Document:

SERVICE AGREEMENT

         This Service Agreement is made and entered into as of ________________,
2004, between CANTOR FITZGERALD & CO., a New York general partnership ("Cantor")
and BANK OF NEW YORK, a New York State banking corporation (the "Bank").

                              W I T N E S S E T H:

         WHEREAS, from time to time, Cantor and the Bank may enter into one or
more depositary trust agreements providing for the deposit with the Bank, as
trustee, of specified Securities, the creation of Receipts representing the
Securities so deposited and the execution and delivery of certificates
evidencing the Receipts; and

         WHEREAS, Cantor and the Bank have entered into an agreement governing
the standard terms for such depositary trust agreements, dated as of ______,
2004 (the "Trust Agreement");

         WHEREAS, Section 5.6 of the Trust Agreement provides that Cantor shall
pay the fees of the Bank as trustee;

         WHEREAS, Cantor and the Bank wish to establish a mechanism by which
Cantor will pay the Bank's fees as trustee;

         NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained in this Agreement, the parties hereby agree as follows:

SECTION 1. COLLECTION OF UNDERWRITING FEE

         The Bank agrees to act as Cantor's agent in accepting the payment of
the underwriting fee associated with the issuance of Receipts. When the Bank as
trustee accepts for deposit whole Securities and issues Receipts pursuant to
Section 2.2 of the Trust Agreement, the Bank shall accept from each such
Depositor (other than the Sponsor) an underwriting fee in cash in the amount of
1.0% percent of the current market value of the deposited Securities. The Bank
may conclusively rely, and shall be fully authorized and protected in relying,
on information provided by the Sponsor, the American Stock Exchange, or any
source it deems reliable to determine the correct amount of the underwriting fee
that the Bank accepts. The Bank hereby agrees and covenants that it will not
commingle underwriting fees collected in connection with the issuance of
Receipts with its own assets or with assets of any of the Trusts created under
the Depositary Trust Agreements and that it shall hold itself out at all times
as acting as agent on behalf of Cantor in accepting such underwriting fees. The
Bank shall remit such underwriting fee promptly to Cantor.

SECTION 2. TRUSTEE FEE ACCOUNT

         Cantor shall cause an account ("Account") to be created at the Bank for
each Trust created under a depositary trust agreement, titled in the name of
Cantor and referring to the name of the particular Trust formed under that
depositary trust agreement, for the purpose of holding a portion of the
underwriting fees associated with the issuance of receipts issued by that Trust.
Cantor hereby grants the Bank a security interest in each such Account for
purposes of securing Cantor's obligation to pay the Bank's fees as trustee with
respect to the related Trust.

SECTION 3. DEPOSIT OF TRUSTEE FEES

         In connection with Deposits made by Cantor, Cantor shall deposit into
the Account relating to that Trust an amount in cash equal to 0.12% (12 basis
points) of the amount of the Deposit, representing 0.01% (1 basis point) per
quarter for the twelve calendar quarters the Trust shall be in existence.

         When a Deposit is made by a depositor other than Cantor and Receipts of
a particular Trust are issued, Cantor shall deposit into the Account relating to
that Trust, out of the underwriting fee collected by the Bank and remitted to
Cantor, an amount in cash equal to 0.12% (12 basis points) of the amount of the
Deposit, representing 0.01% (1 basis point) per quarter for the twelve calendar
quarters the Trust shall be in existence, which amount shall be prorated in
increments of a full calendar quarter for the remaining life of the Trust.

         Amounts so deposited in an Account shall be used for the payment of any
amounts due to the Bank as trustee for the related Trust, and Cantor shall not
use that Account for any other purpose prior to the payments of the final
trustee fees for the related Trust. Following the payment of such trustee fees,
all amounts remaining in the Account may be withdrawn or used by Cantor without
restriction. Cantor agrees that it shall treat itself as the owner for federal
income tax purposes of amounts in the Accounts.

SECTION 4. PAYMENT OF TRUSTEE FEES

         The Trustee shall be entitled to a fee of .04% (4 basis points) per
year of the Trust's assets, calculated on the basis of the value of the
aggregate value of the securities deposited into the Trust less the aggregate
value of securities withdrawn from the Trust. The Trustee's fee will be payable
at the end of each calendar quarter at the rate of .01% of the aggregate value
of securities deposited in the Trust (determined at the time of the issuance of
the Receipts associated with that Deposit), less the number of Receipts redeemed
multiplied by the average deposit price of a Receipt for the period from the
time of inception of the Trust to the end of the current calendar quarter). The
Trustee's fee is payable no later than [45] days after the end of each calendar
quarter. The fees payable pursuant to this Section 4, and any fractional amounts
retained by the Trustee as additional compensation pursuant to Sections 4.1,
4.4, 4.10, and 5.10 under the Trust

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Agreement, shall be deemed to be full reimbursement to the Trustee for all Trust
Expenses.

SECTION 5. INDEMNIFICATION AND BANK RESPONSIBILITIES

         (a) Cantor shall indemnify the Bank, its directors, employees, agents
and affiliates against, and hold each of them harmless from, any loss,
liability, cost, expense or judgment (including, but not limited to, the fees
and expenses of counsel) (collectively "Indemnified Amounts") which is suffered
or incurred by any of them and which arises out of acceptance of this Agreement
or any acts performed or omitted pursuant to the provisions of this Agreement as
the same may be amended, modified or supplemented from time to time, except that
Cantor shall not have any obligations under this Section 5.(a) to pay
Indemnified Amounts incurred as a result of and attributable to (i) the gross
negligence or willful misconduct of the Bank in carrying out its duties
hereunder.

         (b) The Bank shall indemnify Cantor, its directors, employees, agents
and affiliates against, and hold each of them harmless from, any Indemnified
Amounts directly caused by the negligence or bad faith of the Bank in the
performance of its duties hereunder. In no event shall the Bank be responsible
or liable for special, indirect or consequential loss or damage of any kind
whatsoever (including, but not limited to, loss of profit), even if the Bank has
been advised of the likelihood of such loss or damage and regardless of the form
of action.

         (c) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless the indemnified party under
subsection (a) or (b) above, then the indemnifying party shall contribute to the
Indemnified Amounts referred to in subsection (a) or (b) above (i) in such
proportion as is appropriate to reflect the relative benefits received by Cantor
on the one hand and the Bank on the other hand from the offering of the Receipts
which are the subject of the action or (ii) if the allocation provided by clause
(i) above 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 Cantor on the one hand and the Bank on the
other hand in connection with the action, statement or omission which resulted
in such Indemnified Amount as well as any other relevant equitable
considerations. The relative benefits received by Cantor on the one hand and the
Bank on the other shall be deemed to be in the same proportions as the total
underwriting fees from the offering of the Receipts which are the subject of the
action (before deducting expenses) received by Cantor bear to the total fees
received by the Bank as trustee in connection with such Receipts. The relative
fault shall be determined by reference to, among other things, which party
breached this Agreement and the relative fault therein, whether any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact from which the action arises relates to information
supplied by Cantor or the Bank and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission or the act or omission from which the action arises. The
amount of Indemnified Amounts referred to in the first sentence of this
subsection (c) shall be deemed to include any legal or other expenses reasonably
incurred by such

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indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (c).

         (d) The sole responsibility of the Bank shall be to perform its duties
hereunder without gross negligence or willful misconduct. The Bank shall not be
responsible or liable for any failure or delay in the performance of its
obligations under this agreement arising our of or caused, directly or
indirectly, by circumstances beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods; wars; civil or military
disturbances; sabotage; acts of terrorism; epidemics; riots; interruptions, loss
or malfunctions or utilities; computer (hardware or software) or communications
services; accidents; labor disputes; acts of civil or military authority or
governmental actions; it being understood that the Bank shall use commercially
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.

SECTION 6. MISCELLANEOUS

         Except as otherwise specified in this Agreement or as the context may
otherwise require, capitalized terms have the meanings set forth in the Trust
Agreement and the applicable Depositary Trust Agreement. This Agreement, or any
term thereof, may be changed or waived only by written amendment signed by the
party against whom enforcement of such change or waiver is sought.

         Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such
notice, at the following address: if to Cantor, at 135 East 57th Street, New
York, New York 10022, Attention: Stephen Merkel - Executive Managing Director
and General Counsel; and if to the Bank, at Bank of New York, 101 Barclay
Street, Floor 8-E, New York, New York 10286, Attention: Betty Cocozza, Vice
President or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.

         This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party, and any assignment in violation of this section will
be void. This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.

         This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to the provisions thereof relating to
conflicts of law. The parties agree that all actions and proceedings arising out
of this Agreement or any of the transactions contemplated hereby shall be
brought in the County of New York and, in connection with any such action or
proceeding, submit to the jurisdiction of, and venue in, such County. Each of
the parties hereto also irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim arising out of this Agreement or the
transactions contemplated hereby.

