<PAGE>

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                   CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
                                          
                                      Between
                                          
                           ALLIANCE PHARMACEUTICAL CORP.,
                                          
                     BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.,
                                          
                     BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.,
                                          
                             WESTOVER INVESTMENTS L.P.,
                                          
                             MONTROSE INVESTMENTS LTD.
                                          
                                        and
                                          
                            BAY HARBOR INVESTMENTS, INC.
                                          
                                          
                            Dated as of August 13, 1998



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

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                          <C>
ARTICLE I  PURCHASE AND SALE OF PREFERRED SHARES . . . . . . . . . . . . . . . . . .1
  1.1   Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
  1.2   Purchase Price.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
  1.3   The Closings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II  REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . .5
  2.1   Representations, Warranties and Agreements of the Company. . . . . . . . . .5
  2.2   Representations and Warranties of the Purchasers.  . . . . . . . . . . . . 12
ARTICLE III  OTHER AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . 13
  3.1   Transfer Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
  3.2   Stop Transfer Instruction. . . . . . . . . . . . . . . . . . . . . . . . . 14
  3.3   Furnishing of Information. . . . . . . . . . . . . . . . . . . . . . . . . 14
  3.4   Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
  3.5   Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
  3.6   Certain Agreements.  . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
  3.7   Listing and Reservation of Underlying Shares.. . . . . . . . . . . . . . . 15
  3.8   No Violation of Applicable Law.  . . . . . . . . . . . . . . . . . . . . . 15
  3.9   Notice of Breaches.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
  3.10  Conversion Obligations of the Company. . . . . . . . . . . . . . . . . . . 16
  3.11  Subsequent Registrations.  . . . . . . . . . . . . . . . . . . . . . . . . 16
  3.12  Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
  3.13  Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
  3.14  Right of First Refusal; Subsequent Registrations.  . . . . . . . . . . . . 18
  3.15  Short Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV  CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
  4.1   Conditions Precedent to the Obligation of the Company to Sell the 
        Series E-1 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
  4.2   Conditions Precedent to the Obligation of the Purchasers to Purchase 
        the Series E-2 Shares and the Series E-3 Shares. . . . . . . . . . . . . . 22
ARTICLE V  MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
  5.1   Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
  5.2   Entire Agreement; Amendments.  . . . . . . . . . . . . . . . . . . . . . . 25
  5.3   Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
  5.4   Amendments; Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
  5.5   Headings.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
  5.6   Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 26
  5.7   No Third-Party Beneficiaries.  . . . . . . . . . . . . . . . . . . . . . . 26
  5.8   Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
  5.9   Survival.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
  5.10  Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
  5.11  Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
  5.12  Severability.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
  5.13  Remedies.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
  5.14  Independent Nature of Purchasers' Obligations and Rights.  . . . . . . . . 27

</TABLE>

<PAGE>

SCHEDULES AND EXHIBITS

Schedule 1        -   Purchasers of Series E-1 Shares
Schedule 2.1(a)   -   Organization and Qualification; Subsidiaries
Schedule 2.1(c)   -   Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f)   -   Consents and Approvals
Schedule 2.1(g)   -   Litigation; Proceedings
Schedule 2.1(u)   -   Registration Rights, Rights of Participation
Schedule 2.1(v)   -   Title

Exhibit A         -   Certificate of Amendment
Exhibit B         -   Registration Rights Agreement
Exhibit C1        -   Legal Opinion of Lloyd A. Rowland, General Counsel of the
                      Company
Exhibit C2        -   Legal Opinion of Stroock & Stroock & Lavan LLP
Exhibit D         -   Transfer Agent Instructions
Exhibit E         -   Royalty Rights Agreement

<PAGE>

                   CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT


     CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as
of August 13, 1998, between Alliance Pharmaceutical Corp., a New York
corporation (the "COMPANY"), Brown Simpson Strategic Growth Fund, Ltd., a Cayman
Islands exempt company ("BROWN SIMPSON LTD."), and Brown Simpson Strategic
Growth Fund, L.P., a New York limited partnership ("BROWN SIMPSON L.P."),
Westover Investments L.P., a Delaware limited partnership ("WESTOVER"), Montrose
Investments Ltd., a Cayman Islands exempt company ("MONTROSE") and Bay Harbor
Investments, Inc., a corporation organized and existing under the laws of the
British Virgin Islands ("BAY HARBOR"). Brown Simpson Ltd., Brown Simpson L.P.,
Westover, Montrose and Bay Harbor are each referred to herein as a "PURCHASER"
and are collectively referred to herein as the "PURCHASERS." 

     WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, shares of the Company's Series E-1
Convertible Preferred Stock, par value $0.01 per share (the "SERIES E-1
PREFERRED"), the Company's Series E-2 Convertible Preferred Stock, par value
$0.01 per share (the "SERIES E-2 PREFERRED") and the Company's Series E-3
Convertible Preferred Stock, par value $0.01 per share (the "SERIES E-3
PREFERRED" and together with the Series E-1 Preferred and the Series E-2
Preferred, the "PREFERRED STOCK"). 

     IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows: 

                                          
                                     ARTICLE I 
                                          
                       PURCHASE AND SALE OF PREFERRED SHARES

     1.1  PURCHASE AND SALE.
     
          (a)  Subject to the terms and conditions set forth herein, the Company
     shall issue and sell to the Purchasers, and the Purchasers, severally and
     not jointly, shall purchase from the Company: (i) 100,000 shares of Series
     E-1 Preferred (the "SERIES E-1 SHARES"); (ii) up to 100,000 shares of
     Series E-2 Preferred (the "SERIES E-2 SHARES"); and (iii) up to 100,000
     shares of Series E-3 Preferred (the "SERIES E-3 SHARES" and together with
     the Series E-1 Shares and the Series E-2 Shares, the "SHARES").
     Notwithstanding anything to the contrary set forth in this Agreement, the
     aggregate number of Shares to be sold hereunder shall not exceed 300,000.
     
          (b)  The Series E-1 Preferred shall have the respective rights,
     preferences and privileges (the "SERIES E-1 TERMS") set forth in the
     Certificate of Amendment to the Certificate of Incorporation of the Company
     (the "SERIES E-1 DESIGNATION") the form of which is attached hereto as
     EXHIBIT A attached hereto, which shall be approved by the 

<PAGE>

     Purchasers and the Company's Board of Directors (the "BOARD OF DIRECTORS")
     and filed on or prior to the Series E-1 Closing (as defined below) by the
     Company with the Secretary of State of the State of New York. The Series
     E-2 Preferred and Series E-3 Preferred shall have respective rights,
     preferences and privileges identical to the Series E-1 Terms, mutatis
     mutandis, and shall rank pari passu with the Series E-1 Preferred with
     regard to dividends, liquidation, voting rights and any other preferential
     rights designated therein, except that the Initial Conversion Price (as
     defined in the Series E-1 Designation) for conversion of the Series E-2
     Shares and Series E-3 Shares shall equal 120% of the Per Share Market Value
     on the Trading Day immediately prior to the Series E-2 Closing Date (as
     defined below) or the Series E-3 Closing Date (as defined below), as
     applicable. 
     
     The Series E-2 Preferred and Series E-3 Preferred shall be authorized
pursuant to certificates of amendment identical, except with respect to the
calculation of the Initial Conversion Price, to the Series E-1 Designation,
MUTATIS MUTANDIS, prepared by the Company, subject to the approval of the
Purchasers, and filed at or prior to the Series E-2 Closing Date (as defined
below) and Series E-3 Closing Date (as defined below), as applicable, by the
Company with the Secretary of State of the State of New York (such certificates
of amendment, together with the Series E-1 Designation, are referred to as the
"CERTIFICATES OF DESIGNATION"). 
     
