  the  Registration  Rights  Agreement  (collectively,   the
     "Transaction  Documents")  and to perform  its  obligations  hereunder  and
     thereunder;  and all  action  required  to be taken for the due and  proper
     authorization,  execution and delivery of each of the Transaction Documents
     and the consummation of the transactions contemplated thereby has been duly
     and validly taken.

          (x)   Authorization  of  Agreement.   This  Agreement  has  been  duly
     authorized, executed and delivered by, and is a valid and binding agreement
     of, the Company,  enforceable in accordance  with its terms,  except as the
     enforcement  thereof may be limited by bankruptcy,  insolvency  (including,
     without   limitation,   all  laws   relating  to   fraudulent   transfers),
     reorganization,  moratorium  or other similar laws relating to or affecting
     enforcement  of creditors'  rights  generally and by general  principles of
     equity (regardless of whether  enforcement is considered in a proceeding in
     equity or at law).

          (xi)  Authorization  of the  Indenture.  The  Indenture  has been duly
     authorized  by the Company and,  when executed and delivered by the Company
     and the  Trustee,  will  constitute  a valid and binding  agreement  of the
     Company,  enforceable  against  the Company in  accordance  with its terms,
     except as the enforcement thereof may be limited by bankruptcy,  insolvency
     (including, without limitation, all laws relating to fraudulent transfers),
     reorganization,  moratorium  or other similar laws relating to or affecting
     enforcement  of creditors'  rights  generally and by general  principles of
     equity (regardless of whether  enforcement is considered in a proceeding in
     equity or at law).

          (xii)  Authorization  of  the  Registration   Rights  Agreement.   The
     Registration  Rights Agreement has been duly authorized by the Company and,
     at the Closing  Time,  will be duly  executed  and  delivered  by, and will
     constitute a valid and binding  agreement of, the Company,  enforceable  in

                                       5
<PAGE>

     accordance with its terms, except as the enforcement thereof may be limited
     by bankruptcy, insolvency (including, without limitation, all laws relating
     to fraudulent transfers), reorganization,  moratorium or other similar laws
     relating to or affecting  enforcement of creditors'  rights  generally,  by
     general  principles  of  equity  (regardless  of  whether   enforcement  is
     considered  in a  proceeding  in  equity  or at law)  and,  as to rights of
     indemnification, by principles of public policy.

          (xiii) Authorization of the Securities.  The Securities have been duly
     authorized  and,  at  Closing  Time,  will have been duly  executed  by the
     Company  and,  when  authenticated,  issued  and  delivered  in the  manner
     provided for in the Indenture and delivered against payment of the purchase
     price therefor as provided in this  Agreement,  will  constitute  valid and
     binding  obligations  of the  Company,  enforceable  against the Company in
     accordance  with their  terms,  except as the  enforcement  thereof  may be
     limited by bankruptcy,  insolvency (including, without limitation, all laws
     relating  to  fraudulent  transfers)  reorganization,  moratorium  or other
     similar laws affecting  enforcement of creditors'  rights  generally and by
     general  principles  of  equity  (regardless  of  whether   enforcement  is
     considered  in a proceeding  in equity or at law),  and will be in the form
     contemplated by, and entitled to the benefits of, the Indenture.

          (xiv)  Description of Transaction  Documents.  The  description of the
     Transaction  Documents and the rights,  preferences  and  privileges of the
     capital stock of the Company, including the shares of Common Stock issuable
     upon conversion of the Securities,  contained in the Disclosure Package and
     Final Offering Memorandum, are accurate in all material respects.

          (xv) Absence of Defaults and Conflicts. Neither the Company nor any of
     its subsidiaries is in violation of its charter or by-laws or in default in
     the  performance or observance of any  obligation,  agreement,  covenant or
     condition contained in any contract,  indenture,  mortgage,  deed of trust,
     loan or credit  agreement,  note, lease or other agreement or instrument to
     which the Company or any of its  subsidiaries is a party or by which or any
     of them may be  bound,  or to which  any of the  property  or assets of the
     Company or any of its  subsidiaries is subject  (collectively,  "Agreements
     and  Instruments")  except  for such  defaults  that  would not result in a
     Material Adverse Effect; and the execution, delivery and performance of the
     Transaction Documents and any other agreement or instrument entered into or
     issued or to be entered  into or issued by the Company in  connection  with
     the  transactions  contemplated  hereby  or  thereby  or in the  Disclosure
     Package  and  Final  Offering   Memorandum  and  the  consummation  of  the
     transactions  contemplated  herein and in the Disclosure  Package and Final
     Offering Memorandum  (including the issuance and sale of the Securities and
     the use of the proceeds from the sale of the Securities as described in the
     Disclosure Package and Final Offering  Memorandum under the caption "Use of
     Proceeds") and compliance by the Company with its obligations  hereunder do
     not and will not,  whether  with or without the giving of notice or passage
     of time or both,  conflict  with or  constitute  a breach of, or default or
     Repayment  Event (as defined  below)  under,  or result in the  creation or
     imposition of any lien,  charge or encumbrance  upon any property or assets
     of  the  Company  or  any  subsidiary   pursuant  to,  the  Agreements  and
     Instruments  except for such  conflicts,  breaches or defaults or Repayment
     Events or liens,  charges or encumbrances that, singly or in the aggregate,
     would not result in a Material Adverse Effect,  nor will such action result
     in any violation of the provisions of the charter or by-laws of the Company
     or its  subsidiaries  or any applicable  law,  statute,  rule,  regulation,
     judgment,   order,   writ  or   decree   of  any   government,   government
     instrumentality or court, domestic or foreign, having jurisdiction over the
     Company or any subsidiary or any of their assets, properties or operations.
     As used  herein,  a "Repayment  Event"  means any event or condition  which
     gives the holder of any note,  debenture or other evidence of  indebtedness

                                       6
<PAGE>

     (or any person  acting on such  holder's  behalf)  the right to require the
     repurchase,   redemption   or  repayment  of  all  or  a  portion  of  such
     indebtedness by the Company or any subsidiary.

          (xvi)  Absence of  Proceedings.  Except as otherwise  disclosed in the
     Disclosure Package and Final Offering Memorandum,  there is no action, suit
     or  proceeding  before or  brought by any court or  governmental  agency or
     body,  domestic  or  foreign,  now  pending,  or, to the  knowledge  of the
     Company,  threatened,  against or affecting the Company or its subsidiaries
     which would  reasonably be expected to result in a Material Adverse Effect,
     or which would  reasonably be expected to materially  and adversely  affect
     the consummation of the transactions  contemplated by this Agreement or the
     performance by the Company of its obligations hereunder.

          (xvii)  Absence  of  Manipulation.  Neither  the  Company  nor  to its
     knowledge any  affiliate,  as such term is defined in Rule 501(b) under the
     1933 Act  ("Affiliate"),  of the Company has taken, nor will the Company or
     any Affiliate of the Company take, directly or indirectly, any action which
     is  designed  to or which has  constituted  or which  would  reasonably  be
     expected to cause or result in  stabilization  or manipulation of the price
     of any  security  of the  Company to  facilitate  the sale or resale of the
     Securities.

          (xviii)  Possession  of  Intellectual  Property.  Except as  otherwise
     disclosed in the  Disclosure  Package and Final  Offering  Memorandum,  the
     Company  and its  subsidiaries  own or  possess  adequate  patents,  patent
     rights, licenses, inventions, copyrights, know-how (including trade secrets
     and  other  unpatented  and/or  unpatentable  proprietary  or  confidential
     information, systems or procedures), trademarks, service marks, trade names
     or other  intellectual  property  (collectively,  "Intellectual  Property")
     related to the business  now operated by them,  and neither the Company nor
     its  subsidiaries  has  received  any notice or is  otherwise  aware of any
     infringement  of or conflict with asserted rights of others with respect to
     any  Intellectual  Property  or of any facts or  circumstances  which would
     render any  Intellectual  Property  invalid or  inadequate  to protect  the
     interest  of the  Company  or any of its  subsidiaries  therein,  and which
     infringement  or  conflict  (if the  subject of any  unfavorable  decision,
     ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
     would result in a Material Adverse Effect.

          (xix)   Absence  of  Further   Requirements.   No  filing   with,   or
     authorization,    approval,    consent,   license,   order,   registration,
     qualification  or decree of, any court or governmental  authority or agency
     is  necessary  or  required  for  the  performance  by the  Company  of its
     obligations hereunder, in connection with the offering, issuance or sale of
     the  Securities   hereunder  or  the   consummation  of  the   transactions
     contemplated  by the  Transaction  Documents  or  for  the  due  execution,
     delivery or performance of the Transaction Documents by the Company, except
     (A) such as have been  already  obtained or will be made on or prior to the
     Closing Time,  (B) as may be required under the securities or blue sky laws
     of the various states in which the  Securities  will be offered or sold and
     the 1933 Act and 1933  Regulations  with respect to the registration of the
     resale of the  Securities  under the 1933 Act pursuant to the  Registration
     Rights  Agreement and the Trust  Indenture Act of 1939, and (C) the listing
     requirements of NASDAQ, except those which, singly or in the aggregate,  if
     not made  would not  result in a  Material  Adverse  Effect or would have a
     material effect on the consummation of the transactions contemplated by the
     Transaction Documents.

          (xx)  Possession  of  Licenses  and  Permits.  The  Company  and  each
     subsidiary possess such valid and current  certificates,  authorizations or
     permits  issued by the  appropriate  state,  federal or foreign  regulatory
     agencies or bodies  necessary to conduct their respective  businesses,  and
     neither  the  Company  nor  any  subsidiary  has  received  any  notice  of
     proceedings   relating   to  the   revocation   or   modification   of,  or
     non-compliance  with, any such certificate,  authorization or permit which,

                                       7
<PAGE>

     singly or in the  aggregate,  if the  subject of an  unfavorable  decision,
     ruling or finding,  would reasonably be expected to have a Material Adverse
     Effect.

          (xxi) Title to Property.  The Company and each of its subsidiaries has
     good and marketable  title to all the  properties  and assets  reflected as
     owned in the  financial  statements  referred to in Section 1(iv) above (or
     elsewhere in the Disclosure Package and Final Offering Memorandum), in each
     case  free  and  clear  of  any  security  interests,   mortgages,   liens,
     encumbrances,  equities, claims and other defects, except (i) for liens for
     taxes not yet due or payable, (ii) as otherwise disclosed in the Disclosure
     Package and Final Offering  Memorandum or (iii) as would not,  individually
     or in the  aggregate,  reasonably  be expected  to have a Material  Adverse
     Effect.  The real property,  improvements,  equipment and personal property
     held under lease by the Company or any  subsidiary are held under valid and
     enforceable  leases,  with such  exceptions  as are not material and do not
     materially  interfere with the use made or proposed to be made of such real
     property,  improvements,  equipment or personal  property by the Company or
     such  subsidiary  to an extent that would  reasonably be expected to have a
     Material Adverse Effect.