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         This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, CANTOR FITZGERALD & CO. and BANK OF NEW YORK have duly
executed this Agreement as of the day and year first set forth above.

CANTOR FITZGERALD & CO.

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

BANK OF NEW YORK

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

                                       5exv4w1

 

EXHIBIT 4.1

SUBSCRIPTION AGREEMENT

     SUBSCRIPTION AGREEMENT (this “Agreement”) made as of the date set forth on
the signature page hereof between Akorn, Inc., a Louisiana corporation (the
“Company”), and the undersigned (the “Subscriber”).

WITNESSETH:

     WHEREAS, the Company is offering in a private placement to accredited
investors (the “Offering”) of up to an aggregate of (i) 170,000 shares of its
Series B 6% Participating Convertible Preferred Stock (the “Series B Preferred
Stock”) at a price equal to $100.00 per share (the “Offering Price”), and (ii)
warrants to purchase shares of common stock of the Company (“Common Stock”)
equal to thirty percent (30%) of the total number of shares of Common Stock
into which the Series B Preferred Stock is convertible, at an exercise price
per share equal to $3.50 (the “Warrants”). The Warrants are issued for a five
(5) year period. The shares of Series B Preferred Stock and Warrants offered
hereby are sometimes referred to as the “Securities” and all Securities, all
shares of Common Stock issued or issuable upon conversion or exercise of such
Securities, as the case may be, and all shares of Replacement Common Stock
(defined below) are collectively referred to herein as the “Purchased
Securities”; and

     WHEREAS, the Subscriber desires to purchase that number of Securities set
forth on the signature page hereof on the terms and conditions hereinafter set
forth; and

     WHEREAS, the Company has engaged Leerink Swann & Company (the “Placement
Agent”) as placement agent for the Offering on a “best-efforts” basis.

     NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto agree
as follows:

I. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER

     1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby irrevocably subscribes for and agrees to purchase from the
Company such Securities as is set forth, and at the purchase price set forth,
upon the signature page hereof and the Company agrees to sell such Securities
to the Subscriber for said purchase price. The purchase price is payable by
wire transfer of immediately available funds contemporaneously with the
execution and delivery of this Agreement by the Subscriber. All wires should
be sent to:

JP Morgan Chase

55 Water Street

New York, NY 10041

ABA# 021 000 021

Account#: 323 059945

Attn: Henry Reinhold

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     Certificates for the shares of Series B Preferred Stock and the Warrants
will be delivered by the Company to the Subscriber promptly following the
Closing (as herein defined).

     1.2 The Subscriber recognizes that the purchase of Securities involves a
high degree of risk in that (i) the Company will require funds in addition to
the proceeds of the Offering; (ii) an investment in the Company is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company; (iii) the Subscriber may
not be able to liquidate its investment; (iv) transferability of the Securities
is extremely limited; and (v) in the event of a disposition, the Subscriber
could sustain the loss of its entire investment.

     1.3 The Subscriber represents that the Subscriber is an “accredited
investor” as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the “Act”), as indicated by the
responses to the questions contained in Section VII hereof, and that the
Subscriber is able to bear the economic risk and illiquidity of an investment
in the Securities.

     1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in non-listed
and unregistered securities, or that the Subscriber has employed the services
of an investment advisor, attorney and/or accountant to read all of the
documents furnished or made available by the Company both to the Subscriber and
to all other prospective investors to evaluate the merits and risks of such an
investment on the Subscriber’s behalf; (ii) the Subscriber recognizes the
highly speculative nature of an investment in the Securities; and (iii) the
Subscriber is able to bear the economic risk and illiquidity which the
Subscriber assumes by investing in the Securities.

     1.5 The Subscriber (i) hereby represents that the Subscriber has been
furnished by the Company during the course of this transaction with and has
carefully read the Company’s SEC Filings (as hereafter defined), including
without limitation the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, the additional risk factors specific to the
Securities, the Common Stock, and the Offering contained in Schedule 1.5 hereto
(together with the SEC Filings, the “Offering Documents”), and all other
information regarding the Company which the Subscriber has requested or desired
to know; (ii) has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Offering; and (iii) has received any
additional information which the Subscriber has requested.

     1.6 (a) To the extent necessary, the Subscriber has retained, at its own
expense, and relied upon the advice of appropriate professionals regarding the
investment, tax and legal merits and consequences of this Agreement and its
purchase of the Securities hereunder.

            (b) The Subscriber represents that (i) the Subscriber was contacted
regarding the sale of the Securities by the Placement Agent (or an authorized
agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio, whether
closed circuit or generally available;

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or (B) attend any seminar, meeting or industry investor conference whose
attendees were invited by any general solicitation or general advertising.

     1.7 The Subscriber hereby acknowledges that the Offering has not been
reviewed by the United States Securities and Exchange Commission (the “SEC”)
because of the Company’s representations that this Offering is intended to be
exempt from the registration requirements of Section 5 of the Act pursuant to
Sections 3(b), 4(2) and/or 4(6) thereof and Regulation D promulgated under the
Act. The Subscriber agrees that the Subscriber will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of
the Securities, except in compliance with the Act and the rules and regulations
promulgated thereunder.

     1.8 The Subscriber understands that none of the Securities have been
registered under the Act by reason of a claimed exemption under the provisions
of the Act which depends, in part, upon the Subscriber’s investment intention.
In this connection, the Subscriber hereby represents that the Subscriber is
purchasing the Securities for the Subscriber’s own account for investment and
not with a view toward the resale or distribution thereof to others. The
Subscriber, if an entity, was not formed for the purpose of purchasing the
Securities. The Subscriber understands that Rule 144 promulgated under the Act
requires, among other conditions, a one-year holding period prior to the resale
(in limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements under the Act.

     1.9 The Subscriber understands and hereby acknowledges that the Company is
under no obligation to register the Securities under the Act or any state
securities or “blue sky” laws other than as set forth in Section V. The
Subscriber consents that the Company may, if it desires, permit the transfer of
the Securities out of the Subscriber’s name only when the Subscriber’s request
for transfer is accompanied by an opinion of counsel reasonably satisfactory to
the Company that neither the sale nor the proposed transfer results in a
violation of the Act or any applicable state “blue sky” laws (collectively,
“Securities Laws”).

     1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities indicating that such
Securities have not been registered under the Act or any state securities or
“blue sky” laws and setting forth or referring to the restrictions on
transferability and sale thereof contained in this Agreement. The Subscriber is
aware that the Company will make a notation in its appropriate records and
issue “stop transfer” instructions to its transfer agent with respect to the
restrictions on the transferability of such Securities.

     1.11 The Subscriber understands that the Company will review this
Agreement and, if such Subscriber is an individual, hereby gives authority to
the Company to call Subscriber’s bank or place of employment (in a call in
which the Placement Agent participates) or otherwise review the financial
standing of the Subscriber; and it is further agreed that upon their mutual
agreement the Placement Agent and the Company reserve the unrestricted right,
without further documentation or agreement on the part of the Subscriber, to
reject or limit any subscription, to accept subscriptions for Securities and to
close the Offering to the Subscriber at any time.

3

 

     1.12 The Subscriber hereby represents that the address of the Subscriber
furnished by the Subscriber on the signature page hereof is the Subscriber’s
principal residence if the Subscriber is an individual or its principal
business address if it is a corporation or other entity.

     1.13 The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Securities subscribed for hereby. This Agreement
constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.

     1.14 If the Subscriber is a corporation, partnership, limited liability
company, trust, employee benefit plan, individual retirement account, Keogh
Plan, or other entity, then (a) it is authorized and qualified to become an
investor in the Company and the person signing this Agreement on behalf of such
entity has been duly authorized by such entity to do so, and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.

     1.15 The Subscriber represents and warrants that the Subscriber is not (a)
a broker or dealer admitted to membership in the National Association of
Securities Dealers, Inc. (“NASD”), (b) a controlling stockholder of an NASD
member, or (c) a person associated with a member of the NASD.

     1.16 The Subscriber represents and warrants that it has not engaged,
consented to nor authorized any broker, finder or intermediary to act on its
behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The
Subscriber shall indemnify and hold harmless the Company from and against all
fees, commissions or other payments owing to any such person or firm acting on
behalf of such Subscriber hereunder.

     1.17 The Subscriber acknowledges that (a) the Company has engaged,
consented to and authorized the Placement Agent in connection with the
transactions contemplated by this Agreement, (b) the Company shall pay the
Placement Agent a commission and reimburse the Placement Agent’s expenses and
the Company shall indemnify and hold harmless the Subscriber from and against
all fees, commissions or other payments owing by the Company to the Placement
Agent or any other person or firm acting on behalf of the Company hereunder and
(c) registered representatives of the Placement Agent and/or its designees
(including, without limitation, registered representatives of the Placement
Agent and/or its designees who participate in the Offering and sale of the
securities sold in the Offering) will be paid a portion of the commissions paid
to the Placement Agent.