     For purposes of this Agreement, "CONVERSION PRICE," "ORIGINAL ISSUE DATE,"
"CONVERSION DATE" "TRADING DAY" and "PER SHARE MARKET VALUE" shall have the
meanings set forth in the Certificates of Designation; and "MARKET PRICE" at any
date shall mean the average Per Share Market Value for the five (5) Trading Days
immediately preceding such date. 
     
     1.2  PURCHASE PRICE.  The purchase price per Share shall be $60.00. 
     
     1.3  THE CLOSINGS. 
     
          (a)  The Series E-1 Closing. 

               (i)  The closing of the purchase and sale of the Series E-1
          Shares (the "SERIES E-1 CLOSING") shall take place at the offices of
          Akin, Gump, Strauss, Hauer & Feld, L.L.P. ("AKIN, GUMP"), 590 Madison
          Avenue, New York, New York 10022, immediately following the execution
          hereof or such later date or different location as the parties shall
          agree, but not prior to the date that the conditions set forth in
          Section 4.1 have been satisfied or waived by the appropriate party.
          The date of the Series E-1 Closing is hereinafter referred to as the
          "SERIES E-1 CLOSING DATE." At the Series E-1 Closing, the Company
          shall sell and issue to the Purchasers, and the Purchasers shall,
          severally and not jointly, purchase from the Company, 100,000 Series
          E-1 Shares for an aggregate purchase price of $6 million (the "SERIES
          E-1 PURCHASE PRICE"). 
     
               (ii) At the Series E-1 Closing (a) the Company shall deliver to
          each Purchaser stock certificates representing the Series E-1 Shares
          purchased by such Purchaser as set forth next to such Purchaser's name
          on SCHEDULE 1 attached 


                                          2
<PAGE>

          hereto, each registered in the name of such Purchaser, and all other
          documents, instruments and writings required to have been delivered at
          or prior to the Series E-1 Closing by the Company pursuant to this
          Agreement and the Registration Rights Agreement, dated the date
          hereof, by and between the Company and the Purchasers, in the form of
          EXHIBIT B hereto (the "REGISTRATION RIGHTS AGREEMENT"), and (b) each
          Purchaser shall deliver to the Company the portion of the Series E-1
          Purchase Price set forth next to its name on SCHEDULE 1, in United
          States dollars in immediately available funds by wire transfer to an
          account designated in writing by the Company for such purpose on or
          prior to the Series E-1 Closing Date, and all documents, instruments
          and writings required to have been delivered at or prior to the Series
          E-1 Closing by such Purchaser pursuant to this Agreement and the
          Registration Rights Agreement.
     
          (b)  THE SERIES E-2 CLOSING. 

               (i)  Subject to the terms and conditions set forth in Section 4.2
          and elsewhere in this Agreement, the Company shall, if the Per Share
          Market Value has not been less than $3.00 for any ten consecutive
          Trading Days since the Series E-1 Closing Date, have the right to
          deliver a written notice to the Purchasers (a "SERIES E-2 SUBSEQUENT
          FINANCING NOTICE") requiring the Purchasers to purchase Series E-2
          Shares. The Company may deliver a Series E-2 Subsequent Financing
          Notice no earlier than the date on which the Registration Statement on
          Form S-3 filed with the Securities and Exchange Commission (the
          "COMMISSION") with respect to the Series E-1 Shares has been declared
          effective by the Commission and no later than 60 days after such
          effective date.  Such Series E-2 Subsequent Financing Notice shall set
          forth the dollar amount of Series E-2 Shares that the Company intends
          to sell to the Purchasers, PROVIDED, HOWEVER, that the minimum amount
          of such sale and purchase shall be $5,000,000 and the maximum amount
          of such sale and purchase shall be equal to $15,000,000 minus the
          Series E-1 Purchase Price. At the Series E-2 Closing each Purchaser
          shall be obligated (subject to the terms and conditions herein) to
          purchase such portion of such Series E-2 Shares as equals such
          Purchaser's pro rata portion of the purchase price for the Series E-1
          Shares issued and sold at the Series E-1 Closing. The closing of the
          purchase and sale of the Series E-2 Shares (the "SERIES E-2 CLOSING")
          shall take place in the same manner as the Series E-1 Closing, on such
          date indicated in the Series E-2 Subsequent Financing Notice (which
          may not be prior to the 20th day after receipt by the Purchasers of
          the Series E-2 Subsequent Financing Notice or as otherwise agreed to
          by the parties); PROVIDED, HOWEVER, that in no case shall the Series
          E-2 Closing take place unless and until the conditions listed in
          Section 4.2 have been satisfied or waived by the appropriate party.
          The date of the Series E-2 Closing is hereinafter referred to as the
          "SERIES E-2 CLOSING DATE" and the purchase price paid for the Series
          E-2 Shares is hereinafter referred to as the "SERIES E-2 PURCHASE
          PRICE.") 


                                          3
<PAGE>

               (ii) At the Series E-2 Closing, (a) the Company shall deliver (A)
          to each Purchaser (1) a pro rata portion of the Series E-2 Shares
          (determined by reference to the amount of Series E-1 Shares issued and
          sold at the Series E-1 Closing) to be issued and sold thereat (or such
          other amount upon which the parties may agree), registered in the name
          of the appropriate Purchaser, (2) the legal opinions referenced in
          Section 4.2(l), substantially in the forms attached hereto as EXHIBIT
          C1 and EXHIBIT C2, and (3) all other documents, instruments and
          writings required to have been delivered at or prior to the Series E-2
          Closing by the Company to the Purchasers pursuant to this Agreement,
          and (b) each Purchaser shall deliver to the Company (1) the purchase
          price for the Series E-2 Shares being purchased by it at the Series
          E-2 Closing in United States dollars in immediately available funds by
          wire transfer to an account designated in writing by the Company for
          such purpose on or prior to the Series E-2 Closing Date and (2) all
          documents, instruments and writings required to have been delivered at
          or prior to the Series E-2 Closing by such Purchaser pursuant to this
          Agreement. 
     
     (c)  THE SERIES E-3 CLOSING.
     
               (i)  Subject to the terms and conditions set forth in Section 4.2
          and elsewhere in this Agreement, the Company shall, if the Per Share
          Market Value has not been less than $3.00 for any ten consecutive
          Trading Days since the Series E-1 Closing Date, have the right to
          deliver a written notice to the Purchasers (a "SERIES E-3 SUBSEQUENT
          FINANCING NOTICE") requiring the Purchasers to purchase Series E-3
          Shares. The Company may deliver a Series E-3 Subsequent Financing
          Notice no earlier than the date on which the Registration Statement on
          Form S-3 filed with the Commission with respect to the Series E-2
          Shares has been declared effective by the Commission and no later than
          60 days after such effective date.  Such Series E-3 Subsequent
          Financing Notice shall set forth the dollar amount of Series E-3
          Shares that the Company intends to sell to the Purchasers, PROVIDED,
          HOWEVER, that the amount of such sale and purchase shall not exceed
          $5,000,000. At the Series E-3 Closing each Purchaser shall be
          obligated (subject to the terms and conditions herein) to purchase
          such portion of such Series E-3 Shares as equals such Purchaser's pro
          rata portion of the purchase price for the Series E-1 Shares issued
          and sold at the Series E-1 Closing. The closing of the purchase and
          sale of the Series E-3 Shares (the "SERIES E-3 CLOSING") shall take
          place in the same manner as the Series E-1 Closing on such date
          indicated in the Series E-3 Subsequent Financing Notice (which may not
          be prior to the 20th day after receipt by the Purchasers of the Series
          E-3 Subsequent Financing Notice or as otherwise agreed to by the
          parties); PROVIDED that in no case shall the Series E-3 Closing take
          place unless and until the conditions listed in Section 4.2 have been
          satisfied or waived by the appropriate party. The date of the Series
          E-3 Closing is hereinafter referred to as the "SERIES E-3 CLOSING
          DATE." 
     