          (xxii)  Environmental  Laws.  Except as  described  in the  Disclosure
     Package and Final Offering Memorandum and except such matters as would not,
     singly  or in the  aggregate,  result in a  Material  Adverse  Effect,  (A)
     neither the Company nor its  subsidiaries  is in  violation of any federal,
     state, local or foreign statute, law, rule,  regulation,  ordinance,  code,
     policy  or  rule  of  common  law  or  any   judicial   or   administrative
     interpretation  thereof,  including any judicial or  administrative  order,
     consent,  decree or judgment,  relating to pollution or protection of human
     health,  the  environment  (including,  without  limitation,  ambient  air,
     surface water, groundwater, land surface or subsurface strata) or wildlife,
     including, without limitation, laws and regulations relating to the release
     or threatened release of chemicals, pollutants, contaminants, wastes, toxic
     substances,   hazardous   substances,   petroleum  or  petroleum  products,
     asbestos-containing materials or mold (collectively, "Hazardous Materials")
     or to the manufacture,  processing,  distribution, use, treatment, storage,
     disposal,  transport  or handling  of  Hazardous  Materials  (collectively,
     "Environmental  Laws"),  (B) the  Company  and its  subsidiaries  have  all
     permits,   authorizations  and  approvals  required  under  any  applicable
     Environmental Laws and are each in compliance with their requirements,  (C)
     there  are  no  administrative,  regulatory  or  judicial  actions,  suits,
     demands,  demand  letters,  claims,  liens,  notices  of  noncompliance  or
     violation,  or proceedings relating to any Environmental Law pending or, to
     the Company's knowledge, threatened against the Company or its subsidiaries
     and (D) there  are no events or  circumstances  that  would  reasonably  be
     expected to form the basis of an order for clean-up or  remediation,  or an
     action,  suit or proceeding by any private  party or  governmental  body or
     agency,  against or affecting the Company or its  subsidiaries  relating to
     Hazardous Materials or Environmental Laws.

          (xxiii) Accounting Controls and Disclosure  Controls.  The Company and
     its  subsidiaries,  taken  as  a  whole,  maintain  a  system  of  internal
     accounting  controls  sufficient to provide reasonable  assurances that (A)
     transactions  are  executed  in  accordance  with  management's  general or
     specific  authorization;  (B)  transactions  are  recorded as  necessary to
     permit  preparation of financial  statements in conformity with GAAP and to
     maintain  accountability for assets; (C) access to assets is permitted only
     in accordance with management's general or specific authorization;  and (D)
     the recorded accountability for assets is compared with the existing assets
     at reasonable intervals and appropriate action is taken with respect to any
     differences.  Except  as  described  in the  Disclosure  Package  and Final
     Offering  Memorandum,  since the end of the Company's  most recent  audited
     fiscal  year,  there has been (1) no  material  weakness  in the  Company's
     internal  control over financial  reporting (as defined in Rules 13a-15 and
     15d-15 under the 1934 Act Regulations)  (whether or not remediated) and (2)
     no change in the Company's  internal control over financial  reporting that
     has materially affected,  or is reasonably likely to materially affect, the

                                       8
<PAGE>

     Company's  internal control over financial  reporting.  The Company and its
     subsidiaries,  taken as a whole,  employ disclosure controls and procedures
     (as defined in Rules 13a-15 and 15d-15 under the 1934 Act Regulations) that
     are  designed to ensure that  information  required to be  disclosed by the
     Company  in the  reports  that it files or  submits  under  the 1934 Act is
     recorded,  processed,  summarized  and  reported,  within the time  periods
     specified  in the  Commission's  rules and forms,  and is  accumulated  and
     communicated to the Company's management, including its principal executive
     officer  or  officers  and  principal  financial  officer or  officers,  as
     appropriate, to allow timely decisions regarding disclosure.

          (xxiv)  Compliance  with the  Sarbanes-Oxley  Act. The Company and its
     officers and  directors  are in  compliance  in all material  respects with
     applicable  provisions of the  Sarbanes-Oxley Act of 2002 and the rules and
     regulations  promulgated in connection therewith (the "Sarbanes-Oxley Act")
     that, with respect to the Company, are effective as of the date hereof.

          (xxv) Payment of Taxes. The Company and its consolidated  subsidiaries
     have filed all necessary  federal,  state and foreign  income and franchise
     tax returns and have paid all taxes required to be paid by any of them and,
     if due and  payable,  any  related or similar  assessment,  fine or penalty
     levied against any of them,  except such taxes that are being  contested in
     good faith and as to which  adequate  reserves  have been  provided  as set
     forth in the  following  sentence  and except  where the failure to file or
     failure to pay would not, individually or in the aggregate, have a Material
     Adverse  Effect.  The  Company  has made  adequate  charges,  accruals  and
     reserves  in the  applicable  financial  statements  referred to in Section
     1(iv)  above in  respect  of all  federal,  state and  foreign  income  and
     franchise  taxes  for all  periods  as to which  the tax  liability  of the
     Company  or any of its  consolidated  subsidiaries  has  not  been  finally
     determined.

          (xxvi)  Insurance.  The  Company  and its  subsidiaries  carry  or are
     entitled to the benefits of  insurance  in such  amounts and covering  such
     risks as is generally  deemed  adequate and customary for the businesses in
     which they are  currently  engaged and all such  insurance is in full force
     and effect, except in each case as would not reasonably be expected to have
     a Material Adverse Effect.  The Company has no reason to believe that it or
     its  subsidiaries  will  not be able (A) to renew  its  existing  insurance
     coverage  as and when such  policies  expire  or (B) to  obtain  comparable
     coverage from similar  institutions  as may be necessary or  appropriate to
     conduct its business as now  conducted  and at a cost that would not result
     in a Material Adverse Change.

          (xxvii) Investment Company Act. The Company is not required, and after
     giving  effect to the issuance and sale of the offered  Securities  and the
     application  of the net proceeds  therefrom as described in the  Disclosure
     Package and Final Offering  Memorandum under "Use of Proceeds," will not be
     required,  to  register as an  "investment  company"  under the  Investment
     Company Act of 1940, as amended (the "1940 Act").

          (xxviii) Registration Rights. Except for security holders who hold the
     Company's 2% Senior Convertible Notes due 2013 that were issued in November
     2006, there are no persons with registration rights or other similar rights
     to have any securities  registered by the Company under the 1933 Act, other
     than with respect to the registration of the resale of the Securities under
     the 1933 Act pursuant to the Registration Rights Agreement.

          (xxix) Similar Offerings. Neither the Company nor to its knowledge any
     of its Affiliates has, directly or indirectly,  solicited any offer to buy,
     sold or  offered to sell or  otherwise  negotiated  in respect  of, or will
     solicit any offer to buy,  sell or offer to sell or otherwise  negotiate in
     respect  of,  in the  United  States or to any  United  States  citizen  or

                                       9
<PAGE>

     resident, any security which is or would be integrated with the sale of the
     Securities  in a manner that would  require the  offered  Securities  to be
     registered under the 1933 Act.

          (xxx) Rule 144A  Eligibility.  The  Securities are eligible for resale
     pursuant to Rule 144A and will not be, at Closing  Time,  of the same class
     as securities  listed on a national  securities  exchange  registered under
     Section  6 of the 1934  Act,  or  quoted  in a U.S.  automated  interdealer
     quotation system.

          (xxxi) No General Solicitation. None of the Company, to its knowledge,
     its  Affiliates  or any person  acting on its or any of their behalf (other
     than the Initial Purchaser, as to whom the Company makes no representation)
     has engaged or will engage,  in connection with the offering of the offered
     Securities,  in any form of general  solicitation  or  general  advertising
     within the meaning of Rule 502(c) under the 1933 Act.

          (xxxii) No Registration Required. Subject to compliance by the Initial
     Purchaser with the  representations and warranties of the Initial Purchaser
     and the  procedures  set forth in Section 6 hereof,  it is not necessary in
     connection with the offer,  sale and delivery of the offered  Securities to
     the  Initial  Purchaser  and to each  Subsequent  Purchaser  in the  manner
     contemplated  by  this  Agreement  and the  Disclosure  Package  and  Final
     Offering  Memorandum  to register the  Securities  under the 1933 Act or to
     qualify the  Indenture  under the Trust  Indenture  Act of 1939, as amended
     (the "1939 Act").

          (xxxiii) ERISA  Compliance.  The Company and its  subsidiaries and any
     "employee  benefit plan" (as defined under the Employee  Retirement  Income
     Security  Act of  1974,  as  amended,  and the  regulations  and  published
     interpretations   thereunder   (collectively,   "ERISA"))   established  or
     maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as
     defined  below) are in  compliance  in all  material  respects  with ERISA.
     "ERISA  Affiliate"  means, with respect to the Company or its subsidiaries,
     any member of any group of  organizations  described in Sections 414, or of
     the Internal  Revenue Code of 1986,  as amended,  and the  regulations  and
     published  interpretations  thereunder (the "Code") of which the Company or
     its  subsidiaries  is a member.  No  "reportable  event" (as defined  under
     ERISA) has occurred or is reasonably  expected to occur with respect to any
     "employee  benefit plan"  established  or  maintained  by the Company,  its
     subsidiaries or any of their ERISA  Affiliates.  No "employee benefit plan"
     subject to Title IV of ERISA established or maintained by the Company,  its
     subsidiaries or any of their ERISA  Affiliates,  if such "employee  benefit
     plan"  were  terminated,   would  have  any  "amount  of  unfunded  benefit
     liabilities"   (as  defined   under  ERISA).   Neither  the  Company,   its
     subsidiaries  nor any of their ERISA  Affiliates has incurred or reasonably
     expects to incur any liability  under (i) Title IV of ERISA with respect to
     termination  of, or withdrawal  from,  any "employee  benefit plan" or (ii)
     Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
     established or maintained by the Company,  its subsidiaries or any of their
     ERISA  Affiliates that is intended to be qualified under Section 401 of the
     Code is so qualified and nothing has occurred, whether by action or failure
     to act, which would cause the loss of such qualification.