     1.18 The Subscriber, whose name appears on the signature line below, shall
be the beneficial owner of the Securities for which such Subscriber subscribes.

     1.19 The Subscriber agrees that from the time the Subscriber was first
contacted by the Placement Agent regarding the Offering, until a point in time
equal to the earlier of (i) the date that the Registration Statement (as
defined in Section 5.2(a)) is declared effective by the SEC) or (ii) four
months from the date hereof, the Subscriber has not and shall not, directly or
indirectly, through related parties, affiliates or otherwise, sell or purchase
or otherwise deal in or with any

4

 

equity security of the Company while in possession of any material
non-public information of the Company or in violation of any applicable
securities law or regulation.

     1.20 The Subscriber understands, acknowledges and agrees with the Company
as follows:

            (a) The Company may terminate the Offering or reject any subscription at
any time in its sole discretion. The execution of this Agreement by the
Subscriber or solicitation of the investment contemplated hereby shall create
no obligation on the part of the Company or the Placement Agent to accept any
subscription or complete the Offering.

            (b) The Subscriber hereby acknowledges and agrees that the subscription
hereunder is irrevocable by the Subscriber, and that, except as required by
law, the Subscriber is not entitled to cancel, terminate or revoke this
Agreement or any agreements of the Subscriber hereunder and that if the
Subscriber is an individual this Agreement shall survive the death or
disability of the Subscriber and shall be binding upon and inure to the benefit
of the parties and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

            (c) No federal or state agency or authority has made any finding or
determination as to the accuracy or adequacy of the Offering Documents or as to
the fairness of the terms of the Offering nor any recommendation or endorsement
of the Securities. Any representation to the contrary is a criminal offense.
In making an investment decision, the Subscriber must rely on its own
examination of the Company and the terms of the Offering, including the merits
and risks involved.

II. REPRESENTATIONS BY THE COMPANY

     The Company hereby represents and warrants to the Subscriber that:

     2.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana and has the power and authority to conduct its business as presently
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business presently conducted by it or the properties owned, leased or
operated by it, makes such qualification or licensing necessary and where the
failure to be so qualified or licensed would have a material adverse effect
upon the business, prospects or financial condition of the Company.

     2.2 Capitalization and Voting Rights. Upon Closing, the authorized
capital stock of the Company will be One Hundred Fifty Million (150,000,000)
shares of Common Stock and Five Million (5,000,000) shares of preferred stock,
of which 20,612,684 shares of Common Stock, 257,172 shares Series A 6%
Participating Convertible Preferred Stock (the “Series A Preferred Stock”), and
no shares of Series B Preferred Stock are issued and outstanding as of July 31,
2004. All issued and outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. Except as set forth in this
Agreement or in the SEC Filings (as hereafter defined), there are no
outstanding options, warrants, agreements, commitments, convertible securities,
preemptive rights or other rights to subscribe for or to purchase any shares of
capital stock of the Company nor are there any agreements, promises or
commitments to issue

5

 

any of the foregoing. Except as set forth in the SEC Filings, in this
Agreement and as otherwise required by law, there are no restrictions upon the
voting or transfer of the Purchased Securities pursuant to the Company’s
Articles of Incorporation, as amended (the “Articles of Incorporation”),
By-laws or other governing documents or any agreement or other instruments to
which the Company is a party or by which the Company is bound.

     2.3 Authorization; Enforceability. The Company has the corporate right and
corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Purchased Securities and the
performance of the Company’s obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. The Purchased Securities have been duly
and validly authorized and, upon the issuance and delivery thereof and, in the
case of the Securities, payment therefor as contemplated by this Agreement,
will be free and clear of liens, duly and validly authorized and issued, fully
paid and nonassessable and will not impose personal liability on the holder
thereof. The issuance and sale of the Purchased Securities contemplated hereby
will not give rise to any preemptive rights or rights of first refusal on
behalf of any person.

     2.4 No Conflict; Governmental Consents.

            (a) The execution, delivery and performance by the Company of this
Agreement, the consummation of the transactions contemplated hereby and the
offer and sale of the Purchased Securities will not result in the violation of
any law, statute, rule, regulation, order, writ, injunction, judgment or decree
of any court or governmental authority to or by which the Company is bound, or
of any provision of the Articles of Incorporation or By-laws of the Company,
and will not conflict with, or result in a breach or violation of, any of the
terms or provisions of, or constitute (with due notice or lapse of time or
both) a default under, or give to others any rights of termination, amendment
(including without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of any lease, loan agreement, mortgage, security
agreement, trust indenture or other agreement or instrument to which the
Company is a party or by which it is bound or to which any of its properties or
assets is subject, nor result in the creation or imposition of any lien upon
any of the properties or assets of the Company.

            (b) No consent, waiver, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution, delivery and
performance of this Agreement or with the authorization, issuance and sale of
the Purchased Securities, except for such consents, waivers, approvals,
authorizations or orders as may be required to be obtained or made, and which
shall have been obtained or made at or prior to the Closing Date.

     2.5 Licenses. The Company has all licenses, permits and other
governmental authorizations currently required for the conduct of its business
or ownership of properties and is

6

 

in all material respects complying therewith, except for any licenses,
permits or other governmental authorizations which would not materially
adversely affect the business, property, financial condition, results of
operations or prospects of the Company.

     2.6 Litigation. The Company knows of no pending or threatened legal or
governmental proceedings against the Company which could materially adversely
affect the business, property, financial condition, prospects, results of
operations or prospects of the Company.

     2.7 Accuracy of Reports. All reports required to be filed by the Company
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
since December 31, 2003, have been duly and timely filed with the SEC. All
such reports complied at the time of their respective filing dates in all
material respects with the requirements of the Exchange Act or the Act, as
applicable, and all rules and regulations thereunder of their respective forms.
None of such reports contained (as of their respective dates) any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.

     2.8 Investment Company. The Company is not an “investment company” within
the meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the SEC thereunder.

     2.9 Intellectual Property. The Company owns or possesses sufficient
rights to use all patents, patent rights, trademarks, copyrights, licenses,
inventions, trade secrets, trade names and know-how that are necessary for the
conduct of its business as now conducted except where the failure to own or
possess would not have a material adverse effect on the business, assets,
financial condition, prospects or results of operation of the Company (the
“Company Intellectual Property”). Except as set forth in the SEC Filings, (i)
the Company has not received any written notice of, and has no knowledge of,
any infringement by the Company of intellectual property rights of any third
party that, individually or in the aggregate, would have a material adverse
effect on the business, assets, financial condition, prospects or results of
operation of the Company and (ii) the Company has not received any written
notice of any infringement by a third party of any Company Intellectual
Property that, individually or in the aggregate, would have a material adverse
effect on the business, assets, financial condition, prospects or results of
operation of the Company.

     2.10 Insurance. The Company and each of its subsidiaries has in force
fire, casualty, product liability and other insurance policies, with extended
coverage, sufficient in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company may reasonably become subject, and such types
and amounts of other insurance with respect to its business and properties, on
both a per occurrence and an aggregate basis, as are customarily carried by
persons engaged in the same or similar business as the Company. No default or
event has occurred that could give rise to a default under any such policy.

7

 

     2.11 Anti-Takeover Provisions. The Company and its board of directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under its Certificate of Incorporation or the laws of the state of its
incorporation which is or could become applicable to any Subscriber as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and the shares of Common
Stock into which such Securities are convertible or exercisable, as the case
may be, and any and all Subscriber’s ownership of the Securities and the shares
of Common Stock into which such Securities are convertible or exercisable, as
the case may be, provided that neither the anti-dilution nor change of control
approval rights of holders of outstanding securities of the Company shall be
deemed to be included in this representation to the extent such rights may
become available to them following the Closing Date as a result of changes in
circumstances occurring after the Closing Date.

     2.12 No Material Adverse Change. Since the filing of the Company’s most
recent SEC Report on Form 10-Q, (i) there has not been any material adverse
change (financial or otherwise) in the assets, properties, financial condition,
prospects, operating results or business of the Company, and (ii) there has
been no event or condition of any character that might have a material adverse
effect (financial or otherwise) on the assets, properties, financial condition,
prospects, operating results or business of the Company.