               (ii) At the Series E-3 Closing, (a) the Company shall deliver (A)
          to each Purchaser (1) a pro rata portion of the Series E-3 Shares
          (determined by 


                                          4
<PAGE>

          reference to the amount of Series E-1 Shares issued and sold at the
          Series E-1 Closing) to be issued and sold thereat (or such other
          amount upon which the parties may agree), registered in the name of
          the appropriate Purchaser, (2) the legal opinions referenced in
          Section 4.2(l), substantially in the forms attached hereto as EXHIBIT
          C1 and EXHIBIT C2, and (3) all other documents, instruments and
          writings required to have been delivered at or prior to the Series E-3
          Closing by the Company to the Purchasers pursuant to this Agreement,
          and (b) each Purchaser shall deliver to the Company (1) the purchase
          price for the Series E-3 Shares being purchased by it at the Series
          E-3 Closing in United States dollars in immediately available funds by
          wire transfer to an account designated in writing by the Company for
          such purpose on or prior to the Series E-3 Closing Date and (2) all
          documents, instruments and writings required to have been delivered at
          or prior to the Series E-3 Closing by such Purchaser pursuant to this
          Agreement. 

                                     ARTICLE II
                                          
                           REPRESENTATIONS AND WARRANTIES
     
     2.1  REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company
hereby makes the following representations and warranties to the Purchasers: 
     
          (a)  ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is a
     corporation, duly incorporated, validly existing and in good standing under
     the laws of the State of New York, with the requisite corporate power and
     authority to own and use its properties and assets and to carry on its
     business as currently conducted. The Company has no subsidiaries other than
     as set forth in SCHEDULE 2.1(a) (collectively the "SUBSIDIARIES"). Each of
     the Subsidiaries is a corporation, duly incorporated, validly existing and
     in good standing under the laws of the jurisdiction of its incorporation or
     organization (as applicable), with the full corporate power and authority
     to own and use its properties and assets and to carry on its business as
     currently conducted. Each of the Company and the Subsidiaries is duly
     qualified to do business and is in good standing as a foreign corporation
     in each jurisdiction in which the nature of the business conducted or
     property owned by it makes such qualification necessary, except where the
     failure to be so qualified or in good standing, as the case may be, would
     not, individually or in the aggregate, (x) adversely affect the legality,
     validity or enforceability of the Preferred Stock or any of the Transaction
     Documents (as defined below), (y) have or result in a material adverse
     effect on the results of operations, assets, prospects, or financial
     condition of the Company and the Subsidiaries, taken as a whole or (z)
     adversely impair the Company's ability to perform fully on a timely basis
     its obligations under any Transaction Document (any of (x), (y) or (z),
     being a "MATERIAL ADVERSE EFFECT"). 
     
          (b)  AUTHORIZATION; ENFORCEMENT. The Company has the requisite
     corporate power and authority to enter into and to consummate the
     transactions contemplated by this Agreement and the other Transaction
     Documents, and otherwise to carry out its obligations hereunder and
     thereunder. This Agreement, the Certificates of Designation 


                                          5
<PAGE>

     the Royalty Rights Agreement between the Company and the Purchasers (the
     "ROYALTY AGREEMENT") and the Registration Rights Agreement are collectively
     referred to as the "TRANSACTION DOCUMENTS." The execution and delivery of
     each of the Transaction Documents by the Company and the consummation by it
     of the transactions contemplated hereby and thereby have been duly
     authorized by all necessary action on the part of the Company and no
     further action is required by the Company. Each of the Transaction
     Documents has been duly executed by the Company and when delivered in
     accordance with the terms hereof will constitute the valid and binding
     obligation of the Company enforceable against the Company in accordance
     with its terms, except as such enforceability may be limited by applicable
     bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
     laws relating to, or affecting generally the enforcement of, creditors'
     rights and remedies or by other equitable principles of general
     application. Neither the Company nor any Subsidiary is in violation of any
     of the provisions of its respective certificate of incorporation, bylaws or
     other charter documents. Prior to each of the closing dates the respective
     Certificate of Designation has been filed with the Secretary of State of
     the State of New York and will be in full force and effect, enforceable
     against the Company in accordance with the terms thereof. 

          (c)  CAPITALIZATION; RIGHTS TO ACQUIRE CAPITAL STOCK. The authorized,
     issued and outstanding capital stock of the Company as of August 12, 1998,
     is set forth in SCHEDULE 2.1(c). Except as disclosed in SCHEDULE 2.1(c), no
     shares of the capital stock of the Company are entitled to preemptive or
     similar rights, nor is any holder of the capital stock of the Company
     entitled to preemptive or similar rights arising out of any agreement or
     understanding with the Company by virtue of any of the Transaction
     Documents.  Except as disclosed in SCHEDULE 2.1(c), as of August 12, 1998,
     there are no outstanding options, warrants, script rights to subscribe to,
     calls or commitments of any character whatsoever relating to, or, except as
     a result of the purchase and sale of the Shares, securities, rights or
     obligations convertible into or exchangeable for, or giving any person any
     right to subscribe for or acquire any shares of Common Stock, or contracts,
     commitments, understandings, or arrangements by which the Company or any
     Subsidiary is or may become bound to issue additional shares of Common
     Stock, or securities or rights convertible or exchangeable into shares of
     Common Stock. Except as specifically disclosed in the SEC Documents (as
     defined below) or SCHEDULE 2.1(c), and, to the best knowledge of the
     Company, no Person or group of related Persons beneficially owns (as
     determined pursuant to Rule 13d-3 promulgated under the Securities Exchange
     Act of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire
     by agreement with or by obligation binding upon the Company beneficial
     ownership of in excess of 5% of the Common Stock. A "PERSON" means an
     individual or corporation, partnership, trust, incorporated or
     unincorporated association, joint venture, limited liability company, joint
     stock company, government (or an agency or subdivision thereof) or other
     entity of any kind. 
     
          (d)  ISSUANCE OF SHARES. The Shares are duly authorized, and when
     issued and paid for in accordance with the terms hereof, shall be validly
     issued, fully paid and nonassessable, free and clear of all liens,
     encumbrances and rights of first refusal of any 


                                          6
<PAGE>

     kind (collectively, "LIENS"). The Company has and, at the Series E-1
     Closing Date, the Series E-2 Closing Date and the Series E-3 Closing Date
     (each a "CLOSING DATE"), as the case may be, will have and at all times
     while the Shares are outstanding will maintain an adequate reserve of duly
     authorized shares of Common Stock to enable it to perform its obligations
     under this Agreement and the Certificates of Designation with respect to
     the number of Shares issued and outstanding at such Closing Date and in no
     circumstances shall such reserved and available shares of Common Stock be
     less than 175% of the maximum number of shares of Common Stock which would
     be issuable upon conversion of the Shares issued pursuant to the terms
     hereof with respect to the number of Shares issued and outstanding at such
     Closing Date were such conversion effected on the Original Issue Date for
     such Shares. The shares of Common Stock issuable upon conversion of the
     Shares are referred to herein as the "UNDERLYING SHARES." When issued in
     accordance with the Certificates of Designation, the Underlying Shares will
     be duly authorized, validly issued, fully paid and nonassessable, free and
     clear of all Liens. 