          (xxxiv)  Regulatory  Matters.  The  statements  made in the Disclosure
     Package and Final  Offering  Memorandum  under the captions "Risk Factors -
     Risk  Factors  Related  to Our  Business - Our  business  is  regulated  by
     numerous  federal,  state  and  foreign  governmental  authorities,   which
     subjects us to elevated  compliance costs and risk of  non-compliance"  and
     "Business  -  Government   Regulation,"   (collectively,   the  "Regulatory
     Sections")  fairly  present in all  material  respects the federal food and
     drug  regulatory  related laws and  regulations,  and all pending or to the
     Company's knowledge  threatened legal or governmental  proceedings relating

                                       10
<PAGE>

     to such laws or regulations that are material to the Company's  business in
     light of the  applicable  disclosure  requirements  under the 1934 Act. The
     Company's  business,  as  described  in the  Disclosure  Package  and Final
     Offering  Memorandum,  is  being  conducted  in all  material  respects  in
     compliance  with applicable  requirements  under the Federal Food, Drug and
     Cosmetics Act (the "FDC Act") and any regulations  issued thereunder and to
     the best of the  Company's  knowledge  there is no reason  for the Food and
     Drug Administration (the "FDA") or the Federal Trade Commission (the "FTC")
     to  initiate  enforcement  proceedings  against  the  Company,  its agents,
     employees  or  products  for any act or omission  related to the  Company's
     business.  Except as disclosed in the Disclosure Package and Final Offering
     Memorandum,  there  are no  administrative  enforcement  or  legal  actions
     pending or to the best of the Company's knowledge  threatened,  against the
     Company by the FDA or by the FTC and no material administrative enforcement
     or  legal  actions  pending  or to  the  best  of the  Company's  knowledge
     threatened,  against  the  Company  by any  other  federal,  state or local
     regulatory  agency.  To the  best of the  Company's  knowledge,  all of the
     facilities  contracted by the Company to manufacture the Company's products
     are in compliance in all material respects with the applicable  portions of
     the FDA's good  manufacturing  practice  regulations  and with any  similar
     manufacturing  practice regulations imposed by any state, local, or foreign
     government authority which are applicable to such facilities. The execution
     and delivery of this  Agreement  and the  consummation  of the  transaction
     contemplated in this Agreement,  in and of themselves,  (A) do not and will
     not (1) violate any  requirement  of the FDC Act or any  regulation  issued
     thereunder,  (2) result in the  creation of a lien,  charge or  encumbrance
     upon any property or assets of the Company or any of its  subsidiaries  due
     to the operation of the FDC Act or any regulation  issued  thereunder,  and
     (B) do not require any consent or approval by the FDA, the FTC or any other
     federal, state or local regulatory agency.

          (xxxv)  Public   Officials.   Neither  the  Company  nor  any  of  its
     subsidiaries nor, to the best of the Company's  knowledge,  any employee or
     agent of the Company or any subsidiary,  has made any contribution or other
     payment to any official of, or candidate for, any federal, state or foreign
     office  in  violation  of any law,  which  violation  would  reasonably  be
     expected  to have,  either  individually  or in the  aggregate,  a Material
     Adverse  Effect,  or of the  character  necessary  to be  disclosed  in the
     Disclosure  Package  and  Final  Offering  Memorandum  in order to make the
     statements therein not misleading in any material respect.

     (b) Officer's  Certificates.  Any certificate  signed by any officer of the
Company or its  subsidiaries  delivered to the Initial  Purchaser or counsel for
the  Initial  Purchaser  shall be deemed a  representation  and  warranty by the
Company to the Initial Purchaser as to the matters covered thereby.

     SECTION 2.   Sale and Delivery to the Initial Purchaser; Closing.
                  ---------------------------------------------------

     (a) Initial Securities. On the basis of the representations, warranties and
agreements  herein contained and subject to the terms and conditions  herein set
forth,  the  Company  agrees to sell to the Initial  Purchaser,  and the Initial
Purchaser  agrees  to  purchase  from the  Company,  at the  price  set forth in
Schedule A, $85,000,000 aggregate principal amount of Securities.

     (b) Option Securities. In addition, on the basis of the representations and
warranties  herein contained and subject to the terms and conditions  herein set
forth, the Company hereby grants an option to the Initial  Purchaser to purchase
up to an additional $15,000,000 principal amount of Securities at the same price
set forth in Schedule A for the Initial  Securities,  plus accrued interest,  if
any,  from the Closing  Date to the Date of Delivery  (as  defined  below).  The
option  hereby  granted  will  expire 13 days  after the date  hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments   which  may  be  made  in  connection  with  the  offering  and

                                       11
<PAGE>

distribution of the Initial  Securities upon notice by the Initial  Purchaser to
the  Company  setting  forth the  number of  Option  Securities  as to which the
Initial Purchaser is then exercising the option and the time and date of payment
and delivery for such Option  Securities.  Any such time and date of delivery (a
"Date of Delivery") shall be determined by the Initial Purchaser,  but shall not
be earlier than two full  business  days or later than seven full  business days
after the exercise of said option,  nor in any event prior to the Closing  Time,
as  hereinafter  defined,  provided  that the  Initial  Purchaser  shall  not be
required to provide  such two full  business  days notice if the  over-allotment
option is exercised prior to the Closing Date.

     (c)  Payment.   Payment  of  the  purchase   price  for,  and  delivery  of
certificates for, the Initial  Securities shall be made at the offices of Miller
& Martin  PLLC or at such  other  place as shall be agreed  upon by the  Initial
Purchaser and the Company,  at 9:00 A.M. (Eastern time) on the third (fourth, if
the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof  (unless  postponed in accordance  with the  provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Initial  Purchaser and the Company (such time and
date of payment and delivery being herein called "Closing Time").

     In  addition,  in the event  that any or all of the Option  Securities  are
purchased  by the Initial  Purchaser,  payment of the  purchase  price for,  and
delivery  of  certificates  for,  such  Option  Securities  shall be made at the
above-mentioned  offices,  or at such other place as shall be agreed upon by the
Initial Purchaser and the Company,  on each Date of Delivery as specified in the
notice from the Initial Purchaser to the Company.

     Payment  shall  be made to the  Company  by wire  transfer  of  immediately
available funds to a bank account designated by the Company, against delivery to
the Initial Purchaser of certificates for the Securities to be purchased by it.

     (d)  Denominations;  Registration.  Certificates for the Initial Securities
and the Option Securities, if any, shall be in global form and registered in the
name of Cede & Co., as nominee of the Depositary Trust Company. The certificates
evidencing the Securities  shall be delivered to the Trustee at the Closing Time
or the  relevant  Date of  Delivery,  as the case may be, for the account of the
Initial Purchaser.

     SECTION 3.   Covenants of the Company.  The Company covenants with the
                  ------------------------
Initial Purchaser as follows:

     (a) Final Offering Memorandum.  The Company, as promptly as possible,  will
furnish to the Initial Purchaser,  without charge,  such number of copies of the
Final  Offering  Memorandum  and any  amendments  and  supplements  thereto  and
documents  incorporated  by  reference  therein as such  Initial  Purchaser  may
reasonably request.

     (b) Notice and Effect of Material Events.  The Company will promptly notify
the Initial  Purchaser,  and confirm  such notice in writing,  of (x) any filing
made by the Company of  information  relating to the offering of the  Securities
with any securities  exchange or any other  regulatory body in the United States
or any other  jurisdiction,  and (y) prior to the completion of the placement of
the offered  Securities by the Initial  Purchaser (and in any event for a period
of not more than 14 days after the later of the Closing  Time or the latest Date
of Delivery,  if any),  any  material  changes in or  affecting  the  condition,
financial or otherwise, or the earnings,  business affairs or business prospects
of the Company and its subsidiaries  considered as one enterprise which (i) make
any  statement  of a  material  fact in the  Disclosure  Package,  any  Offering
Memorandum or any Supplemental Offering Material false or misleading or (ii) are
not  disclosed in the  Disclosure  Package or the Offering  Memorandum.  In such
event or if during  such time any event  shall  occur as a result of which it is

                                       12
<PAGE>

necessary,  in the reasonable  opinion of any of the Company,  its counsel,  the
Initial Purchaser or counsel for the Initial  Purchaser,  to amend or supplement
the Offering  Memorandum in order that the Offering  Memorandum  not include any
untrue  statement of a material fact or omit to state a material fact  necessary
in order to make the  statements  therein  not  misleading  in the  light of the
circumstances then existing,  the Company will forthwith amend or supplement the
Offering  Memorandum  by preparing and  furnishing  to the Initial  Purchaser an
amendment or  amendments  of, or a supplement  or  supplements  to, the Offering
Memorandum  (in form and substance  satisfactory  in the  reasonable  opinion of
counsel for the Initial  Purchaser) so that, as so amended or supplemented,  the
Offering  Memorandum will not include an untrue  statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances then existing, not misleading.

     (c) Amendment and  Supplements to the Offering  Memorandum;  Preparation of
Pricing Supplement; Supplemental Offering Materials. The Company will advise the
Initial  Purchaser  promptly of any proposal to amend or supplement the Offering
Memorandum and will not effect such amendment or supplement  without the consent
of the Initial Purchaser.  Neither the consent of the Initial Purchaser, nor the
Initial  Purchaser's  delivery  of  any  such  amendment  or  supplement,  shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.  The
Company will prepare the Pricing Supplement,  in form and substance satisfactory
to the Initial Purchaser,  and shall furnish prior to the Applicable Time to the
Initial  Purchaser,  without charge, as many copies of the Pricing Supplement as
such Initial Purchaser may reasonably request. The Company represents and agrees
that, unless it obtains the prior consent of the Initial  Purchaser,  it has not
made and will not make any  offer  relating  to the  Securities  by means of any
Supplemental Offering Materials.

     (d)  Qualification  of Securities  for Offer and Sale. The Company will use
its commercially  reasonable efforts, in cooperation with the Initial Purchaser,
to qualify the Securities for offering and sale under the applicable  securities
laws of such  states  and  other  jurisdictions  as the  Initial  Purchaser  may
designate and to maintain such  qualifications in effect as long as required for
the sale of the  Securities;  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 business in any jurisdiction in
which it is not otherwise so subject in any  jurisdiction  in which it is not so
qualified or to subject itself to taxation in respect of doing so.

     (e) Use of Proceeds.  The Company will use the net proceeds  received by it
from  the  sale  of the  Securities  in the  manner  specified  in the  Offering
Memorandum under "Use of Proceeds."

     (f) Restriction on Sale of Securities.  Except as otherwise contemplated by
the  Disclosure  Package  and  Final  Offering  Memorandum  and the  Transaction
Documents,  during a period  of 90 days  from  the  date of the  Final  Offering
Memorandum  (the "Lock-up  Period"),  the Company  shall not,  without the prior
written consent of Merrill Lynch, directly or indirectly, (i) issue, sell, offer
or agree to sell,  grant any option for the sale of, or  otherwise  transfer  or
dispose of, any other debt  securities  of the  Company,  or  securities  of the
Company that are convertible  into, or exchangeable  for, the Securities or such
other debt securities, (ii) offer, pledge, announce the intention to sell, sell,
contract to sell,  sell any option or contract to purchase,  purchase any option
or contract to sell, grant any option, right or warrant for the sale of, lend or
otherwise  transfer  or  dispose  of any  shares of Common  Stock or  securities
convertible  into or  exchangeable  or exercisable  for or repayable with Common
Stock or (iii) enter into any swap or other  agreement or any  transaction  that
transfers,  in whole or in part, the economic  consequences  of ownership of the
Common Stock, or any securities  convertible into or exchangeable or exercisable
for or  repayable  with  Common  Stock,  whether  any such  swap or  transaction
described  in clause  (ii) or (iii) above is to be settled by delivery of Common
Stock or such other securities,  in cash or otherwise;  provided,  however, that
the  Company  may offer,  issue and sell  shares of Common  Stock or  securities
convertible  into or  exchangeable or exercisable for shares of Common Stock, or

                                       13
<PAGE>

debt  securities  (A)  pursuant to any  employee,  officer or director  stock or
benefit  plan,  (B)  upon  the  conversion  or  exercise  of the  Securities  or
securities  outstanding on the date hereof, or (C) issued or to be issued by the
Company in connection with an  acquisition,  provided that (1) in the case of an
acquisition  of a private  company,  the  recipient of such shares or securities
shall enter into a lock up agreement  for the balance of the Lock-up  Period and
(2) in the case of an acquisition of a public company, such shares or securities
shall not be issued until the expiration of the Lock-up Period.