     2.13 Financial Statements. The financial statements included in the
Company’s most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 and all other reports filed by the Company with the SEC
pursuant to the Exchange Act since the filing of such Annual Report on Form
10-K and prior to the date hereof (collectively, the “SEC Filings”) present
fairly and accurately in all material respects the financial position of the
Company as of the dates shown and its results of operations and cash flows for
the periods shown, and such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated thereon or in the notes thereto
and subject, in the case of unaudited financial statements, to normal
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof, to the Company’s
knowledge, the Company has no liabilities, contingent or otherwise, except
those which individually or in the aggregate are not material to the financial
condition or operating results of the Company.

     2.14 Compliance with Laws. Neither the Company nor, to the Company’s
knowledge, any Person (as hereafter defined) acting on the Company’s behalf and
in accordance with the Company’s instructions, has conducted any general
solicitation or general advertising (as those terms are used in Regulation D of
the Act) in connection with the offer or sale of the Securities. Neither the
Company nor any of its Affiliates (as hereafter defined), nor, to the Company’s
knowledge, any Person acting on the Company’s or on the behalf of its
Affiliates and in accordance with the Company’s instructions, has, directly or
indirectly, made any offers or sales of any security of the Company or
solicited any offers to buy any security of the Company, under circumstances
that would adversely affect reliance by the Company on Section 4(2) of the Act
for the exemption from registration for the transactions contemplated hereby or
would require registration of the Securities under the Act. There are no
proceedings pending or to the

8

 

Company’s knowledge threatened against the Company relating to the
continued trading of the Company’s Common Stock on the OTC Bulletin Board®.

     2.15 No Violation. The Company is not in violation of its Articles of
Incorporation, Bylaws or other organizational documents. The Company is not in
default (and no event has occurred that with notice or lapse of time or both
would put the Company in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the
aggregate, have a material adverse effect on the business, property, financial
condition, results of operations or prospects of the Company. Except as set
forth in the Offering Documents, the business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which either
individually or in the aggregate have not had and would not have a material
adverse effect on the business, property, financial condition, results of
operations or prospects of the Company.

     2.16 Tax Matters. The Company has timely filed all material federal,
state, local and foreign income and franchise and other tax returns required to
be filed by any jurisdiction to which it is subject and has paid all taxes due
in accordance therewith, and no tax deficiency has been determined adversely to
the Company which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company would reasonably be
expected to have) a material adverse effect on the business, assets, financial
condition or results of operation of the Company.

     2.17 Disclosure. None of the representations and warranties of the
Company appearing in this Agreement, when considered together as a whole,
contains, or on the Closing Date will contain, any untrue statement of a
material fact or omits, or on the Closing Date will omit, to state any material
fact required to be stated herein or therein in order for the statements herein
or therein, in light of the circumstances under which they were made, not to be
misleading.

III. TERMS OF SUBSCRIPTION

     3.1 The Offering is for up to 170,000 shares of Series B Preferred Stock
and Warrants equal to thirty percent (30%) of the total number of shares of
Common Stock into which the Series B Preferred Stock is convertible. The
Securities are offered on a “best efforts” basis.

     3.2 Upon the mutual consent of the Company and the Placement Agent, this
Offering may close (the “Closing”) prior to the sale of all 170,000 shares of
Series B Preferred Stock and there is no assurance that all 170,000 shares of
Series B Preferred Stock will be sold. The Closing shall occur at the
discretion of the Company and the Placement Agent (the “Closing Date”). The
purchase price is payable by wire transfer of immediately available funds as
provided in Section 1.1.

     3.3 The Subscriber hereby authorizes and directs the Company to deliver
the Securities to be issued to the Subscriber pursuant to this Agreement
directly to the Subscriber’s

9

 

account maintained by the Placement Agent or, if no such account exists,
to the residential or business address indicated on the signature page hereto.

     3.4 The Subscriber hereby authorizes and directs the Company to return any
funds related to unaccepted subscriptions to the same account from which the
funds were drawn, including any customer account maintained with the Placement
Agent.

IV. CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBERS AND THE COMPANY

     4.1 The Subscribers’ obligation to purchase the Securities at the Closing
is subject to the fulfillment on or prior to the Closing Date of the following
conditions, which conditions may be waived at the option of each Subscriber to
the extent permitted by law:

            (a) Representations and Warranties. The representations and warranties
made by the Company in Section II hereof shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.

            (b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase shall
have been performed or complied with in all material respects.

            (c) No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by this
Agreement.

            (d) No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person to issue the Securities which
consent or approval shall not have been obtained (except as may otherwise be
provided in this Agreement).

            (e) Legal Opinion. Upon the Closing, counsel to the Company shall have
delivered to the Placement Agent for the benefit of the Subscribers a legal
opinion with respect to such legal matters relating to this Agreement and the
Offering as the Placement Agent may reasonably require.

            (f) Officer’s Certificate. The Company shall have delivered to the
Placement Agent on behalf of the Subscribers a certificate, dated the Closing
Date, duly executed on behalf of the Company by its Chief Executive Officer to
the effect set forth in clauses (a) and (b) above.

            (g) CFO’s Certificate. The Company shall have delivered to the Placement
Agent on behalf of the Subscribers a certificate, dated the Closing Date, duly
executed by its Chief Financial Officer or other appropriate officer,
certifying that the attached copies of the Company’s Articles of Incorporation,
by-laws and the resolutions of the Board of Directors, or a committee to which
it has delegated its authority, approving this Agreement and the transactions
contemplated hereby, are all true, complete and correct and remain unamended
and in full force and effect.

10

 

            (h) Amount Invested. The Company shall have received on or before the
Closing not less $10,000,000 in the aggregate from other Subscribers in
connection with the Offering.

     4.2 The Company’s obligation to sell the Securities at the Closing is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, which conditions may be waived at the option of the Company to the
extent permitted by law:

            (a) Acknowledgements, Representations and Warranties. The
acknowledgements, representations and warranties made by the Subscriber in
Section I hereof shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date;
provided, however, that any acknowledgement, representation or warranty made by
the Subscriber that is not true and correct and as a result the Subscriber is
not an “accredited investor” under Rule 501 under Regulation D of the Act or
the Company is not able to rely upon a private placement exemption under Rule
506 under Regulation D of the Act for the issuance of the Securities will
automatically be deemed to be material. If any such representations,
warranties or acknowledgements shall not be true and accurate in any respect
prior to the Closing, the undersigned shall give immediate written notice of
such fact to the Company, to the Placement Agent, and to his representatives,
if any, specifying which representations, warranties or acknowledgements are
not true and accurate and the reason therefor.

            (b) Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Subscriber on or prior to such purchase shall
have been performed or complied with in all material respects.

            (c) No Legal Order Pending. There shall not then be in effect any legal
or other order enjoining or restraining the transactions contemplated by this
Agreement.

            (d) No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person to issue the Securities which
consent or approval shall not have been obtained (except as may otherwise be
provided in this Agreement).

            (e) Amount Invested. The Company shall have received on or before the
Closing not less $10,000,000 in the aggregate from other Subscribers in
connection with the Offering.

V. REGISTRATION RIGHTS.

     5.1 As used in this Agreement, the following terms shall have the
following meanings:

11

 

            (a) “Affiliate” shall mean, with respect to any Person (as defined below),
any other Person controlling, controlled by, or under direct or indirect common
control with, such Person (for the purposes of this definition “control,” when
used with respect to any specified Person, shall mean the power to direct the
management and policies of such person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
“controlling” and “controlled” shall have meanings correlative to the
foregoing).

            (b) “Business Day” shall mean a day, Monday through Friday, on which banks
are generally open for business in each of New York, New York; Boston,
Massachusetts; and Buffalo Grove, Illinois.

            (c) “Holders” shall mean the Subscriber and any person holding Registrable
Securities as defined below, or any person to whom the rights under Section V
have been transferred in accordance with Section 5.9 hereof, and who, if known
by the Company, shall be specifically named by the Company as selling
stockholders in the Registration Statement (as defined below).

            (d) “Person” shall mean any person, individual, corporation, limited
liability company, partnership, trust or other nongovernmental entity or any
governmental agency, court, authority or other body (whether foreign, federal,
state, local or otherwise).

            (e) The terms “register,” “registered” and “registration” refer to the
registration effected by preparing and filing with the SEC a registration
statement in compliance with the Act, and the declaration or ordering by the
SEC of the effectiveness of such registration statement.

            (f) “Registrable Securities” shall mean the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and exercise of the
Warrants and any shares of capital stock issued or issuable, from time to time,
as a distribution on or in exchange for or otherwise with respect to any of the
foregoing (including the Series B Preferred Stock and the Warrants), whether as
default payments, on account of anti-dilution or other adjustments or otherwise
(including without limitation all shares of Replacement Common Stock, if any);
provided, however, that securities shall only be treated as Registrable
Securities if and only for so long as they (A) have not been disposed of
pursuant to a registration statement declared effective by the SEC, (B) have
not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Act so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale, and (C) are held by a Holder or a permitted transferee pursuant to
Section 5.9.