          (e)  NO CONFLICTS. The execution, delivery and performance of this
     Agreement and the other Transaction Documents by the Company and the
     consummation by the Company of the transactions contemplated hereby and
     thereby do not and will not (i) conflict with or violate any provision of
     its certificate of incorporation, bylaws or other charter documents (each
     as amended through the date hereof) or (ii) subject to obtaining the
     consents referred to in Section 2.1(f), conflict with, or constitute a
     default (or an event which with notice or lapse of time or both would
     become a default) under, or give to others any rights of termination,
     amendment, acceleration or cancellation of, any agreement, indenture or
     instrument (evidencing a Company debt or otherwise) to which the Company is
     a party or by which any property or asset of the Company is bound or
     affected, or (iii) result in a violation of any law, rule, regulation,
     order, judgment, injunction, decree or other restriction of any court or
     governmental authority to which the Company is subject (including Federal
     and state securities laws and regulations), or by which any material
     property or asset of the Company is bound or affected, except in the case
     of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
     amendments, accelerations, cancellations and violations as would not,
     individually or in the aggregate, have or result in a Material Adverse
     Effect. The business of the Company is not being conducted in violation of
     any law, ordinance or regulation of any governmental authority except for
     any such violation as would not, individually or in the aggregate, have or
     result in a Material Adverse Effect. 
     
          (f)  CONSENTS AND APPROVALS. Except as specifically set forth in
     SCHEDULE 2.1(f), neither the Company nor any Subsidiary is required to
     obtain any consent, waiver, authorization or order of, give any notice to,
     or make any filing or registration with, any court or other federal, state,
     local or other governmental authority or other person in connection with
     the execution, delivery and performance by the Company of the Transaction
     Documents, other than (i) the approval of the Board of Directors and the
     filings of the Certificates of Designation with respect to the Preferred
     Stock with the Secretary of State of the State of New York, which filings
     and approvals with respect to each of the Series E-1 Shares, the Series E-2
     Shares and the Series E-3 Shares shall be 


                                          7
<PAGE>

     effected prior to the Series E-1 Closing Date, the Series E-2 Closing Date
     and the Series E-3 Closing Date, as appropriate, (ii) the filing of
     Underlying Shares Registration Statements with the Commission, which shall
     be filed in accordance with and in the time periods set forth in the
     Registration Rights Agreement, (iii) the application(s) or any letter(s)
     acceptable to the Nasdaq National Market for the listing of the Underlying
     Shares with the Nasdaq National Market (and with any other national
     securities exchange or market on which the Common Stock is then listed),
     and (iv) any filings, notices or registrations under applicable federal and
     state securities laws (together with the consents, waivers, authorizations,
     orders, notices and filings referred to in SCHEDULE 2.1(f), the "REQUIRED
     APPROVALS"). 
     
          (g)  LITIGATION; PROCEEDINGS. Except as specifically set forth in
     SCHEDULE 2.1(g) or as disclosed in the Disclosure Materials (as hereinafter
     defined) there is no action, suit, notice of violation, proceeding or
     investigation pending or, to the knowledge of the Company, threatened
     against or affecting the Company or any of its Subsidiaries or any of their
     respective properties before or by any court, governmental or
     administrative agency or regulatory authority (federal, state, county,
     local or foreign) which (i) adversely affects or challenges the legality,
     validity or enforceability of any of the Transaction Documents or the
     Preferred Stock or (ii) could reasonably be expected to, individually or in
     the aggregate, have a Material Adverse Effect. 
     
          (h)  NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
     (i) is in default under or in violation of any indenture, loan or credit
     agreement or any other agreement or instrument to which it is a party or by
     which it or any of its properties is bound which could reasonably be
     expected to, individually or in the aggregate, have a Material Adverse
     Effect, (ii) is in violation of any order of any court, arbitrator or
     governmental body applicable to it, or (iii) is in violation of any
     statute, rule or regulation of any governmental authority to which it is
     subject, which violation could reasonably be expected to, individually or
     in the aggregate, have a Material Adverse Effect. 
     
          (i)  SCHEDULES. The Schedules to this Agreement furnished by or on
     behalf of the Company do not contain any untrue statement of a material
     fact or omit to state any material fact necessary in order to make the
     statements made therein, in light of the circumstances under which they
     were made, not misleading. 
     
          (j)  PRIVATE OFFERING. The Company and all Persons acting on its
     behalf have not made, and will not make, offers or sales of the Preferred
     Stock, and any securities that might be integrated with offers and sales of
     the Preferred Stock, except to Accredited Investors (as defined in
     Regulation D ("REGULATION D") under the Securities Act of 1933, as amended
     (the "SECURITIES ACT")) without any general solicitation or advertising and
     otherwise in compliance with the conditions of Regulation D.  The offer and
     sale by the Company to the Purchasers of the Preferred Stock and the
     Underlying Shares into which the Preferred Stock is convertible is exempt
     from the registration requirements of the Securities Act.


                                          8
<PAGE>

          (k)  SEC DOCUMENTS; FINANCIAL STATEMENTS; NO ADVERSE CHANGE. The
     Company has filed all reports required to be filed by it under the Exchange
     Act, including pursuant to Section 13(a) or 15(d) thereof, for the three
     years preceding the date hereof (the foregoing materials being collectively
     referred to herein as the "SEC DOCUMENTS" and, together with the Schedules
     to this Agreement and the Private Placement Memorandum dated August 6,
     1998, the "DISCLOSURE MATERIALS") on a timely-basis or has received a valid
     extension of such time of filing and has filed any such SEC Documents prior
     to the expiration of any such extension. As of their respective dates, the
     SEC Documents complied in all material respects with the requirements of
     the Exchange Act and the rules and regulations of the Commission
     promulgated thereunder, and none of the SEC Documents, when filed,
     contained any untrue statement of a material fact or omitted to state a
     material fact required to be stated therein or necessary in order to make
     the statements therein, in light of the circumstances under which they were
     made, not misleading. All material agreements to which the Company is a
     party or to which the property or assets of the Company are subject have
     been filed as exhibits to the SEC Documents as required; neither the
     Company nor any of its subsidiaries is in breach of any agreement where
     such breach could reasonably be expected to, individually or in the
     aggregate, have a Material Adverse Effect. The financial statements of the
     Company included in the SEC Documents comply in all material respects with
     applicable accounting requirements and the rules and regulations of the
     Commission with respect thereto as in effect at the time of filing. Such
     financial statements have been prepared in accordance with generally
     accepted accounting principles applied on a consistent basis during the
     periods involved, except as may be otherwise specified in such financial
     statements or the notes thereto, and fairly present in all material
     respects the financial position of the Company as of and for the dates
     thereof and the results of operations and cash flows for the periods then
     ended, subject, in the case of unaudited statements, to normal year-end
     audit adjustments. Since the date of the financial statements included in
     the Company's last filed Quarterly Report on Form 10-Q for the period ended
     March 31, 1998, there has been no event, occurrence or development that has
     had a Material Adverse Effect which has not been specifically disclosed to
     the Purchasers by the Company. The Company last filed audited financial
     statements with the Commission on September 25, 1997, and has not received
     any comments from the Commission in respect thereof. 
     
          (l)  SENIORITY. No class of equity securities of the Company is senior
     to the Preferred Stock in right of payment, whether upon liquidation,
     dissolution or otherwise. 
     