     (g) PORTAL  Designation.  The Company will use its commercially  reasonable
efforts  to  permit  the  Securities  to  be  designated  PORTAL  securities  in
accordance with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL Market.

     (h) Listing on Securities  Exchange.  The Company will use its commercially
reasonable  efforts to cause all shares of Common Stock issuable upon conversion
of the  Securities  to be listed on the  NASDAQ or listed on  another  "national
securities  exchange" registered under Section 6 of the 1934 Act on which shares
of its Common Stock are then listed.

     (i)  Reservation  of Shares of Common Stock.  The Company shall reserve and
keep available at all times, free of preemptive  rights,  shares of Common Stock
for the purpose of enabling  the  Company to satisfy  any  obligations  to issue
shares of Common Stock upon conversion of the Securities.

     (j) DTC.  The Company  will use its  reasonable  best efforts to permit the
Securities to be eligible for clearance and settlement through the facilities of
DTC.

     SECTION 4.   Payment of Expenses.
                  --------------------

     (a) Expenses. The Company will pay all expenses incident to the performance
of  its  obligations  under  this  Agreement,  including  (i)  the  preparation,
printing,  and delivery to the Initial  Purchaser of the Disclosure  Package and
Final Offering Memorandum  (including  financial statements and any schedules or
exhibits  and  any  document  incorporated  therein  by  reference)  and of each
amendment or supplement thereto, (ii) the preparation,  printing and delivery to
the Initial Purchaser of this Agreement,  the Indenture and such other documents
as may be required in connection with the offering,  purchase, sale, issuance or
delivery of the Securities, (iii) the preparation,  issuance and delivery of the
certificates  for the Securities to the Initial  Purchaser and the  certificates
for the Common Stock issuable upon  conversion  thereof,  including any transfer
taxes, any stamp or other duties payable upon the sale, issuance and delivery of
the Securities to the Initial Purchaser, the issuance and delivery of the Common
Stock  issuable  upon  conversion  thereof and any charges of DTC in  connection
therewith, (iv) the fees and disbursements of the Company's counsel, accountants
and other advisors,  (v) the  qualification  of the Securities and the shares of
Common  Stock  issuable  upon  conversion   thereof  under  securities  laws  in
accordance with the provisions of Section 3(d) hereof, including filing fees and
the reasonable fees and  disbursements  of counsel for the Initial  Purchaser in
connection  therewith and in  connection  with the  preparation  of the Blue Sky
Survey, (vi) the fees and expenses of the Trustee,  including the reasonable and
documented fees and  disbursements of counsel for the Trustee in connection with
the  Indenture and the  Securities,  (vii) the costs and expenses of the Company
relating to investor  presentations  on any "road show" undertaken in connection
with the marketing of the Securities  including,  without  limitation,  expenses
associated  with the  production  of road show  slides  and  graphics,  fees and
expenses  of  any   consultants   engaged  in  connection  with  the  road  show
presentations,  travel and lodging expenses of the  representatives and officers
of the Company and any such  consultants,  (viii) any fees payable in connection
with the  rating  of the  Securities,  (ix) any fees  and  expenses  payable  in
connection  with the initial and  continued  designation  of the  Securities  as
PORTAL  securities under the PORTAL Market Rules pursuant to NASD Rule 5322, (x)

                                       14
<PAGE>

any fees of the NASD in connection  with the  Securities,  and (xi) the fees and
expenses of any transfer agent or registrar for the Common Stock.

     (b)  Termination  of  Agreement.  If this  Agreement is  terminated  by the
Initial  Purchaser in  accordance  with the  provisions  of Section 5 or Section
10(a)(i)  hereof,  the Company shall reimburse the Initial  Purchaser for all of
its  reasonable  out-of-pocket  expenses  that shall have been incurred by it in
connection with the proposed purchase and sale of the Securities,  including the
reasonable fees and disbursements of counsel for the Initial Purchaser.

     SECTION 5. Conditions of Initial Purchaser's  Obligations.  The obligations
of  the  Initial  Purchaser  hereunder  are  subject  to  the  accuracy  of  the
representations  and warranties of the Company  contained in Section 1 hereof as
of the date hereof and as of the Closing Time,  except for such  representations
and warranties  that speak to a specific time, in which case the  representation
and warranty shall be accurate as of such specified  time, or in certificates of
any  officer  of the  Company  or its  subsidiaries  delivered  pursuant  to the
provisions  hereof, to the performance by the Company of its covenants and other
obligations hereunder, and to the following further conditions:

     (a) Opinions of Counsel for Company. At Closing Time, the Initial Purchaser
shall have  received the  favorable  opinions,  dated as of Closing Time, of (1)
Miller & Martin  PLLC,  counsel  for the  Company,  to the  effect  set forth in
Exhibit A-1 hereto and (2) King & Spalding LLP, special counsel for the Company,
to the effect set forth in Exhibit A-2 hereto. Such counsel may also state that,
insofar as such opinion  involves  factual  matters,  they have  relied,  to the
extent they deem proper,  upon  certificates  of officers of the Company and its
subsidiaries and certificates of public officials.

     (b) Opinion of Counsel for Initial Purchaser.  At Closing Time, the Initial
Purchaser shall have received the favorable  opinion,  dated as of Closing Time,
of Shearman & Sterling LLP, counsel for the Initial  Purchaser,  with respect to
the matters  set forth in (xii),  (xvii) and the last  paragraph  of Exhibit A-1
hereto.  Such  counsel may also state  that,  insofar as such  opinion  involves
factual  matters,  they  have  relied,  to the  extent  they deem  proper,  upon
certificates of officers of the Company and its subsidiaries,  upon the accuracy
and  truthfulness  of the  Company's  representations  in  Section  1 hereof  or
officers' certificates delivered by or on behalf of the Company and certificates
of public officials.

     (c)  Officers'  Certificate.  At Closing  Time,  there shall not have been,
since the date hereof or since the respective  dates as of which  information is
given in the Disclosure Package and Final Offering Memorandum  (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), any
material  adverse  change in the  condition,  financial or otherwise,  or in the
earnings,  business  affairs  or  business  prospects  of the  Company  and  its
subsidiaries  considered  as  one  enterprise,  whether  or not  arising  in the
ordinary  course of business,  and the Initial  Purchaser  shall have received a
certificate of the President of the Company and of the chief accounting  officer
of the Company,  dated as of Closing Time, to the effect that (i) there has been
no such material  adverse  change,  (ii) the  representations  and warranties in
Section 1 hereof are true and  correct in all  material  respects  with the same
force and effect as though expressly made at and as of Closing Time,  except for
such representations and warranties that speak to a specific time, in which case
the representation and warranty shall be accurate as of such specified time, and
(iii) the Company has complied in all material  respects with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time.

     (d)  Accountants'  Comfort  Letter.  At the time of the  execution  of this
Agreement,  the Initial  Purchaser  shall have  received  from each of (i) Grant
Thornton   LLP,   (ii)   Ernst  &  Young   LLP,   (iii)   KPMG  LLP,   and  (iv)
PricewaterhouseCoopers  LLP, a letter  dated such  date,  in form and  substance
satisfactory to the Initial Purchaser,  containing statements and information of

                                       15
<PAGE>

the type ordinarily  included in accountants'  "comfort  letters" to the Initial
Purchaser  with  respect  to the  financial  statements  and  certain  financial
information contained in the Offering Memorandum.

     (e) Bring-down Comfort Letter. At Closing Time, the Initial Purchaser shall
have  received from Grant  Thornton LLP, a letter,  dated as of Closing Time, to
the effect that Grant Thornton LLP reaffirms the  statements  made in the letter
furnished pursuant to subsection (d) of this Section,  except that the specified
date  referred  to shall be a date not more than  three  business  days prior to
Closing Time.

     (f) PORTAL.  At the Closing Time, the Securities shall have been designated
for trading on PORTAL.

     (g) Maintenance of Rating.  Since the date of this  Agreement,  there shall
not have occurred a downgrading  in the rating  assigned to any of the Company's
debt securities by any "nationally  recognized  statistical  rating agency",  as
that term is defined by the Commission for purposes of Rule 436(g)(2)  under the
1933 Act, and no such  securities  rating agency shall have  publicly  announced
that it has under surveillance or review,  with possible negative  implications,
its rating of any of the Company's debt securities.

     (h)  Lock-up  Letter.  On or prior to the date of this  Agreement,  Merrill
Lynch shall have  received an agreement  substantially  in the form of Exhibit B
attached hereto signed by the persons listed in Schedule C attached hereto.

     (i) Indenture and Registration Rights Agreement. At or prior to the Closing
Time,  each of the Company and the Trustee shall have executed and delivered the
Indenture,  and the Company and the Initial  Purchaser  shall have  executed and
delivered the Registration Rights Agreement.

     (j)  Conditions  to  Purchase of Option  Securities.  In the event that the
Initial  Purchaser  exercises  its option  provided  in Section  2(b)  hereof to
purchase all or any portion of the Option Securities,  the  representations  and
warranties  of  the  Company   contained   herein  and  the  statements  in  any
certificates furnished by the Company or any subsidiary of the Company hereunder
shall  be  true  and  correct  as of each  Date of  Delivery,  except  for  such
representations  and warranties that speak to a specific time, in which case the
representation and warranty shall be accurate as of such specified time, and, at
the relevant Date of Delivery, the Initial Purchaser shall have received:

          (i) Officers' Certificate. A certificate, dated such Date of Delivery,
     of the President of the Company and of the chief accounting  officer of the
     Company confirming that the certificate  delivered at Closing Time pursuant
     to  Section  5(c)  hereof  remains  true  and  correct  as of such  Date of
     Delivery.

          (ii) Opinion of Counsel for Company.  The  favorable  opinions,  dated
     such  Date of  Delivery,  of (1)  Miller &  Martin  PLLC,  counsel  for the
     Company,  to the  effect  set forth in  Exhibit  A-1  hereto and (2) King &
     Spalding LLP,  special counsel for the Company,  to the effect set forth in
     Exhibit A-2  hereto.  Such  counsel  may also state  that,  insofar as such
     opinion involves factual matters, they have relied, to the extent they deem
     proper, upon certificates of officers of the Company, upon the accuracy and
     truthfulness  of the  Company's  representations  in  Section  1 hereof  or
     officers'  certificates  delivered  by or on behalf of the  Company and its
     subsidiaries and certificates of public officials.

          (iii)  Opinion of Counsel for the  Initial  Purchaser.  The  favorable
     opinion of Shearman & Sterling  LLP,  counsel  for the  Initial  Purchaser,
     dated  such Date of  Delivery,  relating  to the  Option  Securities  to be

                                       16
<PAGE>

     purchased on such Date of Delivery and  otherwise to the same effect as the
     opinion required by Section 5(b) hereof.