            (g) “Registration Expenses” shall mean all expenses incurred by the
Company in complying with Section 5.2 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow
fees, fees and expenses of counsel for the Company, blue sky fees and expenses
and the expense of any special audits incident to, or required by, any such
registration (but excluding the aggregate fees of legal counsel for all
Holders).

            (h) “Registration Statement” shall have the meaning ascribed to such term
in Section 5.2 (a).

12

 

            (i) “Registration Period” shall have the meaning ascribed to such term in
Section 5.4 (a).

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

            (k) “Selling Expenses” shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and the aggregate
fees and expenses of legal counsel for all Holders.

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

     5.2 The Company shall, as soon as practicable, but not later than thirty
(30) days after the Closing Date (the “Filing Date”), (i) use its reasonable
best efforts to file with the SEC a registration statement on Form S-1 (the
“Registration Statement”) with respect to the resale of the Registrable
Securities and use its reasonable best efforts to have such Registration
Statement declared effective by the SEC within 90 days from the Closing Date
and (ii) cause such Registration Statement to remain effective for the
Registration Period. Without limiting the generality of the foregoing, within
three business days after any Registration Statement that includes Registrable
Securities is declared effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to any Holder whose Registrable Securities
are included in such Registration Statement), an opinion of such counsel
providing that such Registrable Securities are available for resale under the
Act pursuant to the Registration Statement. If such Registration Statement is
not declared effective within such 90 day period from the Closing Date, the
Holders will have the following rights:

            (a) If the Registration Statement is not declared effective within 120
days from the Closing Date (or if the SEC issues any stop order(s) suspending
the effectiveness of the Registration Statement for a period of more than 60
days during such 120 day period), then for each 30 day period following the end
of such 120 day period until the earlier to occur of (i) the Registration
Statement becomes effective, (ii) the end of the Registration Period, or (iii)
the exercise by the Holder of the option to sell such Holder’s shares of Series
B Preferred Stock pursuant to Section 5.2(b) below, and the Company’s
satisfaction of its obligation under Section 5.2(b) below, the Company will pay
to each Holder an amount equal to 1.0% of the purchase price set forth upon the
signature page hereof for the shares of Series B Preferred Stock purchased by
such Holder, and for any partial 30 day period the Company shall pay a prorated
amount based on the number of days in such partial period. Payments of amounts
due under this Section 5.2(a), if any, shall be made by the Company to each
Holder (i) 270 days from the Closing Date, and (ii) on the last day of each
calendar year thereafter.

13

 

            (b) If the Registration Statement is not declared effective within 270
days from the Closing Date, each Holder will have the right, for a period of 60
days following the end of such 270 day period, to sell to the Company, and the
Company shall have the obligation to purchase from each Holder, the shares of
Series B Preferred Stock held by such Holder, for cash, at a purchase price
equal to 115% of the purchase price set forth upon the signature page hereof
for the shares of Series B Preferred Stock purchased by such Holder prorated in
the event such right is not exercised as to all such shares. Holder shall
exercise this right by completing and delivering the notice of exercise
attached hereto as Exhibit A together with the stock certificate for the shares
duly endorsed in blank (together, the “Notice of Exercise”) within such 60 day
period. Payment of the purchase price under this Section 5.2(b) shall be made
by the Company within 15 days of receipt of the Notice of Exercise by the
Company to each exercising Holder who delivers such notice within the requisite
60 day period.

            (c) (i) Notwithstanding the foregoing clauses (a) and (b) (the “Penalty
Provisions”), the Company and each Holder hereby acknowledge that (i) the
Holder’s right to receive payments in cash pursuant to the Penalty Provisions
is subordinate to the Company’s obligations under the Senior Credit Agreement
as in effect on the date hereof, (ii) the Company cannot make any payment in
cash to the Holders pursuant to the Penalty Provisions without (x) the prior
written consent of the Required Senior Lenders or (y) unless the Company’s
obligations under the Senior Credit Agreement are satisfied. Nothing in this
Section 5.2(c) shall prohibit the accrual and compounding of dividends pursuant
to the terms of the Series B Preferred Stock and the conversion of the Series B
Preferred Stock into shares of Common Stock issuable as a result of any such
accrual and compounding of dividends, as provided in paragraph D to Article V
of the Articles of Incorporation of the Company, as amended.

                   (ii) The Company may, in its sole discretion, in place of any cash payment
otherwise due to the Holder pursuant to Section 5.2(a) above (each a “Penalty
Cash Payment”), pay to such Holder when such Penalty Cash Payment is otherwise
due, for no further consideration, the number of fully paid, validly issued and
non-assessable shares of Common Stock, free from all taxes, liens, claims and
encumbrances (the “Replacement Common Stock”) equal to the number obtain by
dividing the amount of (x) the Penalty Cash Payment by (y) the Closing Price
(defined below) on the date immediately preceding the date such Penalty Cash
Payment is otherwise due. Any fractions of shares of Replacement Common Stock
shall be rounded up to the nearest whole number of shares. The Company
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common Stock,
a sufficient number of shares of Replacement Common Stock, free from preemptive
rights or any other contingent purchase rights of persons other than the
Holder. For purposes of this Agreement, the “Closing Price” per share of
Common Stock on any date shall mean the closing sale price on such day or, in
case no such sale takes place on such day, the average of the reported closing
bid and asked prices, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock or such other securities
are listed or admitted to trading or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the NASD Automated
Quotation System or such other system then in use, or, if on any such date the
Common Stock or such other securities are not quoted by any such organization,
the average of

14

 

the closing bid and asked prices as furnished by a professional market
maker, selected by the Board of Directors and reasonably acceptable to the
holders of a majority of the outstanding shares of Series B Preferred Stock,
making a market in the Common Stock or such other securities of the Company.

     5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered.

     5.4 In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company shall:

            (a) use its reasonable best efforts to keep such registration, and any
qualification, exemption or compliance under state securities laws which the
Holders reasonably request the Company to obtain, continuously effective as to
all Registrable Securities until the earlier of: (i) the Holders having
completed the distribution of the Registrable Securities described in the
Registration Statement relating thereto; or (ii) with respect to any Holder,
such time as all Registrable Securities then held by such Holder may be sold in
compliance with Rule 144 under the Act within any three-month period. The
period of time during which the Company is required hereunder to keep the
Registration Statement effective is referred to herein as “the Registration
Period”;

            (b) advise the Holders (or in the case of (ii) below, advise the Placement
Agent):

                   (i) when the Registration Statement or any amendment thereto has been
filed with the SEC and when the Registration Statement or any post-effective
amendment thereto has become effective;

                   (ii) of any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus included therein or for additional
information;

                   (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for such purpose;

                   (iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities included therein
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and

                   (v) subject to the limitations set forth in Section 5.7(b)(ii) hereof, of
the happening of any event that requires the making of any changes in the
Registration Statement or the prospectus so that, as of such date, the
statements therein are not misleading and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the prospectus, in the light of the circumstances under which they
were made) not misleading;

15

 

            (c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;

            (d) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment or supplement thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (excluding those incorporated by reference) in the form
filed with the SEC;

            (e) during the Registration Period, deliver to each Holder, without
charge, a reasonable number of copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use, consistent with
the provisions hereof, of the prospectus and any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in connection
with the offering and sale of the Registrable Securities covered by the
prospectus and any amendment or supplement thereto;

            (f) during the Registration Period, deliver to each Holder, upon request,
(i) a copy of the full Registration Statement (excluding exhibits); (ii) all
exhibits excluded by the parenthetical to the immediately preceding clause (i);
and (iii) such other documents as may be reasonably requested by the Holder.

            (g) prior to any public offering of Registrable Securities pursuant to the
Registration Statement, register or qualify or obtain an exemption for the
offer and sale under the securities or blue sky laws of such jurisdictions as
any such Holders reasonably request in writing, provided that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do any and
all other acts or things reasonably necessary or advisable to enable the offer
and sale in such jurisdictions of the Registrable Securities covered by the
Registration Statement;

            (h) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold
pursuant to the Registration Statement, free of any restrictive legends to the
extent not required at such time and in such denominations and registered in
such names as Holders may request;

            (i) upon the occurrence of any event contemplated by Section 5.4(b)(v)
above, the Company shall promptly prepare a post-effective amendment to the
Registration Statement or a supplement to the related prospectus, or file any
other required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

16

 

            (j) use its reasonable best efforts to comply in all material respects
with all applicable rules and regulations of the SEC, and make generally
available to the Holders not later than 45 days (or 90 days if the fiscal
quarter is the fourth fiscal quarter) after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of Section
11(a) of the Act; and

            (k) at the request of any Subscriber, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to any Registration Statement required to be filed hereunder and
the prospectus used in connection with such Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.