          (m)  INVESTMENT COMPANY. The Company is not, and is not controlled by
     or under common control with an affiliate (an "AFFILIATE") of, an
     "investment company" within the meaning of the Investment Company Act of
     1940, as amended. 
     
          (n)  CERTAIN FEES. Except for fees payable to Brown Simpson Asset
     Management, LLC ("BROWN SIMPSON") pursuant to the section entitled "Fees
     and Expenses" of the letter agreement (the "TERM LETTER") dated July 16,
     1998 between the Company and Brown Simpson, and fees payable to the
     Company's placement agent, and 


                                          9
<PAGE>

     such placement agent's co-advisor, in connection with this transaction, no
     fees or commissions will be payable by the Company to any broker, financial
     advisor, finder, investment banker, or bank with respect to the
     transactions contemplated by this Agreement. The Purchasers shall have no
     obligation with respect to any fees or with respect to any claims made by
     or on behalf of other Persons for fees of a type contemplated in this
     Section 2.1(n) that may be due in connection with the transactions
     contemplated by this Agreement. The Company shall indemnify and hold
     harmless each of the Purchasers, its employees, officers, directors,
     agents, and partners, and their respective Affiliates (as such term is
     defined under Rule 405 promulgated under the Securities Act), from and
     against all claims, losses, damages, costs (including the costs of
     preparation and attorney's fees) and expenses suffered in respect of any
     such claimed or existing fees. 
     
          (o)  SOLICITATION MATERIALS. The Company has not distributed any
     offering materials in connection with the offering and sale of the Shares
     or the Underlying Shares other than the Disclosure Materials and any
     amendments and supplements thereto.  The Disclosure Materials do not
     contain any untrue statement of material fact or omit to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading.  The Company confirms that it has not provided the
     Purchasers or their agents or counsel with any information that constitutes
     or might constitute material non-public information.  The Company
     understands and confirms that the Purchasers shall be relying on the
     foregoing representations in effecting transactions in securities of the
     Company.
     
          (p)  FORM S-3 ELIGIBILITY. The Company is, and at each Closing Date
     will be, eligible to register securities (including the Underlying Shares)
     for resale with the Commission under Form S-3 promulgated under the
     Securities Act. 
     
          (q)  EXCLUSIVITY. The Company shall not issue and sell the Preferred
     Stock to any Person other than the Purchasers pursuant to this Agreement
     other than with the specific prior written consent of each of the
     Purchasers. 
     
          (r)  LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has
     not in the three years preceding the date hereof received notice (written
     or oral) from any stock exchange, market or trading facility on which the
     Common Stock is or has been listed (or on which it has been quoted) to the
     effect that the Company is not in compliance with the listing or
     maintenance requirements of such exchange or market. After giving effect to
     the transactions contemplated in this Agreement, the Company believes that
     it is in compliance with all such maintenance requirements. 
     
          (s)  PATENTS AND TRADEMARKS. To the best knowledge of the Company, the
     Company has, or has rights to use, all patents, patent applications,
     trademarks, trademark applications, service marks, trade names, copyrights,
     licenses and rights (collectively, the "INTELLECTUAL PROPERTY RIGHTS")
     which are necessary for use in connection with its 


                                          10
<PAGE>

     business, as currently conducted and as described in the SEC Documents, and
     which the failure to so have would have a Material Adverse Effect. 
     
          (t)  ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
     issuance of the Underlying Shares upon conversion of the Shares in
     accordance with the Certificates of Designation may result in dilution of
     the outstanding shares of Common Stock, which dilution may be substantial
     under certain market conditions. The Company further acknowledges that its
     obligation to issue Underlying Shares upon conversion of the Shares in
     accordance with the Certificates of Designation is unconditional and
     absolute regardless of the effect of any such dilution. 
     
          (u)  REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described
     on SCHEDULE 2.1(u) hereto, (A) the Company has not granted or agreed to
     grant to any Person any rights (including "piggy-back" registration rights)
     to have any securities of the Company registered with the Commission or any
     other governmental authority which has not been satisfied and (B) except as
     set forth on SCHEDULE 2.1(c) hereto, no Person, including, but not limited
     to, current or former shareholders of the Company, underwriters, brokers or
     agents, has any right of first refusal, preemptive right, right of
     participation, or any similar right to participate in the transactions
     contemplated by this Agreement or any other Transaction Document. 
     
          (v)  TITLE. Except as disclosed in SCHEDULE 2.1(v), the Company and
     the Subsidiaries have good and marketable title in fee simple to all real
     property and personal property owned by them which is material to the
     business of the Company and its Subsidiaries, in each case free and clear
     of all Liens, except for liens, claims or encumbrances as do not materially
     affect the value of such property and do not interfere with the use made
     and proposed to be made of such property by the Company and its
     Subsidiaries. Any real property and facilities held under lease by the
     Company and its Subsidiaries are held by them under valid, subsisting and
     enforceable leases with such exceptions as are not material and do not
     interfere with the use made and proposed to be made of such property and
     buildings by the Company and its Subsidiaries. 
     
          (w)  REGULATORY PERMITS. The Company and its Subsidiaries possess all
     certificates, authorizations and permits issued by the appropriate federal,
     state or foreign regulatory authorities necessary to conduct their
     respective businesses as described in the SEC Documents except where the
     failure to possess such permits would not, individually or in the
     aggregate, have a Material Adverse Effect ("MATERIAL PERMITS"), and neither
     the Company nor any such Subsidiary has received any notice of proceedings
     relating to the revocation or modification of any Material Permit. 
     
          (x)  CLINICAL STATUS. The clinical status for the Company's products
     that are the subject of the Royalty Agreement (as defined below) are as
     follows:  (i) Phase II studies for Oxygent have been completed and Phase
     III clinical trials are scheduled to commence in the fourth quarter of 1998
     and (ii) a Phase II/III study for LiquiVent is scheduled to commence in the
     fourth quarter of 1998.


                                          11
<PAGE>

     2.2  REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows: 
     
          (a)  ORGANIZATION; AUTHORITY. Such Purchaser is a corporation duly
     incorporated or a limited liability company or limited partnership duly
     formed, validly existing and in good standing under the laws of the
     jurisdiction of its incorporation or formation with the requisite power and
     authority, corporate or otherwise, to enter into and to consummate the
     transactions contemplated hereby and by the Registration Rights Agreement
     and otherwise to carry out its obligations hereunder and thereunder. The
     purchase by such Purchaser of the Shares hereunder has been duly authorized
     by all necessary action on the part of such Purchaser. Each of this
     Agreement and the Registration Rights Agreement has been duly executed and
     delivered by such Purchaser and constitutes the valid and legally binding
     obligation of such Purchaser, enforceable against such Purchaser, in
     accordance with its terms, subject to bankruptcy, insolvency, fraudulent
     transfer, reorganization, moratorium and similar laws of general
     applicability relating to or affecting creditors' rights generally and to
     general principles of equity. 
     
          (b)  INVESTMENT INTENT. Such Purchaser is acquiring the Shares and the
     Underlying Shares for its own account for investment purposes only and not
     with a view to or for distributing or reselling such Shares or Underlying
     Shares or any part thereof or interest therein, without prejudice, however,
     to such Purchaser's right, subject to the provisions of this Agreement and
     the Registration Rights Agreement, at all times to sell or otherwise
     dispose of all or any part of such Shares or Underlying Shares pursuant to
     an effective registration statement under the Securities Act and in
     compliance with applicable State securities laws or under an exemption from
     such registration. 
     