          (iv) Bring-down  Comfort Letter.  A letter from Grant Thornton LLP, in
     form and  substance  satisfactory  to the Initial  Purchaser and dated such
     Date of  Delivery,  substantially  in the same  form and  substance  as the
     letter furnished to the Initial Purchaser  pursuant to Section 5(e) hereof,
     except that the "specified date" in the letter  furnished  pursuant to this
     paragraph  shall be a date not more than  five  days  prior to such Date of
     Delivery.

          (v) No  Downgrading.  Subsequent  to the  date of this  Agreement,  no
     downgrading shall have occurred in the rating accorded any of the Company's
     other  securities  by  any  "nationally   recognized   statistical   rating
     organization",  as that term is defined by the  Commission  for purposes of
     Rule  436(g)(2)  under the 1933 Act,  and no such  organization  shall have
     publicly announced that it has under surveillance or review,  with possible
     negative implications, its ratings of any of the Company's debt securities.

     (k) Additional Documents. At Closing Time and at each Date of Delivery, the
Company shall have delivered to the Initial  Purchaser  such further  documents,
certificates,  letters and  schedules or  instruments  relating to the business,
corporate,  legal and financial  affairs of the Company and its  subsidiaries as
the  Initial  Purchaser  shall  have  reasonably   requested  from  the  Company
reasonably  in advance of the  Closing  Time or such Date of Delivery so long as
such further documents,  certificates,  letters and schedules or instruments are
reasonable and customary for the  transactions  contemplated  by this Agreement.
Delivery  of  any  such  documents,   certificates,  letters  and  schedules  or
instruments  to the Initial  Purchaser's  Counsel  shall be deemed to constitute
delivery to the Initial Purchaser for all purposes hereunder.

     (l) Termination of Agreement.  If any condition specified in this Section 5
shall  not have  been  fulfilled  when and as  required  to be  fulfilled,  this
Agreement, or in the case of any condition to the purchase of Option Securities,
on a Date of Delivery  which is after the Closing  Time,  the  obligation of the
Initial Purchaser to purchase the relevant Option Securities,  may be terminated
by the  Initial  Purchaser  by notice to the  Company at any time at or prior to
Closing Time or such Date of Delivery,  as the case may be, and such termination
shall be without liability of any party to any other party except as provided in
Section  4 and  except  that  Sections  1, 7, 8 and 9  shall  survive  any  such
termination and remain in full force and effect.

     SECTION 6    Subsequent Offers and Resales of the Securities.
                  -----------------------------------------------

     (a) Offer and Sale Procedures. The Initial Purchaser and the Company hereby
establish and agree to observe the following  procedures in connection  with the
offer and sale of the Securities:

          (i) Offers and Sales. Offers and sales of the Securities shall be made
     only to such persons and in such manner as is  contemplated by the Offering
     Memorandum.

          (ii) No  General  Solicitation.  No  general  solicitation  or general
     advertising  (within the meaning of Rule 502(c) under the 1933 Act) will be
     used in the United  States in  connection  with the offering or sale of the
     Securities.

          (iii)  Purchases  by Non-Bank  Fiduciaries.  In the case of a non-bank
     subsequent  purchaser of a Security  acting as a fiduciary  for one or more
     third  parties,  each third  party  shall,  in the  judgment of the Initial
     Purchaser, be a QIB.

                                       17
<PAGE>

          (iv) Subsequent  Purchaser  Notification.  The Initial  Purchaser will
     take reasonable steps to inform,  and cause each of its U.S.  Affiliates to
     take  reasonable  steps to inform,  persons  acquiring  Securities from the
     Initial  Purchaser  or its  Affiliate,  as the case may be,  in the  United
     States that the Securities  shall bear the restrictive  legend set forth in
     the Offering Memorandum in the section entitled "Transfer Restrictions" and
     (A) have not been and will not be  registered  under the 1933 Act,  (B) are
     being sold to them without  registration  under the 1933 Act in reliance on
     Rule 144A or in accordance with another exemption from  registration  under
     the  1933  Act,  as the case may be,  and (C) may not be  offered,  sold or
     otherwise transferred except (1) to the Company or one of its subsidiaries,
     (2) outside the United  States in  accordance  with  Regulation S under the
     1933 Act, or (3) inside the United States in accordance  with (x) Rule 144A
     to a person whom the seller reasonably believes is a QIB that is purchasing
     such  Securities  for its own  account or for the  account of a QIB to whom
     notice is given that the offer,  sale or transfer is being made in reliance
     on  Rule  144A  or  (y)  pursuant  to  another  available   exemption  from
     registration under the 1933 Act.

          (v) Minimum  Principal  Amount.  No sale of the  Securities to any one
     Subsequent Purchaser will be for less than U.S. $1,000 principal amount and
     no Security will be issued in a smaller principal amount. If the Subsequent
     Purchaser is a non-bank  fiduciary acting on behalf of others,  each person
     for whom it is acting must purchase at least U.S. $1,000  principal  amount
     of the Securities.

          (vi) Transfer  Restriction.  The transfer  restrictions  and the other
     provisions set forth in the Offering Memorandum under the caption "Transfer
     Restrictions,"  including the legend required  thereby,  shall apply to the
     Securities.  Following the sale of the Securities by the Initial  Purchaser
     to each Subsequent  Purchaser  pursuant to and in compliance with the terms
     hereof,  the Initial  Purchaser  shall not be liable or  responsible to the
     Company for any losses,  damages or liabilities suffered or incurred by the
     Company,  including any losses,  damages or liabilities under the 1933 Act,
     arising  from or  relating  to any  subsequent  resale or  transfer  of any
     Security.

     (b)  Covenants  of the  Company.  The  Company  covenants  with the Initial
Purchaser as follows:

               (i)  Integration.  The  Company  agrees that it will not and will
          cause its Affiliates not to, directly or indirectly, solicit any offer
          to buy,  sell or make any offer or sale of, or otherwise  negotiate in
          respect of,  securities of the Company of any class if, as a result of
          the doctrine of  "integration"  referred to in Rule 502 under the 1933
          Act,  such offer or sale would render  invalid (for the purpose of (i)
          the sale of the  offered  Securities  by the  Company  to the  Initial
          Purchaser,  (ii) the resale of the offered  Securities  by the Initial
          Purchaser to Subsequent  Purchasers or (iii) the resale of the offered
          Securities by such Subsequent Purchasers to others) the exemption from
          the registration requirements of the 1933 Act provided by Section 4(2)
          thereof or by Rule 144A thereunder or otherwise.

               (ii) Rule 144A Information.  The Company agrees that, in order to
          render the offered  Securities  eligible  for resale  pursuant to Rule
          144A under the 1933 Act,  while any of the offered  Securities  remain
          outstanding,  it will make available,  upon request,  to any holder of
          offered  Securities  or  prospective   purchasers  of  Securities  the
          information specified in Rule 144A(d)(4), unless the Company furnishes
          information to the  Commission  pursuant to Section 13 or 15(d) of the
          1934 Act.

               (iii)  Restriction  on Resales.  The Company  will not,  and will
          cause its Affiliates not to, resell any offered  Securities  which are
          "restricted  securities" (as such term is defined under Rule 144(a)(3)

                                       18
<PAGE>

          under the 1933 Act),  whether as beneficial owner or otherwise (except
          as agent  acting  as a  securities  broker  on  behalf  of and for the
          account of customers in the ordinary course of business in unsolicited
          broker's  transactions)  that have been  reacquired by any of them and
          shall immediately upon any purchase of any such Securities submit such
          Securities to the Trustee for cancellation.

     (c) Qualified  Institutional Buyer. The Initial Purchaser hereby represents
and  warrants  to,  and  agrees  with,  the  Company,  that  it is a QIB  and an
"accredited  investor"  within the meaning of Section  501(a) under the 1933 Act
and has complied and will comply with the  procedures  applicable  to it in this
Section 6.

     SECTION 7.   Indemnification.
                  ----------------

     (a)  Indemnification of Initial Purchaser.  The Company agrees to indemnify
and hold harmless the Initial Purchaser, its affiliates, as such term is defined
in Rule 501(b) under the 1933 Act (each, an "Affiliate"), its selling agents and
each person,  if any, who controls the Initial  Purchaser  within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

               (i)  against  any and all  loss,  liability,  claim,  damage  and
          expense whatsoever,  as incurred,  arising out of any untrue statement
          or alleged  untrue  statement  of a  material  fact  contained  in the
          Preliminary  Offering  Memorandum,  the Disclosure Package,  the Final
          Offering  Memorandum  (or any amendment or supplement  thereto) or any
          Supplemental  Offering Materials,  or the omission or alleged omission
          therefrom of a material fact necessary in order to make the statements
          therein, in the light of the circumstances under which they were made,
          not misleading;

               (ii)  against  any and all loss,  liability,  claim,  damage  and
          expense whatsoever, as incurred, to the extent of the aggregate amount
          paid  in  settlement  of  any  litigation,  or  any  investigation  or
          proceeding  by  any   governmental   agency  or  body,   commenced  or
          threatened,  or of any claim  whatsoever  based  upon any such  untrue
          statement  or  omission,  or any  such  alleged  untrue  statement  or
          omission;  provided  that  (subject  to Section  7(d)  below) any such
          settlement is effected with the written consent of the Company; and

               (iii)  against  any  and  all  expense  whatsoever,  as  incurred
          (including  the fees and  disbursements  of counsel  chosen by Merrill
          Lynch),  reasonably incurred in investigating,  preparing or defending
          against any  litigation,  or any  investigation  or  proceeding by any
          governmental  agency or body,  commenced or  threatened,  or any claim
          whatsoever  based upon any such untrue  statement or omission,  or any
          such alleged untrue statement or omission, to the extent that any such
          expense is not paid under (i) or (ii) above;

               provided,  however, that this indemnity agreement shall not apply
          to any loss, liability, claim, damage or expense to the extent arising
          out of any untrue statement or omission or alleged untrue statement or
          omission  made  in  reliance  upon  and  in  conformity  with  written
          information  furnished to the Company by Merrill  Lynch  expressly for
          use in any preliminary  offering  memorandum,  the Disclosure Package,
          the Final Offering Memorandum (or any amendment or supplement thereto)
          or in any Supplemental  Offering Materials or from any acts or failure
          to act  undertaken  or omitted to be taken by such  Initial  Purchaser
          through its gross negligence or willful misconduct.

     (b)  Indemnification of Company.  The Initial Purchaser agrees to indemnify
and hold harmless the Company and each person,  if any, who controls the Company

                                       19
<PAGE>

within  the  meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability,  claim, damage and expense described in the
indemnity  contained in subsection  (a) of this Section,  as incurred,  but only
with respect to untrue statements or omissions,  or alleged untrue statements or
omissions, made in any preliminary offering memorandum,  the Disclosure Package,
the Final Offering Memorandum or any Supplemental Offering Materials in reliance
upon and in  conformity  with  written  information  furnished to the Company by
Merrill Lynch expressly for use therein.