     5.5 The Holders shall have no right to take any action to restrain, enjoin
or otherwise delay any registration pursuant to Section 5.2 hereof as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.

     5.6 (a) To the extent permitted by law, the Company shall indemnify each
Holder, each underwriter of the Registrable Securities and each person
controlling such Holder and each such underwriter within the meaning of Section
15 of the Act, and each director, officer, partner, member, employee and agent
of each such Holder and each such underwriter, with respect to which any
registration, qualification or compliance has been sought, contemplated by or
required pursuant to this Agreement, against all claims, losses, expenses,
costs, damages and liabilities (or action in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened
(subject to Section 5.6(c) below), arising out of or based on (i) any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus or offering circular, or any amendment or
supplement thereof, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
or (ii) any violation or alleged violation by the Company of the Act, the
Exchange Act, or any rule or regulation promulgated under the Act or the
Exchange Act, and shall reimburse each Holder, each underwriter of the
Registrable Securities and each person controlling such Holder and each such
underwriter, for reasonable legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as and when incurred; provided that the Company shall not
be liable in any such case to the extent that any untrue statement or omission
or allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder or
underwriter and stated to be specifically for use in such registration
statement, prospectus or offering circular; provided that the Company shall not
be liable in any such case where the claim, loss, damage or liability arises
out of or is related to the failure of the Holder to comply with the covenants
and agreements contained in Section 5.7 hereof, and except that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement or alleged untrue statement or omission or alleged
omission made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
becomes effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) of the Act or in the prospectus subject to completion under Rule
434 of the Act, which together meet the requirements of

17

 

Section 10(a) of the Act (the “Final Prospectus”), such indemnity
agreement shall not inure to the benefit of any such Holder, any such
underwriter or any such controlling person, if a copy of the Final Prospectus
furnished by the Company to the Holder for delivery was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior to
the time such furnishing is required by the Act and the Final Prospectus would
have cured the defect giving rise to such loss, liability, claim or damage.
Except as otherwise set forth herein, the Company shall reimburse each Holder,
upon such Holder’s demand, for all reasonably necessary expenses and costs
which are incurred, as and when incurred, by such Holder as a result of the
indemnification claims described in this Section 5.6(a). Such demand may be
made from time to time prior to resolution of the claim. In no event shall the
Company be liable for the expenses and costs of more than one attorney on
behalf of the Holders unless in the reasonable judgment of a Holder, based
upon written advice of its counsel, a conflict of interest exists between the
Holders with respect to such claims, in which case the Company shall reimburse
the Holders for additional attorneys.

            (b) Each Holder will severally and not jointly, if Registrable Securities
held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter of the
Registrable Securities and each person who controls the Company and each
underwriter of the Registrable Securities within the meaning of Section 15 of
the Act, against all claims, losses, expenses, costs, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section
5.6(c) below), arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, and will reimburse the
Company, such directors and officers, each underwriter of the Registrable
Securities and each person controlling the Company and each underwriter of the
Registrable Securities for reasonable legal and any other expenses or costs
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action as and when incurred, in each case to
the extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Holder and stated
to be specifically for use in such registration statement, prospectus or
offering circular; provided that the indemnity shall not apply to the extent
that such claim, loss, damage or liability results from the fact that a current
copy of the prospectus or offering circular was not made available to the
Holder and such current copy of the prospectus or offering circular would have
cured the defect giving rise to such loss, claim, expense, costs, damage or
liability. Notwithstanding the foregoing, in no event shall a Holder be liable
for any such claims, losses, expenses, costs, damages or liabilities in excess
of the proceeds received by such Holder in that offering, except in the event
of fraud by such Holder and such fraud gave rise in whole or in part to such
loss, claim, expense, cost, damage or liability.

            (c) Each party entitled to indemnification under this Section 5.6 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified
Party has actual knowledge of any claim

18

 

as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense with its own counsel at such Indemnified
Party’s expense unless the named parties to any proceeding covered hereby
(including any impleaded parties) include both the Company or any others the
Company may designate and one or more Indemnified Persons, and representation
of the Indemnified Persons and such other parties by the same counsel would be
inappropriate due to actual or potential differing interests between them, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement, unless such failure is materially prejudicial to the
Indemnifying Party in defending such claim or litigation. An Indemnifying
Party shall not be liable for any settlement of an action or claim effected
without its written consent (which consent will not be unreasonably withheld).

            (d) If the indemnification provided for in this Section 5.6 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, cost or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, cost or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
loss, liability, claim, damage, cost or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied or which
should have been supplied by the Indemnifying Party or by the Indemnified Party
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided,
however, that (a) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (c) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.

     5.7 (a) Subject to the limitations set forth in Section 5.7(b)(ii) below,
upon receipt of any notice from the Company of the happening of any event
requiring the preparation of a supplement or amendment to a prospectus relating
to Registrable Securities so that, as thereafter delivered to the Holders, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, each Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
contemplated by Section 5.2 until its receipt of copies of the supplemented or
amended prospectus from the Company and, if so directed by the Company, each
Holder shall deliver to the Company all copies, other than permanent file
copies then in such Holder’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.

19

 

            (b) Any Holder which owns five percent (5%) or more (and with respect to
5.7(b)(ii), “any Holder” regardless of how many shares of Common Stock the
Holder owns) of the Company’s outstanding Common Stock shall suspend, upon
request of the Company, any disposition of Registrable Securities pursuant to
the Registration Statement and prospectus contemplated by Section 5.2 during
(i) any period not to exceed one 180-day period within any one 12-month period
the Company requires in connection with an underwritten offering of equity
securities and (ii) any period, not to exceed two 45-day periods within any
12-month period, when the Company determines in good faith that offers and
sales pursuant thereto should not be made by reason of the presence of material
undisclosed circumstances or developments with respect to which the disclosure
that would be required in such a prospectus is premature and may reasonably be
expected to have an adverse effect on the Company. The period of time in which
the disposition of Registrable Securities pursuant to the Registration
Statement and prospectus is so suspended shall be referred to as a “Black-Out
Period.” The Company agrees to so advise the Holders promptly of the
commencement and termination of any such Black-Out Period, and the Holders
agree to keep the fact of such Black-Out Period confidential.

            (c) As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such Holder, the
securities of the Company owned beneficially or of record by such Holder and
the distribution proposed by such Holder as the Company may request in writing
to the extent such information is required in connection with any registration,
qualification or compliance referred to in this Section V.

            (d) With respect to any sale of Registrable Securities pursuant to a
Registration Statement filed pursuant to this Section V, each Holder hereby
covenants with the Company not to make any sale of the Registrable Securities
without effectively causing the prospectus delivery requirements under the Act
to be satisfied.

            (e) At the end of the Registration Period, the Holders of Registrable
Securities included in the Registration Statement shall discontinue sales of
shares pursuant to such Registration Statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
Registration Statement which remain unsold.

     5.8 (a) So long as any Holder (or any of their respective affiliates)
beneficially owns any of the Registrable Securities, the Company shall maintain
the listing or eligibility for quotation of all Registrable Securities then
issued on each national securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are currently listed.
The Company shall use its reasonable best efforts to continue the trading of
its Common Stock on the OTC Bulletin Board®, or on the Nasdaq SmallCap Market,
the Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange and will comply in all material respects with the reporting, filing
and other obligations under the bylaws or rules of the NASD, such exchanges or
such electronic system, as applicable.

            (b) With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which at any time permit the sale of the
Registrable Securities to the public without registration, the Company shall
use its reasonable best efforts:

20

 

                   (i) to make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times;

                   (ii) to file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and

                   (iii) so long as a Holder owns any Registrable Securities, to furnish to
such Holder upon any reasonable request a written statement by the Company as
to its compliance with Rule 144 under the Act, and of the Exchange Act, and a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as such Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing a
Holder to sell any such securities without registration.

     5.9 The rights and obligations of the Holders under this Section V may not
be assigned or transferred to or assumed by any transferee or assignee except
(i) to a transferee that acquires at least 20% of such Holder’s Registrable
Securities or (ii) to an Affiliate or limited or general partner of a Holder;
provided that such transfer was not in violation of this Agreement or the
Securities Laws.

VI. MISCELLANEOUS

     6.1 Any notice or other communication given hereunder shall be deemed
sufficient in writing and sent by (a) telecopy or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received); or (b) registered or certified
mail, return receipt requested, or delivered by hand against written receipt
therefor, addressed to Akorn, Inc., Facsimile: (847) 279-6123, Attention: Chief
Financial Officer, with a copy to Leerink Swann & Company, One Federal Street,
Boston, Massachusetts 02110, Facsimile (617) 918-4900, Attention: Stuart R.
Barich. Notices shall be deemed to have been given or delivered on the date of
mailing, except notices of change of address, which shall be deemed to have
been given or delivered when received.