          (c)  PURCHASER STATUS. At the time such Purchaser was offered the
     Shares, and at each Closing Date, (i) it was and will be, an "accredited
     investor" as defined in Rule 501 under the Securities Act, or (ii) such
     Purchaser either alone or together with its representatives, had and will
     have such knowledge, sophistication and experience in business and
     financial matters so as to be capable of evaluating the merits and risks of
     the prospective investment in the Shares and the Underlying Shares, and had
     and will have so evaluated the merits and risks of such investment. 
     
          (d)  ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. Such Purchaser
     is able to bear the economic risk of an investment in the Shares and the
     Underlying Shares and, at the present time, is able to afford a complete
     loss of such investment. 
     
          (e)  RELIANCE. Each Purchaser understands and acknowledges that (I)
     the Shares are being offered and sold to the Purchaser without registration
     under the Securities Act in a private placement that is exempt from the
     registration provisions of the Securities Act under Section 4(2) of the
     Securities Act or Regulation D promulgated thereunder and (ii) the
     availability of such exemption, depends in part on, and the 


                                          12
<PAGE>

     Company will rely upon the accuracy and truthfulness of, the foregoing
     representations and such Purchaser hereby consents to such reliance. 
     
     The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2. 


                                    ARTICLE III
                                          
                          OTHER AGREEMENTS OF THE PARTIES
     
     3.1  TRANSFER RESTRICTIONS. 
     
          (a)  If any Purchaser should decide to dispose of Shares (and upon
     conversion thereof any of the Underlying Shares) held by it, each Purchaser
     understands and agrees that it may do so only pursuant to an effective
     registration statement under the Securities Act, to the Company or pursuant
     to an available exemption from the registration requirements of the
     Securities Act. In connection with any transfer of any Shares or any
     Underlying Shares other than pursuant to an effective registration
     statement or to the Company, the Company may require the transferor thereof
     to provide to the Company a written opinion of counsel experienced in the
     area of United States securities laws selected by the transferor, the form
     and substance of which opinion shall be reasonably satisfactory to the
     Company, to the effect that such transfer does not require registration of
     such transferred securities under the Securities Act. Notwithstanding the
     foregoing, the Company hereby consents to and agrees to register (i) any
     transfer of Shares by one Purchaser to another Purchaser, and agrees that
     no documentation other than executed transfer documents shall be required
     for any such transfer, and (ii) any transfer by any Purchaser to an
     Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
     transfer among any such Affiliates, provided that transferee certifies in
     writing to the Company that it is an "accredited investor" as defined in
     Rule 501(a) under the Securities Act. Any such transferee shall agree in
     writing to be bound by the terms of this Agreement and shall have the
     rights of a Purchaser under this Agreement and the Registration Rights
     Agreement. 
     
          (b)  Each Purchaser agrees to the imprinting, so long as is required
     by this Section 3.1(b), of the following legend on the Shares: 
     
          THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
     SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
     REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
     ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
     EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
     AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION


                                          13
<PAGE>

     NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 
     
     The Underlying Shares issuable upon conversion of Shares shall not contain
the legend set forth above if the conversion of such Shares occurs at any time
while the Underlying Shares Registration Statement is effective under the
Securities Act or in the event there is not an effective Underlying Shares
Registration Statement at such time, if in the written opinion of counsel
experienced in the area of United States securities laws such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required hereunder. 
     
     3.2  STOP TRANSFER INSTRUCTION. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in Section 3.1. 
     
     3.3  FURNISHING OF INFORMATION. As long as any Purchaser owns Shares or
Underlying Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Shares or Underlying Shares, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in Section 3.1. Upon the request of any such
Person, the Company shall deliver to such Person a written certification of a
duly authorized officer as to whether it has complied with such requirements. 
     
     3.4  BLUE SKY LAWS. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may request and shall continue such
qualification at all times through the third anniversary of the last Closing
Date. 
     
     3.5  INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Shares or the Underlying Shares in a manner that 


                                          14
<PAGE>

would require the registration under the Securities Act of the sale of the
Shares or the Underlying Shares to any Purchaser. 
     
     3.6  CERTAIN AGREEMENTS. As long as any Purchaser owns Shares, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
holders of all of the Shares then outstanding, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of any Purchaser; (ii) declare, authorize, set aside or pay any dividend
or other distribution with respect to the Common Stock except as permitted under
the Certificates of Designation and as would not adversely affect the rights of
any Purchaser hereunder or under the Certificates of Designation; (iii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock in any manner; (iv) issue any series of preferred stock or other
securities with rights senior (in respect of liquidations, dividends,
preferences and similar rights) to those of the Shares, or (v) enter into any
agreement with respect to any of the foregoing. 
     
     3.7  LISTING AND RESERVATION OF UNDERLYING SHARES. 
     
          (a)  The Company shall (i) not later than the fifth Business Day
     following the applicable Closing Date prepare and file with the Nasdaq
     National Market (as well as any other national securities exchange or
     market on which the Common Stock is then listed) an additional shares
     listing application or a letter acceptable to the Nasdaq National Market
     covering and listing a number of shares of Common Stock which is at least
     equal to 175% of the maximum number of Underlying Shares then issuable,
     (ii) take all steps necessary to cause the Underlying Shares to be approved
     for listing in the Nasdaq National Market (as well as on any other national
     securities exchange or market on which the Common Stock is then listed) as
     soon as possible thereafter, and (iii) provide to the Purchasers evidence
     of such listing, and the Company shall maintain the listing of its Common
     Stock on such exchange. 
     
          (b)  The Company shall reserve for issuance upon conversion of the
     Shares pursuant to the terms of the Certificates of Designation the number
     of shares to be listed on the Nasdaq National Market (and such other
     national securities exchange or market on which the Common Stock is then
     listed or traded) as set forth in Section 3.7(a). Shares of Common Stock
     reserved for issuance upon the conversion of the Shares as set forth in
     Section 3.7(a) shall be allocated pro rata to each of the Purchasers in
     accordance with the amount of Shares issued and delivered to such Purchaser
     at each Closing, as applicable. 
     
     3.8  NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of Shares under this Agreement, any
applicable Certificate of Designation or the Registration Rights Agreement would
be prohibited by the relevant provisions of the New York Business Corporation
Law, such redemption shall be effected as soon as it is permitted under such
law; provided, however, that from the 5th day after any redemption notice until
such redemption price is paid in full, interest on any such unpaid amount shall
accrue and be payable at the rate of 15% per annum in accordance with the
applicable Certificate of Designation. 


                                          15
<PAGE>

     3.9  NOTICE OF BREACHES. 
     
          (a)  Each of the Company and each Purchaser shall give prompt written
     notice to the other of any breach of any representation, warranty or other
     agreement contained in this Agreement or in the Registration Rights
     Agreement, as well as any events or occurrences arising after the date
     hereof and prior to, with respect to the Series E-2 Closing, the Series E-2
     Closing Date and with respect to the Series E-3 Closing, the Series E-3
     Closing Date, which would reasonably be likely to cause any representation
     or warranty or other agreement of such party, as the case may be, contained
     herein to be incorrect or breached as of such Closing Date. However, no
     disclosure by either party pursuant to this Section 3.9 shall be deemed to
     cure any breach of any representation, warranty or other agreement
     contained herein or in the Registration Rights Agreement. 
     
          (b)  Notwithstanding the generality of Section 3.9(a) the Company
     shall promptly notify each Purchaser of any notice or claim (written or
     oral) that it receives from any lender of the Company to the effect that
     the consummation of the transactions contemplated hereby and by the
     Registration Rights Agreement violates or would violate any written
     agreement or understanding between such lender and the Company, and the
     Company shall promptly furnish by facsimile to the holders of the Shares a
     copy of any written statement in support of or relating to such claim or
     notice. 
     