     (c) Actions against Parties;  Notification.  Each  indemnified  party shall
give notice as promptly as reasonably  practicable to each indemnifying party of
any action  commenced  against it in  respect of which  indemnity  may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying  party  from  any  liability  hereunder  to  the  extent  it is not
materially  prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement.  In the case of parties  indemnified  pursuant to Section 7(a) above,
counsel to the  indemnified  parties  shall be selected by Merrill Lynch and, in
the case of parties indemnified  pursuant to Section 7(b) above,  counsel to the
indemnified  parties shall be selected by the Company. An indemnifying party may
participate  at its own  expense in the  defense of any such  action;  provided,
however,  that  counsel to the  indemnifying  party shall not  (except  with the
consent of the indemnified  party) also be counsel to the indemnified  party. In
no event shall the indemnifying  parties be liable for fees and expenses of more
than one counsel  (in  addition to any local  counsel)  separate  from their own
counsel  for all  indemnified  parties  in  connection  with any one  action  or
separate but similar or related actions in the same jurisdiction  arising out of
the same general  allegations or  circumstances.  No  indemnifying  party shall,
without  the  prior  written  consent  of the  indemnified  parties,  settle  or
compromise  or  consent  to  the  entry  of any  judgment  with  respect  to any
litigation,  or any  investigation or proceeding by any  governmental  agency or
body,  commenced  or  threatened,  or any claim  whatsoever  in respect of which
indemnification  or contribution could be sought under this Section or Section 8
hereof (whether or not the indemnified  parties are actual or potential  parties
thereto),  unless  such  settlement,  compromise  or  consent  (i)  includes  an
unconditional  release of each indemnified  party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault,  culpability  or a failure to act by
or on behalf of any indemnified party.

     (d) Settlement  without Consent if Failure to Reimburse.  If at any time an
indemnified  party shall have requested an  indemnifying  party to reimburse the
indemnified  party for fees and  expenses of counsel,  such  indemnifying  party
agrees that it shall be liable for any settlement of the nature  contemplated by
Section 7(a)(ii)  effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such  indemnifying  party of the
aforesaid  request,  (ii) such indemnifying  party shall have received notice of
the terms of such  settlement  at least 30 days prior to such  settlement  being
entered into and (iii)  unless such request is being  contested in good faith by
the indemnifying  party, such indemnifying  party shall not have reimbursed such
indemnified  party in  accordance  with such  request  prior to the date of such
settlement.

                                       20
<PAGE>

     SECTION 8. Contribution.  If the indemnification  provided for in Section 7
hereof is for any reason  unavailable  to or  insufficient  to hold  harmless an
indemnified  party in respect of any  losses,  liabilities,  claims,  damages or
expenses referred to therein,  then each indemnifying  party shall contribute to
the aggregate amount of such losses,  liabilities,  claims, damages and expenses
incurred by such  indemnified  party, as incurred,  (i) in such proportion as is
appropriate to reflect the relative  benefits received by the Company on the one
hand and the  Initial  Purchaser  on the  other  hand from the  offering  of the
Securities  pursuant to this  Agreement  or (ii) if the  allocation  provided by
clause  (i) is not  permitted  by  applicable  law,  in  such  proportion  as is
appropriate to reflect not only the relative  benefits referred to in clause (i)
above  but also the  relative  fault of the  Company  on the one hand and of the
Initial  Purchaser  on the  other  hand in  connection  with the  statements  or
omissions  which  resulted  in such  losses,  liabilities,  claims,  damages  or
expenses, as well as any other relevant equitable considerations.

     The  relative  benefits  received  by the  Company  on the one hand and the
Initial  Purchaser  on the other hand in  connection  with the  offering  of the
Securities  pursuant  to  this  Agreement  shall  be  deemed  to be in the  same
respective  proportions  as the  total net  proceeds  from the  offering  of the
Securities  pursuant to this Agreement (before deducting  expenses)  received by
the  Company  and  the  total  underwriting  discount  received  by the  Initial
Purchaser, bear to the aggregate initial offering price of the Securities.

     The relative fault of the Company on the one hand and the Initial Purchaser
on the other hand shall be  determined  by  reference  to,  among other  things,
whether  any such  untrue or alleged  untrue  statement  of a  material  fact or
omission or alleged  omission to state a material  fact  relates to  information
supplied by the Company or by the Initial  Purchaser  and the parties'  relative
intent,  knowledge,  access to information and opportunity to correct or prevent
such statement or omission.

     The Company and the Initial  Purchaser  agree that it would not be just and
equitable if  contribution  pursuant to this Section were determined by pro rata
allocation or by any other method of  allocation  which does not take account of
the equitable  considerations  referred to above in this Section.  The aggregate
amount of losses,  liabilities,  claims,  damages  and  expenses  incurred by an
indemnified  party  and  referred  to above in this  Section  shall be deemed to
include any legal or other  expenses  reasonably  incurred  by such  indemnified
party in investigating,  preparing or defending  against any litigation,  or any
investigation  or proceeding by any  governmental  agency or body,  commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

     Notwithstanding  the provisions of this Section, no Initial Purchaser shall
be required to contribute  any amount in excess of the amount by which the total
price at which the  Securities  purchased  and sold by it hereunder  exceeds the
amount of any damages which such Initial  Purchaser has otherwise  been required
to pay by reason of such  untrue or alleged  untrue  statement  or  omission  or
alleged omission.

     No person  guilty of  fraudulent  misrepresentation  (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

     For purposes of this Section, each person, if any, who controls the Initial
Purchaser  within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act and the Initial  Purchaser's  Affiliates  and selling agents shall have
the same rights to contribution as the Initial  Purchaser,  and each person,  if
any, who  controls the Company  within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act shall have the same rights to  contribution as the
Company.

                                       21
<PAGE>

     SECTION 9.  Representations,  Warranties  and  Agreements  to Survive.  All
                 ---------------------------------------------------------
representations,  warranties  and  agreements  contained in this Agreement or in
certificates of officers of the Company or its subsidiaries  submitted  pursuant
hereto shall remain  operative  and in full force and effect,  regardless of (i)
any  investigation  made  by or on  behalf  of  the  Initial  Purchaser  or  its
Affiliates or selling agents, any person controlling the Initial Purchaser,  its
officers or directors or any person controlling the Company and (ii) delivery of
and payment for the Securities.

     SECTION 10.  Termination of Agreement.
                  -------------------------

     (a)  Termination;   General.  The  Initial  Purchaser  may  terminate  this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been,  since the time of execution  of this  Agreement or since the
date as of which  information is given in the Preliminary  Offering  Memorandum,
the  Disclosure  Package  or the Final  Offering  Memorandum  (exclusive  of any
amendments or supplements thereto subsequent to the date of this Agreement), any
material  adverse  change in the  condition,  financial or otherwise,  or in the
earnings,  business  affairs  or  business  prospects  of the  Company  and  its
subsidiaries  considered  as  one  enterprise,  whether  or not  arising  in the
ordinary course of business,  or (ii) if there has occurred any material adverse
change in the  financial  markets  in the  United  States  or the  international
financial  markets,  any outbreak of hostilities or escalation  thereof or other
calamity or crisis or any change or development  involving a prospective  change
in national or international  political,  financial or economic  conditions,  in
each  case the  effect of which is such as to make it,  in the  judgment  of the
Initial  Purchaser,  impracticable or inadvisable to market the Securities or to
enforce  contracts  for the sale of the  Securities,  or (iii) if trading in any
securities  of the  Company  has been  suspended  or  materially  limited by the
Commission or the NASDAQ System,  or if trading  generally on the American Stock
Exchange  or the New  York  Stock  Exchange  or in the  NASDAQ  System  has been
suspended or materially  limited,  or minimum or maximum prices for trading have
been  fixed,  or maximum  ranges for prices have been  required,  by any of said
exchanges  or by  such  system  or by  order  of the  Commission,  the  National
Association of Securities Dealers, Inc. or any other governmental  authority, or
(iv) a material  disruption  has occurred in  commercial  banking or  securities
settlement  or  clearance  services  in the United  States,  or (v) if a banking
moratorium has been declared by either Federal or New York authorities.

     (b) Liabilities.  If this Agreement is terminated pursuant to this Section,
such  termination  shall be without  liability  of any party to any other  party
except as provided in Section 4 hereof, and provided further that Sections 1, 7,
8 and 9 shall survive such termination and remain in full force and effect.

     SECTION 11. Tax  Disclosure.  Notwithstanding  any other  provision of this
Agreement,  immediately  upon  commencement  of discussions  with respect to the
transactions contemplated hereby, the Company (and each employee, representative
or other agent of the  Company)  may  disclose to any and all  persons,  without
limitation of any kind, the tax treatment and tax structure of the  transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax  analyses)  that are  provided to the Company  relating to such tax
treatment  and tax  structure.  For  purposes  of the  foregoing,  the term "tax
treatment"  is the  purported  or claimed  federal  income tax  treatment of the
transactions contemplated hereby, and the term "tax structure" includes any fact
that may be relevant to  understanding  the purported or claimed  federal income
tax treatment of the transactions contemplated hereby.

     SECTION 12. Notices. All notices and other  communications  hereunder shall
be in  writing  and  shall be  deemed  to have  been  duly  given if  mailed  or
transmitted  by any standard form of  telecommunication.  Notices to the Initial
Purchaser  shall be directed  to the Initial  Purchaser  at North  Tower,  World
Financial  Center,  New  York,  New  York  10281,  Facsimile:   (212)  449-3207,

                                       22
<PAGE>

Attention:  Global  Origination  Counsel;  and notices to the  Company  shall be
directed to it at Chattem, Inc., 1715 West 38th Street,  Chattanooga,  TN 37409,
attention  of  Theodore  K.  Whitfield,   Jr.,  General  Counsel  and  Secretary
(Facsimile:  (423)  821-0395),  with a copy to Miller & Martin PLLC,  Suite 1000
Volunteer Building, 832 Georgia Avenue, Chattanooga, TN 37402, attention of Hugh
F. Sharber, Esq. (Facsimile: (423) 785-8480).

     SECTION 13. No Advisory or Fiduciary Relationship. The Company acknowledges
and agrees that (a) the  purchase  and sale of the  Securities  pursuant to this
Agreement,  including the  determination of the offering price of the Securities
and  any  related  discounts  and  commissions,  is an  arm's-length  commercial
transaction between the Company, on the one hand, and the Initial Purchaser,  on
the other hand, (b) in connection with the offering  contemplated hereby and the
process leading to such transaction the Initial Purchaser is and has been acting
solely as a principal  and is not the agent or fiduciary of the Company,  or its
shareholders, creditors, employees or any other party, (c) the Initial Purchaser
has not assumed and will not assume an advisory or fiduciary  responsibility  in
favor of the Company  with respect to the  offering  contemplated  hereby or the
process  leading  thereto  (irrespective  of whether such Initial  Purchaser has
advised or is currently  advising the Company on other  matters) and the Initial
Purchaser  has no  obligation  to  the  Company  with  respect  to the  offering
contemplated  hereby  except  the  obligations   expressly  set  forth  in  this
Agreement,  (d) the Initial  Purchaser  and its  affiliates  may be engaged in a
broad range of  transactions  that involve  interests  that differ from those of
each of the Company,  and (e) the Initial  Purchaser has not provided any legal,
accounting,  regulatory or tax advice with respect to the offering  contemplated
hereby and the Company has consulted its own legal,  accounting,  regulatory and
tax advisors to the extent it deemed appropriate.