     6.2 This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.

     6.3 Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber with respect
to the purchase of Securities as herein provided, subject to acceptance by the
Company and the Placement Agent; subject, however, to the right hereby reserved
to the Company to enter into the same agreements with other subscribers and to
add and/or delete other persons as subscribers.

     6.4 Notwithstanding the place where this Agreement may be executed by any
of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed in accordance with and governed by the
laws of the State of New York without regard to principles of conflicts of law.

     6.5 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which

21

 

shall remain in full force and effect. If any provision of this Agreement
shall be declared by a court of competent jurisdiction to be invalid, illegal
or incapable of being enforced in whole or in part, such provision shall be
interpreted so as to remain enforceable to the maximum extent permissible
consistent with applicable law and the remaining conditions and provisions or
portions thereof shall nevertheless remain in full force and effect and
enforceable to the extent they are valid, legal and enforceable, and no
provisions shall be deemed dependent upon any other covenant or provision
unless so expressed herein.

     6.6 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.

     6.7 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this
Agreement.

     6.8 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.

     6.9 On or before 9:00 a.m., New York time, on the first business day
following the Closing Date, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by this Agreement in the
form required by the Exchange Act and attaching the material terms of this
Agreement (including, without limitation, this Agreement, and the form of
Warrant) as exhibits to such filing (including all attachments, the “8-K
Filing”). As of the filing of the 8-K Filing with the SEC, the Subscriber
shall not be in possession of any material, nonpublic information that it
received from the Company or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its respective officers, directors, employees and
agents, not to, provide the Subscriber with any material, nonpublic information
regarding the Company from and after the filing of the 8-K Filing with the SEC
without the express written consent of the Subscriber. Neither the Company nor
the Subscriber shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of the Subscriber, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing or (ii) as may
be required by applicable law, rule or regulation (provided that in the case of
clause (i) the Subscriber shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its release).
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Subscriber, or include the name of the Subscriber in any filing with the
SEC or any regulatory agency, without the prior written consent of the
Subscriber, except (i) for disclosure thereof in the 8-K Filing or Registration
Statement or (ii) as required by law or regulations or any order of any court
or other governmental agency, in which case the Company shall provide the
Subscriber with prior notice of such disclosure.

     6.10 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except for the
Placement Agent and the holders of Registrable Securities.

22

 

     6.11 Any pronoun herein shall include all genders and/or the plural or
singular as appropriate from the context.

     6.12 Each Subscriber acknowledges that it has independently evaluated the
merits of the transactions contemplated by this Agreement, that it has
independently determined to enter into the transactions contemplated hereby and
thereby, that it is not relying on any advice from or evaluation by any other
Subscriber, and that it is not acting in concert with any other Subscriber in
making its purchase of securities hereunder or in monitoring its investment in
the Company. The Subscribers and, to its knowledge, the Company agree that the
Subscribers have not taken any actions that would deem such Subscribers to be
members of a “group” for purposes of Section 13(d) of the Exchange Act, and the
Subscribers have not agreed to act together for the purpose of acquiring,
holding, voting or disposing of equity securities of the Company. Each
Subscriber further acknowledges that BayStar Capital II, LP has retained
Drinker Biddle & Reath LLP (“DB&R”) to act as its counsel in connection with
the transactions contemplated by this Agreement and that DB&R has not acted as
counsel for any of the other Subscribers in connection therewith and none of
the other Subscribers have the status of a client of DB&R for conflict of
interest or other purposes as a result thereof.

     6.13 The representations and warranties of the Subscriber and the Company
contained in Sections 1 and 2 of this Agreement shall survive the Closing for a
period of one (1) year; provided, however, that nothing in this Section 6.13
shall prejudice the enforceability of any other provision of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

23

 

     VII. CONFIDENTIAL INVESTOR QUESTIONNAIRE

     7.1 The Subscriber represents and warrants that he, she or it comes within
one category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION VII WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to
furnish any additional information which the Company deems necessary in order
to verify the answers set forth below.

	 	 	 	 	 	 	 
	Category A
	 	     	 	The undersigned is an individual (not a partnership, corporation, etc.)
whose individual net worth, or joint net worth with his or her spouse,
presently exceeds $1,000,000.
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	Explanation. In calculating net
worth you may include equity in
personal property and real
estate, including your principal
residence, cash, short-term
investments, stock and
securities. Equity in personal
property and real estate should
be based on the fair market
value of such property less debt
secured by such property.
	 
	 	 	 	 	 	 
	Category B
	 	     	 	The undersigned is an individual (not a partnership, corporation, etc.)
who had an individual income in excess of $200,000 in each of the two
most recent years, or joint income with his or her spouse in excess of
$300,000 in each of those years (in each case including foreign income,
tax exempt income and full amount of capital gains and losses but
excluding any income of other family members and any unrealized capital
appreciation) and has a reasonable expectation of reaching the same
income level in the current year.
	 
	 	 	 	 	 	 
	Category C
	 	     	 	The undersigned is a director or executive officer of the Company.
	 
	 	 	 	 	 	 
	Category D
	 	     	 	The undersigned is a bank; a savings and loan association; insurance
company; registered investment company; registered business development
company; licensed small business investment company or “SBIC”; or
employee benefit plan within the meaning of Title 1 of Employee
Retirement Income Security Act or “ERISA” and (a) the investment
decision is made by a plan fiduciary which is either a bank, savings
and loan association, insurance company or registered investment
advisor, or (b) the plan has total assets in excess of $5,000,000 or is
a self-directed plan with investment decisions made solely by persons
that are accredited investors.
	 
	 	 	 	 	 	 
	 
	 	 	 	
 
	 
	 	 	 	 	 	 
	 
	 	 	 	
 
	 
	 	 	 	(describe entity)

24

 

	 	 	 	 	 
	Category E

	 	     
	 	The undersigned is a private business development company as defined in
section 202(a)(22) of the Investment Advisors Act of 1940.
	 
	 	 	 	 
	

	 	 	 	
 
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(describe entity)
	 
	 	 	 	 
	Category F

	 	     
	 	The undersigned is either a corporation, partnership, Massachusetts
business trust, or nonprofit organization within the meaning of Section
501(c)(3) of the Internal Revenue Code, in each case not formed for the
specific purpose of acquiring the Securities and with total assets in
excess of $5,000,000.
	 
	 	 	 	 
	

	 	 	 	
 
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(describe entity)
	 
	 	 	 	 
	Category G

	 	     
	 	The undersigned is a trust with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Securities where
the purchase is directed by a “sophisticated person” as defined in
Regulation 506(b)(2)(ii) under the Act.
	 
	 	 	 	 
	Category H

	 	     
	 	The undersigned hereby certifies that it is an accredited investor
because all of its equity owners are accredited investors. The
Company, in its sole discretion, may request information regarding the
basis on which such equity owners are accredited.
	 
	 	 	 	 
	Category I

	 	     
	 	The undersigned hereby certifies that it is an accredited investor
because it has total assets in excess of $5,000,000 and was not formed
for the specific purpose of acquiring the Securities.
	 
	 	 	 	 
	Category J

	 	     
	 	The undersigned is not within any of the categories above and is
therefore not an accredited investor.

The Company will notify a prospective Subscriber whether such Subscriber is
eligible to purchase Securities pursuant to this Agreement (and the Company, in
its sole discretion, retains the right to accept or reject all such purchases).
The undersigned agrees that it will notify the Company at any time on or prior
to the Closing Date in the event that the representations and warranties in
this Investor Questionnaire shall cease to be true, accurate and complete.

25

 

     7.2 SUITABILITY (please answer each question)

            (a) For all Subscribers, please list types of prior investments:

            (b) For all Subscribers, please state whether you have participated in
other private placements before:

YES             NO      

            (c) If your answer to question (b) above was “YES”, please indicate
frequency of such prior participation in private placements of:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Biotechnology,
	 	 	 	 	 	 	 	 	 	 	Pharmaceutical and
	 	 	Public	 	Private	 	Other Life Science
	 	 	Companies
	 	Companies
	 	Companies *

	Frequently
	 	 	     	 	 	 	     	 	 	 	     	 
	Occasionally
	 	 	     	 	 	 	     	 	 	 	     	 
	Never
	 	 	     	 	 	 	     	 	 	 	     	 

*indicate how many companies, whether public or private, are in the
biotechnology, pharmaceutical or other life sciences
sectors.

            (d) For trust, corporate, partnership and other institutional Subscribers,
do you expect your total assets to significantly decrease in the foreseeable
future?

YES             NO      

            (e) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you?

YES             NO      

            (f) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?

YES             NO      

26

 

            (g) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?