          (c)  The default by any Purchaser of any of its obligations,
     representations or warranties under any Transaction Document shall not be
     imputed to, and shall have no effect upon, any other Purchaser or affect
     the Company's obligations under the Transaction Documents to any
     non-defaulting Purchaser. 
     
     3.10 CONVERSION OBLIGATIONS OF THE COMPANY. The Company covenants to
convert Shares and to deliver Underlying Shares in accordance with the terms and
conditions and time period set forth in the respective Certificates of
Designation. 
     
     3.11 SUBSEQUENT REGISTRATIONS. Other than Underlying Shares and other
"REGISTRABLE SECURITIES" (as defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, for a period of not less than 90 Trading Days after the respective
dates that the Underlying Shares Registration Statements relating to the
securities issued on the Series E-1 Closing Date, the Series E-2 Closing Date
and the Series E-3 Closing Date are declared effective by the Commission,
without the prior written consent of the Purchasers, (i) register for resale any
securities of the Company, except for the securities set forth on SCHEDULE
2.1(u) under paragraphs (1), (2) and (3) thereof, and those held by any
Strategic Partner or (ii) issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities except for (A) securities sold to any
established biotechnology or pharmaceutical company with whom the Company
executes or has executed a written agreement providing that the Company and such
entity will be "partnered" in the development or distribution of one or more of
the Company's chemical compounds (a "STRATEGIC PARTNER"), (B) securities issued
upon the exercise or conversion of the securities set forth on SCHEDULE 2.1(c)
or 


                                          16
<PAGE>

(C) securities sold pursuant to the Company's employee benefit plans. Any days
that any Purchaser is unable to sell Underlying Shares under an Underlying
Shares Registration Statement shall be added to such 90 Trading Day period for
the purposes of (i) and (ii) above.  Notwithstanding the foregoing, the Company
may, after a period of not less than 30 Trading Days after the respective dates
that the Underlying Shares Registration Statements relating to the securities
issued on the Series E-1 Closing Date, the Series E-2 Closing Date and the
Series E-3 Closing Date are declared effective, sell its or its Affiliates'
equity securities in an underwritten public offering, PROVIDED, that written
notice of such an offering be provided to the Purchasers ten (10) Trading Days
in advance of the commencement of such an offering.
     
     3.12 USE OF PROCEEDS. The Company shall use all of the proceeds from the
sale of the Shares for working capital and general corporate purposes and not
for the satisfaction of any portion of Company borrowings outside the normal
course of business or to redeem Company equity or equity-equivalent securities.
Pending application of the proceeds of this placement in the manner permitted
hereby, the Company will invest such proceeds in interest bearing accounts
and/or short-term, investment grade interest bearing securities. 
     
     3.13 REIMBURSEMENT. In the event that any Purchaser or Brown Simpson
becomes involved in any capacity in any action, proceeding or investigation
brought by or against any person, including shareholders of the Company, in
connection with or as a result of either Brown Simpson's engagement or any
matter referred to in this Agreement, the Company will reimburse such Purchaser
or Brown Simpson for its legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, except to the
extent that such action, proceeding, or investigation results from the gross
negligence or bad faith of, or knowing breach of this Agreement by, such
Purchaser or Brown Simpson. The Company also will indemnify and hold the
Purchasers and Brown Simpson harmless against any and all losses, claims,
damages or liabilities to any such person in connection with or as a result of
either Brown Simpson's engagement or any matter referred to in this Agreement,
except to the extent that any such loss, claim, damage or liability results from
the gross negligence or bad faith of, or knowing breach of this Agreement by,
such Purchaser or Brown Simpson. If for any reason the foregoing indemnification
is unavailable to such Purchaser or to Brown Simpson or is insufficient to hold
such person harmless, then the Company shall contribute to the amount paid or
payable by such Purchaser or Brown Simpson as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the relative
economic interests of the Company and its shareholders on the one hand and the
Purchasers and Brown Simpson on the other hand in the matters contemplated by
this Agreement as well as the relative fault of the Company, the Purchasers and
Brown Simpson with respect to such loss, claim, damage or liability and any
other relevant equitable considerations. The reimbursement, indemnity and
contribution obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of the Purchasers and Brown
Simpson and the partners, directors, agents, employees and controlling persons
(if any), as the case may be, of the Purchasers and Brown Simpson and any such
affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Purchasers,
Brown Simpson, any such affiliate and any such person. The Company also agrees
that neither the Purchasers nor Brown Simpson 


                                          17
<PAGE>

nor any of such affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with or
as a result of either Brown Simpson's engagement or any matter referred to in
this Agreement except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or bad faith of, or knowing breach of this Agreement by, the Purchasers or Brown
Simpson. Promptly after receipt by the Purchasers or Brown Simpson or any
affiliate, partners, directors, agents, employees and controlling persons, as
the case may be, of notice of any claim or other commencement of any action in
respect of which indemnity may be sought, such party will notify the Company in
writing of the receipt or commencement thereof and the Company shall have the
right to assume the defense of such claim or action (including the employment of
counsel reasonably satisfactory to the indemnified parties and the payment of
fees and expenses of such counsel). The indemnified party shall cooperate with
the Company and the Company's counsel in the defense of such claim or action.
The Purchasers and Brown Simpson understand that the Company shall not in
connection with any one such claim or action or separate but substantially
similar related claims or actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for all of the indemnified
parties unless the defense of one indemnified party is unique or separate from
that of another indemnified party or one or more legal defenses are available to
an indemnified party but not to other indemnified parties subject to the same
claim or action. In the event the Company does not promptly assume the defense
of a claim or action, the indemnified parties shall have the right to employ
counsel reasonably satisfactory to the Company, at the Company's expense, to
defend such claim or action. The indemnified party shall not admit any liability
with respect to the claim or action or settle, compromise, pay or discharge the
same without the prior written consent of the Company so long as the Company is
reasonably contesting or defending the same in good faith. The Company shall not
compromise, settle or discharge any claim or action without the Purchasers' or
Brown Simpson's consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. Any right to trial by jury with respect to any action or
proceeding arising in connection with or as a result of either our engagement or
any matter referred to in this Agreement is hereby waived by the parties hereto.
The provisions of this Section 3.13 shall survive any termination or completion
of this Agreement.

     3.14 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS.  The Company shall
not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire Common
Stock at any time over the life of the security or investment at a price that is
less than the market price of the Common Stock at the time of issuance of such
security or investment (a "SUBSEQUENT PLACEMENT") for a period of 180 days after
any Closing Date, except (i) the granting of options or warrants to employees,
officers and directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter duly adopted by
the Company, (ii) shares issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding 


                                          18
<PAGE>

convertible preferred stock in each case disclosed in SCHEDULE 2.1(c), and (iii)
shares of Common Stock issued upon conversion of Preferred Shares, unless (A)
the Company delivers to each Purchaser a written notice (the "SUBSEQUENT
PLACEMENT NOTICE") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to which shall be a term sheet or similar document relating thereto
and (B) no Purchaser shall have notified the Company by 5:00 p.m. (New York
time) on the fifth (5th) Trading Day after its receipt of the Subsequent
Placement Notice of its willingness to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Placement
Notice.  If no Purchaser shall notify the Company of its intention to provide
the financing as proposed in the Subsequent Placement Notice within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Person (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; PROVIDED, that the Company shall provide each
Purchaser with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice.  If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro rata portion of the Preferred Stock purchased by
the Purchasers under this Agreement at the Series E-1 Closing. Notwithstanding
the foregoing, the Company may, after a period of not less than 30 Trading Days
after the respective dates that the Underlying Shares Registration Statements
relating to the securities issued on the Series E-1 Closing Date, the Series E-2
Closing Date and the Series E-3 Closing Date are declared effective, sell its or
its Affiliates' equity securities in an underwritten public offering, PROVIDED,
that written notice of such an offering be provided to the Purchasers ten (10)
Trading Days in advance of the commencement of such an offering.