     SECTION 14. Integration. This Agreement supersedes all prior agreements and
understandings  (whether  written or oral)  between  the Company and the Initial
Purchaser with respect to the subject matter hereof.

     SECTION 15.  Parties.  This Agreement  shall inure to the benefit of and be
binding  upon  the  Initial  Purchaser  and the  Company  and  their  respective
successors.  Nothing  expressed or  mentioned  in this  Agreement is intended or
shall be  construed  to give any  person,  firm or  corporation,  other than the
Initial  Purchaser  and the  Company  and their  respective  successors  and the
controlling  persons  and  officers  and  directors  and  their  heirs and legal
representatives,  any legal or  equitable  right,  remedy  or claim  under or in
respect of this Agreement or any provision herein contained.  This Agreement and
all  conditions  and  provisions  hereof  are  intended  to be for the  sole and
exclusive  benefit of the Initial Purchaser and the Company and their respective
successors,  and said  controlling  persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation.  No purchaser of  Securities  from any Initial  Purchaser  shall be
deemed to be a successor by reason merely of such purchase.

     SECTION  16. GOVERNING  LAW.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                                       23
<PAGE>

     SECTION 17. TIME. TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

     SECTION 18.  Counterparts.  This Agreement may be executed in any number of
counterparts,  each of which  shall be  deemed to be an  original,  but all such
counterparts shall together constitute one and the same Agreement.

     SECTION  19.  Effect of  Headings.  The  Section  headings  herein  are for
convenience only and shall not affect the construction hereof.

     SECTION 20. Severability. In case any provision contained in this Agreement
should be  invalid,  illegal or  unenforceable  in any  respect,  the  validity,
legality and enforceability of the remaining  provisions  contained herein shall
not in any way be affected or impaired thereby.

                                       24
<PAGE>

         If the  foregoing  is in  accordance  with  your  understanding  of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument,  along with all  counterparts,  will become a binding agreement
between the Initial Purchaser and the Company in accordance with its terms.

                                                  Very truly yours,

                                                  CHATTEM, INC.

                                                  By   /s/ Robert E. Bosworth
                                                       -------------------------
                                                       Name: Robert E. Bosworth
                                                       Title: President & COO

         CONFIRMED AND ACCEPTED,
          as of the date first above written:

         MERRILL LYNCH & CO.
         MERRILL LYNCH, PIERCE, FENNER & SMITH
                    INCORPORATED

         By:  /s/ Andreas Matthaeus
              --------------------------
         Authorized Signatory

                      Signature Page to Purchase Agreement

<PAGE>

                                   SCHEDULE A

                                  Chattem, Inc.
              $85,000,000 1.625% Convertible Senior Notes due 2014

     1. The initial public offering price of the Securities shall be 100% of the
principal  amount  thereof,  plus  accrued  interest,  if any,  from the date of
issuance.

     2.  The  purchase  price  to be  paid  by the  Initial  Purchaser  for  the
Securities shall be 97.50% of the principal amount thereof.

     3. The interest rate on the Securities shall be 1.625% per annum.

                                     Sch A-1

<PAGE>

                                   SCHEDULE B

                               Pricing Supplement

                          **APPROVED FOR EXTERNAL USE**

                                  **QIBS ONLY**

     ~ Sole-Managed $85 mm 144A Convertible Senior Notes Due 2014 Pricing ~

                                  Chattem, Inc.
                                  (CHTT/NASDAQ)

                           Gross Proceeds: $85,000,000
                             Greenshoe: $15,000,000

                  144A Convertible Senior Notes Pricing Terms:
                  --------------------------------------------
                              Issuer: Chattem Inc.
                          Ticker/Exchange: CHTT/NASDAQ
                           Offering Size: $85,000,000
                             Greenshoe: $15,000,000
  Net Proceeds: Approximately $83 million, after deducting initial purchaser's
              discount and offering expenses (excluding greenshoe)
                             Issue Price: $1,000.00
                              Maturity: May 1, 2014
                         Interest Rate: 1.625% per annum
                           Conversion Premium: 24.00%
                           Last Sale (4/4/07): $59.03
                            Conversion Price: $73.20
                            Conversion Rate: 13.6617
                          Conversion Rate Cap: 16.9405
                          Aggregate Share Cap: 16.9405
        Interest Pay Dates: May 1 & November 1 beginning November 1, 2007
                       Hard Call Protection: Non Call Life

 Conversion Settlement: Net Share Settlement, subject to the aggregate share cap
                                 Put Dates: None
 Contingent Conversion Trigger: 130% of the conversion price (initially $95.16)
                  - freely convertible beginning April 1, 2014
                   Registration: 144A with Registration Rights

    Use of Proceeds: Approx. $25 million of the offering proceeds to fund a
   convertible note hedge transaction which is designed to offset exposure to
  potential dilution upon the conversion of the notes; Proceeds used from the
  warrant transaction of approximately $15 million and the net proceeds of the
        offering to repay amounts outstanding under its credit facility

                                     Sch B-1

<PAGE>

 Fundamental Change Protection: Make whole premium delivered upon conversion in
     connection with a fundamental change via a conversion rate adjustment.
<TABLE>
<CAPTION>

                                                                 Effective Date
                                                                 --------------
   Stock Price
       On
  Effective Date             4/11/2007    5/1/2008   5/2/2009    5/1/2010   5/1/2011    5/1/2012   5/1/2013   5/1/2014
---------------------------  ----------   ---------  ---------   ---------  ---------   ---------  ---------  --------
                      <S>       <C>          <C>         <C>        <C>         <C>       <C>         <C>        <C>
                     $59.03    3.2788      3.2788      3.2788     3.2788      3.2788     3.2788     3.2788      3.2788
                     $65.00    2.7183      2.6709      2.6105     2.5331      2.4227     2.2644     2.0136      1.7229
                     $70.00    2.3557      2.2873      2.2028     2.0960      1.9503     1.7444     1.4166      0.6240
                     $75.00    2.0644      1.9824      1.8821     1.7574      1.5893     1.3587     0.9980      0.0000
                     $80.00    1.8280      1.7367      1.6271     1.4911      1.3130     1.0728     0.7098      0.0000
                     $85.00    1.6339      1.5376      1.4218     1.2812      1.1003     0.8604     0.5143      0.0000
                     $90.00    1.4729      1.3739      1.2562     1.1146      0.9346     0.7024     0.3833      0.0000
                     $95.00    1.3377      1.2381      1.1204     0.9798      0.8042     0.5840     0.2959      0.0000
                    $100.00    1.2239      1.1249      1.0082     0.8709      0.7020     0.4947     0.2374      0.0000
                    $150.00    0.6538      0.5798      0.4964     0.4070      0.3091     0.2049     0.1033      0.0000
                    $200.00    0.4597      0.4049      0.3459     0.2820      0.2174     0.1469     0.0770      0.0000

</TABLE>

        No make whole premium will paid if the stock price is above $200
       No make whole premium will paid if the stock price is below $59.03

                              Trade Date: 4/4/2007
                           Settlement Date: 4/11/2007
                             144A CUSIP: 162456 AQ0

                           Sole-Manager: Merrill Lynch

  Chattem, Inc. a leading marketer and manufacturer of a portfolio of branded
     over-the-counter, or OTC, healthcare products, toiletries and dietary
   supplements, in such categories as topical pain care, medicated skin care
products, medicated dandruff shampoos, oral care, internal OTC products, dietary
                supplements and other OTC and toiletry products.

                                  **QIBS ONLY**
                          **APPROVED FOR EXTERNAL USE**

  This communication is intended for the sole use of the person to whom it is
                                provided by us.

   A written offering circular may be obtained from your Merrill Lynch sales
representative, from Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World
 Financial Center, FL 05, New York, NY 10080 or, in Canada, from Merrill Lynch
        Canada Inc., 181 Bay Street-Suite 400, Toronto, Ontario M4T 2A9.

                                     Sch B-2

<PAGE>

                                   SCHEDULE C

   List of Directors and Executive Officers of the Company Subject to Lock-Up

Zan Guerry, Chairman and Chief Executive Officer

Robert E. Bosworth, President and Chief Operating Officer

                                     Sch C-1

<PAGE>

                                   Exhibit A-1

                      FORM OF OPINION OF COMPANY'S COUNSEL
                           TO BE DELIVERED PURSUANT TO
                                  SECTION 5(a)

     (i) The Company  has been duly  incorporated  and is validly  existing as a
corporation in good standing under the laws of Tennessee,  with corporate  power
and  authority  to own,  lease and  operate  its  properties  and to conduct its
business as described in the Disclosure  Package and Final  Offering  Memorandum
and to enter into and perform its obligations under the Purchase Agreement.

     (ii) The Company is duly  qualified  as a foreign  corporation  to transact
business and is in good standing in the state of California.

     (iii) The authorized,  issued and outstanding  capital stock of the Company
is as set forth in the Disclosure  Package and Final Offering  Memorandum in the
column  entitled  "Actual"  under  the  caption   "Capitalization"  (except  for
subsequent issuances,  if any, pursuant to the Purchase Agreement or pursuant to
reservations,  agreements, employee benefit plans or the exercise of convertible
securities or options  referred to in the Disclosure  Package and Final Offering
Memorandum);  the shares of issued and outstanding  capital stock of the Company
have  been  duly   authorized   and  validly  issued  and  are  fully  paid  and
non-assessable;  and none of the  outstanding  shares  of  capital  stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company under the Tennessee Business  Corporation Act (the
"TBCA"),  the Company's  restated charter (the "Charter") or Shareholder  Rights
Plan  (the  "Shareholder   Rights  Plan")  or,  to  such  counsel's   knowledge,
contractual preemptive or similar rights.

     (iv)  The  Purchase  Agreement  has  been  duly  authorized,  executed  and
delivered by the Company.

     (v) The Indenture has been duly  authorized,  executed and delivered by the
Company.

     (vi) The Registration  Rights Agreement has been duly authorized,  executed
and delivered by the Company.

     (vii) The Securities are in the form  contemplated  by the Indenture,  have
been duly authorized by the Company.

     (viii) Upon issuance and delivery of the Securities in accordance  with the
Purchase Agreement and the Indenture, the Securities shall be convertible at the
option of the holder  thereof for shares of Common Stock in accordance  with the
terms of the Securities  and the Indenture;  the shares of Common Stock issuable
upon  conversion  of the  Securities  have been duly  authorized  and, as of the
Closing  Time,  reserved  for issuance  upon such  conversion  by all  necessary
corporate  action;  such shares,  when issued upon such  conversion and assuming
that at the  time of such  issuance  the  Company  has a  sufficient  number  of
authorized  and unissued  shares of Common  Stock  available  therefor,  will be
validly issued and will be fully paid and non-assessable.

     (ix) The  issuance  of the shares of Common  Stock upon  conversion  of the
Securities  is not  subject to the  preemptive  or other  similar  rights of any
securityholder  of the Company  under the TBCA,  the Charter or the  Shareholder
Rights Plan or, to such counsel's knowledge,  contractual  preemptive or similar
rights.