YES             NO      

     7.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)

            (a) Individual Ownership

            (b) Community Property

            (c) Joint Tenant with Right of Survivorship (both parties must sign)

            (d) Partnership*

            (e) Tenants in Common

            (f) Company*

            (g) Trust*

            (h) Other

     *If Securities are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.

27

 

     7.4 NASD AFFILIATION.

     Are you affiliated or associated with an NASD member firm (please check one)?

YES             NO      

     If yes, please describe:**

      

     

     

     

     

     7.5 STOCK OWNERSHIP

     Do you beneficially own any shares of the Company’s Common Stock or any
securities convertible into or exercisable for shares of the Company’s Common
Stock?

YES             NO      

     If yes, please describe, including number of shares:

      

     

     

     

     

     7.6 COMPANY RELIANCE ON THIS QUESTIONNAIRE

     The undersigned is informed of the significance to the Company of the
foregoing representations and answers contained in this Section VII and such
answers have been provided under the assumption that the Company and its
counsel will rely on them.

28

 

	 	 	 	 	 	 	 	 	 
	SIGNATURE PAGE
	 	Date Signed:                    , 2004
	 
	 	 	 	 	 	 	 	 
	Number of shares of Series B Preferred Stock:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	
 	 
	 
	 	 	 	 	 	 	 	 
	Multiplied by Offering Price per share:
	 	 	x	 	 	$	100.00	 
	 
	 	 	 	 	 	 	
 	 
	 
	 	 	 	 	 	 	 	 
	Equals subscription amount:
	 	 	=	 	 	 	 	 
	 
	 	 	 	 	 	 	
 	 

“INVESTOR” (Name in which securities should be issued)

		
	By: 	

		
	Print Name: 	

		
	Title: 	

Address

City, State and Zip Code

Telephone-Business

Facsimile-Business
 

Tax ID # or Social Security #
 

*The attached Certificate of Signatory must also be completed.

29

 

     This Subscription Agreement is agreed to and accepted as of      , 2004.

	 	 	 
	

	 	AKORN, INC.
	 
	 	 
	

	 	By:
	 
	 	 
	

	 	
 
	

	 	Name:
	

	 	Title:

30

 

CERTIFICATE OF SIGNATORY

(To be completed if Securities are being subscribed for by an entity)

     I,                     , am the                      of
                     (the “Entity”).

     I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Subscription Agreement and to purchase and hold
the Securities, and certify further that the Subscription Agreement has been
duly and validly executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.

     IN WITNESS WHEREOF, I have set my hand this       day of      , 2004.

	 	 	 
	 
	 	 
	

	 	
 
	

	 	(Signature)

31

 

SCHEDULE 1.5

ADDITIONAL RISK FACTORS

1. Additional Capital. The Company may require funds in addition to those
being raised in this Offering to operate and grow the Company’s business. The
Company may seek additional funds through public and private financing,
including equity and debt offerings. However, adequate funds through the
financial markets or from other sources may not be available when needed or on
terms favorable to the Company or to the Subscriber. In addition, because the
Company’s Common Stock currently is traded on the OTC Bulletin Board®, the
Company may experience further difficulty accessing the capital markets.
Without sufficient additional funding, the Company may be required to delay,
scale back or abandon some or all of the Company’s product development,
manufacturing, acquisition, licensing and marketing initiatives, or operations.
Further, such additional financing, if obtained, may require the granting of
rights, preferences or privileges senior to those of the Common Stock and
Series B Preferred Stock and result in substantial dilution of the existing
ownership interests of the Common Stockholders, Series B Preferred Stockholders
and potentially the holders of warrants as well.

2. Registration. Despite the Company’s reasonable best efforts under the terms
of this Agreement, there can be no assurance that any registration statement
filed with respect to the Securities will become or remain effective. In
addition, there is no assurance regarding the price for which the Securities
may be sold or that there will be buyers for the Securities offered for sale
under such a registration statement. Therefore, the Subscriber may bear the
economic risk of the Subscriber’s investment for an indefinite period of time
and may not be able to sell the Securities at any price on the open market or
otherwise.

3. Limited market for Common Stock and no established market for the Series B
Preferred Stock and Warrants. The Common Stock is not listed on any exchange
or on the Nasdaq Stock Market®, although it is quoted on the OTC Bulletin
Board®. We are in the process of seeking a listing on an exchange for our
Common Stock. Currently, there is no market for the Series B Preferred Stock
and the Warrants. We do not expect to qualify for or seek such listing for the
Warrants in the foreseeable future. There can be no assurance that you will be
able to sell your shares of Series B Preferred Stock or Warrants, or the Common
Stock issuable upon conversion or exercise, respectively, at any time in the
future or at all or that a more active trading market will develop in the
foreseeable future. In addition, the price at which you may be able to sell is
very unpredictable because there are very few trades in the Common Stock.
Because the Common Stock is so thinly traded, a large block of shares traded
can lead to a dramatic fluctuation in the share price.

4. Concentrated ownership of Common Stock creates a risk of sudden changes in
our share price. The sale by any of our large shareholders of a significant
portion of that shareholder’s holdings could have a material adverse effect on
the market price of the Common Stock. In addition, the issuance of shares of
the Series B Preferred Stock and their subsequent conversion into Common Stock
in connection with this offering would have the immediate effect of increasing
the public float of the Common Stock. Such increase may cause the market price
of our Common Stock to decline or fluctuate significantly.

32

 

5. Future Dilution. If the price per share of the Company’s Common Stock at
the time of exercise or conversion of any preferred stock, warrants, options,
convertible subordinated debt, or any other convertible securities
(collectively, “Convertible Securities”), including all of the Convertible
Securities set forth in the Company’s SEC Filings, is in excess of the various
exercise or conversion prices of such Convertible Securities, exercise or
conversion of such Convertible Securities would have a dilutive effect on the
Company’s Common Stock. The amount of such dilution, however, cannot currently
be determined as it would depend on the difference between the stock price and
the price at which the Convertible Securities were exercised or converted at
the time of such exercise or conversion.

6. General. The Subscriber should be aware that the risk factors of the
Company set forth in this Schedule 1.5, the Agreement and the Company’s SEC
Filings, including without limitation the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003, are in no way inclusive of all the
potential risks associated with the Company. The Subscriber should not rely
upon the disclosures contained herein in any decision to provide financing to
the Company, but should complete its own independent investigation as to the
suitability and as to the risk and potential loss involved with providing
financing to the Company.

33

 

EXHIBIT A

AKORN, INC.

NOTICE OF EXERCISE UNDER

SECTION 5.2(B) OF THE

SUBSCRIPTION AGREEMENT DATED AUGUST      , 2004

To AKORN, INC.:

The undersigned holder (“Holder”) of shares of Series B 6% Participating
Convertible Preferred Stock (the “Series B Preferred Stock”) hereby irrevocably
elects to exercise the Holder’s right pursuant to Section 5.2(b) of the above
referenced Subscription Agreement, to sell      shares of Series B
Preferred Stock represented by certificate no.       (the “Stock Certificate”) to
the Company for the price of $      in cash, which sum represents the
aggregate purchase price for such shares of Series B Preferred Stock (as
determined under Section 5.2(b) of the Subscription Agreement) to which this
Notice of Exercise relates. The Stock Certificate is enclosed with this
notice, duly endorsed in blank.

	 	 	 
	

	 	HOLDER:
	 
	 	 
	

	 	
 
	

	 	[Name of holder as specified on the face of
the stock certificate]
	 
	 	 
	

	 	
 
	

	 	[Signature of person signing on behalf of
holder]
	 
	 	 
	

	 	
 
	

	 	[Print name and title (if any) of person
signing on behalf of holder (if different)
{i.e. “John Smith, President"}]
	 
	 	 
	 
	 	 
	

	 	
 
	 
	 	 
	

	 	
 
	

	 	[Address]
	 
	 	 
	

	 	
 
	

	 	[Date]

34

 

The foregoing Subscription Agreement was entered into on August 18, 2004, by
and between Akorn, Inc. and each of the following investors and for the
following subscription amounts:

	 	 	 	 	 
	Investor
	 	Subscription Amount

	BayStar Capital II, LP
	 	$	5,000,000	 
	Merlin BioMed Offshore Fund
	 	$	700,000	 
	Merlin BioMed Long Term Appreciation, L.P.
	 	$	300,000	 
	Millennium Partners, L.P.
	 	$	1,500,000	 
	Morgan Stanley & Co.
	 	$	1,000,000	 
	Pequot Healthcare Fund, L.P.
	 	$	2,055,300	 
	Pequot Healthcare Offshore Fund, Inc.
	 	$	2,624,600	 
	Premium Series PCC Limited Call C32
	 	$	320,100	 
	Sigma Capital Associates, LLC
	 	$	600,000

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