                                      A-1-1
<PAGE>

     (x) The information  included in the Disclosure  Package and Final Offering
Memorandum  under the  caption  "Description  of Notes,"  to the extent  that it
constitutes  matters of law,  summaries of legal matters,  documents referred to
therein or legal conclusions,  has been reviewed by us and fairly summarizes the
matters set forth therein in all material respects.

     (xi) The information  included in the Disclosure Package and Final Offering
Memorandum under the caption  "Description Of Capital Stock," to the extent that
it constitutes matters of law, summaries of legal matters, documents referred to
therein or legal conclusions,  has been reviewed by us and fairly summarizes the
matters set forth therein in all material respects.

     (xii) The Securities and the Indenture  conform in all material respects to
the descriptions  thereof contained in the Disclosure Package and Final Offering
Memorandum.

     (xiii) The documents  incorporated  by reference in the Disclosure  Package
and  Final  Offering  Memorandum  (other  than  the  financial   statements  and
supporting  schedules and other  financial data therein,  as to which no opinion
need be rendered),  when they were filed with the Commission complied as to form
in all material respects with the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder.

     (xiv) To our  knowledge,  except  as  disclosed  or  incorporated  into the
Disclosure  Package  and Final  Offering  Memorandum,  there is not  pending  or
threatened any action, suit, proceeding, inquiry or investigation,  to which the
Company or its  subsidiaries is a party, or to which the property of the Company
or its  subsidiaries  is subject,  before or brought by any federal or Tennessee
court or  governmental  agency or body,  which would  reasonably  be expected to
result in a Material  Adverse Effect,  or which would  reasonably be expected to
materially  and  adversely  affect  the  properties  or  assets  thereof  or the
consummation of the transactions  contemplated in the Purchase  Agreement or the
performance  by the Company of its  obligations  thereunder or the  transactions
contemplated by the Disclosure Package and Final Offering Memorandum.

     (xv) The statements set forth in the Disclosure  Package and Final Offering
Memorandum and the Final  Offering  Memorandum  under the caption  "Certain U.S.
Federal Income Tax Provisions,"  insofar as such statements purport to summarize
matters of U.S.  federal  income and estate tax laws or legal  conclusions  with
respect thereto, and subject to the limitations,  qualifications and assumptions
set forth  therein,  fairly  summarize  the  matters  set forth  therein  in all
material respects.

     (xvi) In reliance upon the  representations  and  warranties of the Company
and the  Initial  Purchaser  in the  Purchase  Agreement,  no  filing  with,  or
authorization, approval, consent, license, order, registration, qualification or
decree of, any federal or Tennessee  court or  governmental  authority or agency
("Governmental  Approvals") is necessary or required in connection  with the due
authorization,  execution  and  delivery of the  Purchase  Agreement  or the due
execution,  delivery or performance of the Indenture and the Registration Rights
Agreement by the Company or for the offering,  issuance, sale or delivery of the
Securities to the Initial  Purchaser or the initial  resale of the Securities by
the  Initial  Purchaser,  in each  case,  in  accordance  with the  terms of the
Purchase Agreement,  except for such Governmental  Approvals (i) that shall have
been obtained or made prior to the Closing Time,  (ii) as may be required by the
securities or blue sky laws of the various states in which the  Securities  will
be offered or sold, (iii) the 1933 Act and the 1933 Act Regulations with respect
to the  registration of the resale of the Securities under the 1933 Act pursuant
to the Registration Rights Agreement,  (iv) the Trust Indenture Act of 1939, and
(v) those which, if not made would not result in a Material  Adverse Effect,  it
being  understood  that no opinion is expressed  as to any resale of  Securities
subsequent to the resales thereof by the Initial Purchaser.

                                      A-1-2
<PAGE>

     (xvii) In reliance upon the  representations  and warranties of the Company
and the Initial  Purchaser in the  Purchase  Agreement,  it is not  necessary in
connection  with the offer,  sale and delivery of the  Securities to the Initial
Purchaser or in  connection  with the initial  resale of the  Securities  by the
Initial  Purchaser,  in each case,  in the manner  contemplated  by the Purchase
Agreement and the Disclosure  Package and Final Offering  Memorandum to register
the  Securities  under the 1933 Act or to qualify the Indenture  under the Trust
Indenture Act of 1939, it being understood that no opinion is expressed by us as
to the securities or blue sky laws of the various states in which the Securities
will be  offered  or sold or as to any resale of  Securities  subsequent  to the
resales thereof by the Initial Purchaser.

     (xviii) The execution,  delivery and performance of the Purchase Agreement,
the  Indenture,  the  Registration  Rights  Agreement and the Securities and the
consummation of the transactions  contemplated in the Purchase  Agreement and in
the Disclosure Package and Final Offering  Memorandum  (including the use of the
proceeds from the sale of the Securities as described in the Disclosure  Package
and  Final  Offering  Memorandum  under  the  caption  "Use  Of  Proceeds")  and
compliance by the Company with its obligations under the Purchase Agreement, the
Indenture,  the Registration Rights Agreement and the Securities do not and will
not,  whether  with or  without  the  giving of notice or lapse of time or both,
violate or constitute a breach of, or default or Repayment Event under or result
in the  creation  or  imposition  of any lien,  charge or  encumbrance  upon any
property or assets of the Company or its  subsidiaries  thereof  pursuant to any
contract,  indenture,  mortgage, deed of trust, loan or credit agreement,  note,
lease or any other agreement or instrument, known to us, to which the Company or
its  subsidiaries  is a party or by which it or any of them may be bound,  or to
which any of the  property  or  assets of the  Company  or its  subsidiaries  is
subject (except for such violation,  breaches,  defaults or Repayment  Events or
liens,  charges or encumbrances  that would not have a Material Adverse Effect),
nor will such action result in any violation of the provisions of the charter or
by-laws of the Company or its  subsidiaries,  or any  applicable  law,  statute,
rule, regulation,  judgment,  order, writ or decree, known to us, of any federal
or Tennessee government, government instrumentality or court having jurisdiction
over the  Company or its  subsidiaries  or any of their  respective  properties,
assets or operations.

     (xix) The Company is not required,  and after giving effect to the issuance
and sale of the Securities and the application of the net proceeds  therefrom as
described in the Disclosure  Package and Final Offering  Memorandum  will not be
required to, register as "investment company" under the 1940 Act.

     Nothing has come to our attention that would lead us to believe that (1) as
of the  Applicable  Time,  the  Disclosure  Package  (except  for the  financial
statements and schedules and other  financial data included or  incorporated  by
reference therein or omitted  therefrom,  as to which we need make no statement)
included  any  untrue  statement  of a  material  fact or  omitted  to state any
material fact necessary in order to make the statements therein, in the light of
circumstances  under  which  they  were  made,  not  misleading  or (2) that the
Offering Memorandum or any amendment or supplement thereto (except for financial
statements and schedules and other  financial data included or  incorporated  by
reference  therein or omitted  therefrom as to which we need make no statement),
at the time the Offering  Memorandum was issued, at the time any such amended or
supplemented  Offering  Memorandum  was issued or at Closing  Time,  included or
includes an untrue  statement of a material  fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.

                                      A-1-3

<PAGE>

                                   Exhibit A-2

                               FORM OF OPINION OF
                               KING & SPALDING LLP
                    TO BE DELIVERED PURSUANT TO SECTION 5(a)

(i)      The Purchase Agreement constitutes a valid and binding agreement of the
         Company, enforceable against the Company in accordance with its terms;

(ii)     The  Registration  Rights  Agreement  constitutes  a valid and  binding
         agreement of the Company, enforceable against the Company in accordance
         with its terms;

(iii)    The Indenture constitutes a valid and binding agreement of the Company,
         enforceable against the Company in accordance with its terms;

(iv)     Assuming due  authentication  of the Securities by the Trustee and upon
         payment  and  delivery   therefore  in  accordance  with  the  Purchase
         Agreement, the Securities will constitute valid and binding obligations
         of the  Company,  enforceable  against the Company in  accordance  with
         their terms and will be entitled to the benefits of the Indenture.

                                      A-2-1

<PAGE>

                                    Exhibit B

                                 FORM OF LOCK-UP

         The undersigned,  an officer of Chattem,  Inc., a Tennessee corporation
(the  "Company"),  understands  that the Merrill Lynch & Co. and Merrill  Lynch,
Pierce,  Fenner & Smith  Incorporated  ("Merrill Lynch") propose to enter into a
Purchase  Agreement (the "Purchase  Agreement") with the Company,  providing for
the offering (the "Offering"), pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), of Convertible Senior Notes due 2014 of
the Company.  Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Purchase Agreement.

         In  recognition  of the benefit that the Offering  will confer upon the
undersigned  as an  officer  of the  Company,  and for other  good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned  hereby agrees that, during a period of 90 days from the date of the
Final Offering Memorandum,  the undersigned will not, for the benefit of Merrill
Lynch,  without  the  prior  written  consent  of  Merrill  Lynch,  directly  or
indirectly,  (i)  offer,  pledge,  sell,  contract  to sell,  sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant  for the sale of, or  otherwise  lend or dispose of or transfer
any shares of the Company's  Common Stock or any securities  convertible into or
exchangeable  or  exercisable  for Common Stock,  whether now owned or hereafter
acquired by the  undersigned  or with  respect to which the  undersigned  has or
hereafter  acquires  the  power  of  disposition  (collectively,   the  "Lock-Up
Securities"),  or (ii)  enter  into  any  swap  or any  other  agreement  or any
transaction  that transfers,  in whole or in part,  directly or indirectly,  the
economic  consequence of ownership of the Lock-Up  Securities,  whether any such
swap or  transaction  is to be  settled  by  delivery  of Common  Stock or other
securities, in cash or otherwise.

         Notwithstanding the foregoing, and subject to the conditions below, the
undersigned  may  transfer  the Lock-Up  Securities  without  the prior  written
consent of Merrill  Lynch,  provided  that (1) Merrill  Lynch  receives a signed
lock-up  agreement  for the  balance  of the lock up  period  from  each  donee,
trustee,  distributee,  or  transferee,  as the  case  may be and (2)  any  such
transfer shall not involve a disposition for value:

         (i) as a bona fide gift or gifts; or

         (ii) to any  trust  the  beneficiaries  of which  are  exclusively  the
undersigned or a member of the immediate  family of the  undersigned,  including
grandchildren  (to the  extent  consistent  with the  Securities  Act and  state
securities laws); or

         (iii)  the  transfer  of  Lock-Up  Securities  in  satisfaction  of the
exercise of stock options outstanding on the date hereof.

         Notwithstanding  the immediately  preceding  paragraph,  Zan Guerry may
transfer  up to 75,000  shares  of the  Company's  Common  Stock  received  upon
exercise of stock options outstanding on the date hereof without satisfaction of
the  requirements  set  forth in  clause  (1) and (2)  above of the  immediately
preceding paragraph.

         The undersigned  also agrees and consents to the entry of stop transfer
instructions  with the  Company's  transfer  agent  and  registrar  against  the
transfer of the  Lock-Up  Securities  except in  compliance  with the  foregoing
restrictions.

         By:_______________________________
              Name:

                                       B-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00121-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00121-of-00352.parquet"}]]