     3.15 SHORT SALES.   No Purchaser shall engage in a short selling
transaction in which the number of shares of Common Stock shorted exceeds the
number of shares of Common Stock held by such Purchaser plus the number of
shares of Common Stock into which the shares of Preferred Stock held by such
Purchaser are then convertible.


                                          19
<PAGE>

                                     ARTICLE IV
                                          
                                     CONDITIONS
     
     4.1  CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE
SERIES E-1 SHARES. 

          (a)  The obligation of the Company to sell the Series E-1 Shares
     hereunder is subject to the satisfaction or waiver by the Company, at or
     before the Series E-1 Closing, of each of the following conditions: 

               (i)    ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND
          WARRANTIES. The representations and warranties of each Purchaser shall
          be true and correct in all material respects as of the date when made
          and as of the Series E-1 Closing Date, as though made on and as of
          such date; 
     
               (ii)   PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have
          performed, satisfied and complied in all material respects with all
          covenants, agreements and conditions required by this Agreement to be
          performed, satisfied or complied with by such Purchaser at or prior to
          the Series E-1 Closing; and 
     
               (iii)  NO INJUNCTION. No statute, rule, regulation, executive
          order, decree, ruling or injunction shall have been enacted, entered,
          promulgated or endorsed by any court or governmental authority of
          competent jurisdiction which prohibits the consummation of any of the
          transactions contemplated by this Agreement or the Registration Rights
          Agreement. 
     
          (b)  CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO
     PURCHASE THE SERIES E-1 SHARES. The obligation of each Purchaser hereunder
     to acquire and pay for the Series E-1 Shares is subject to the satisfaction
     or waiver by such Purchaser, at or before the Series E-1 Closing, of each
     of the following conditions: 
     
               (i)    ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
          The representations and warranties of the Company set forth in this
          Agreement and in the Registration Rights Agreement shall be true and
          correct in all material respects as of the date when made and as of
          the Series E-1 Closing Date as though made on and as of such date; 
     
               (ii)   PERFORMANCE BY THE COMPANY. The Company shall have
          performed, satisfied and complied with in all material respects all
          covenants, agreements and conditions required by this Agreement to be
          performed, satisfied or complied with by the Company at or prior to
          the Series E-1 Closing; 
     
               (iii)  NO INJUNCTION. No statute, rule, regulation, executive
          order, decree, ruling or injunction shall have been enacted, entered,
          promulgated or endorsed by 


                                          20
<PAGE>

          any court or governmental authority of competent jurisdiction which
          prohibits the consummation of any of the transactions contemplated by
          this Agreement or the Registration Rights Agreement; 
     
               (iv)   ADVERSE CHANGES. Since the date of the financial
          statements included in the Company's Quarterly Report on Form 10-Q or
          Annual Report on Form 10-K, whichever is more recent, last filed prior
          to the date of this Agreement, no event which had a Material Adverse
          Effect and no material adverse change in the financial condition of
          the Company shall have occurred (for purposes hereof changes in the
          market price of the Common Stock may be considered as a factor in
          determining whether there has occurred an event which has had a
          Material Adverse Effect or whether a material adverse change has
          occurred); 
     
               (v)    NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
          the Common Stock shall not have been suspended by the Commission or on
          the Nasdaq National Market which suspension shall remain in effect;
     
               (vi)   LISTING OF COMMON STOCK. The Company shall have filed a
          listing application to list the Underlying Shares for trading on the
          Nasdaq National Market; 
     
               (vii)  LEGAL OPINIONS. The Company shall have delivered to the
          Purchasers the opinions of Lloyd A. Rowland, the Company's general
          counsel, and of Stroock & Stroock & Lavan LLP, outside counsel to the
          Company, in substantially the forms attached hereto as EXHIBIT C1 and
          EXHIBIT C2; 
     
               (viii) REQUIRED APPROVALS. All Required Approvals shall have been
          obtained; 
     
               (ix)   SHARES OF COMMON STOCK. On or prior to the Series E-1
          Closing Date, the Company shall have duly reserved the number of
          Underlying Shares required by the Transaction Documents to be reserved
          for issuance upon conversion of Series E-1 Shares; 
     
               (x)    DELIVERY OF STOCK CERTIFICATES. The Company shall have
          delivered to each Purchaser or such Purchaser's designee, the stock
          certificate(s) representing the Series E-1 Shares, registered in the
          name of such Purchaser, each in form satisfactory to the Purchaser; 
     
               (xi)   REGISTRATION RIGHTS AGREEMENT. The Company shall have
          executed and delivered the Registration Rights Agreement; 
     
               (xii)  CERTIFICATES OF DESIGNATION. The Series E-1 Designation
          shall have been duly approved by the Board of Directors and filed with
          the Secretary of State 


                                          21
<PAGE>

          of the State of New York, and the Company shall have delivered a copy
          thereof to the Purchaser certified as filed by the office of the
          Secretary of State of the State of New York; 
     
               (xiii) CHANGE OF CONTROL. No Change of Control (as hereafter
          defined) shall have occurred between the date hereof and the Series
          E-1 Closing Date; and 
     
               (xiv)  TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer
          Agent Instructions, in the form of EXHIBIT D attached hereto, shall
          have been delivered to and acknowledged in writing by the Company's
          transfer agent. 
     
               (xv)   ROYALTY RIGHTS AGREEMENT.  The Company and the Purchasers
          shall have entered into the Royalty Agreement in the form attached
          hereto as EXHIBIT E.
     
     4.2  CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE
THE SERIES E-2 SHARES AND THE SERIES E-3 SHARES. The obligation of each
Purchaser hereunder to acquire and pay for the Series E-2 Shares and the Series
E-3 Shares is subject to the satisfaction or waiver by each Purchaser, at or
before the Series E-2 Closing or the Series E-3 Closing, as applicable, of each
of the following conditions: 
     
          (a)  SERIES E-1 CLOSING. The Series E-1 Closing shall have occurred.
     
          (b)  ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
     representations and warranties of the Company contained herein and in the
     Registration Rights Agreement shall be true and correct as of the date when
     made and as of the Series E-2 Closing Date and the Series E-3 Closing Date,
     as applicable, as though made on and as of such date, except where the
     event causing such representation or warranty to be untrue or incorrect
     would not result in a Material Adverse Effect. 
     
          (c)  PERFORMANCE BY THE COMPANY. The Company shall have performed,
     satisfied and complied in all material respects with all covenants,
     agreements and conditions required by this Agreement, the Registration
     Rights Agreement and the Royalty Agreement to be performed, satisfied or
     complied with by the Company at or prior to the Series E-2 Closing Date and
     the Series E-3 Closing Date, as applicable. 
     
          (d)  UNDERLYING SHARES REGISTRATION STATEMENTS. With respect to the
     Series E-2 Closing, the Underlying Shares Registration Statement with
     respect to the Underlying Shares issuable on conversion of all outstanding
     Series E-1 Shares shall have been declared effective under the Securities
     Act by the Commission; and with respect to the Series E-3 Closing, the
     Underlying Shares Registration Statement with respect to the Underlying
     Shares issuable on conversion of all outstanding Series E-2 Shares shall
     have been declared effective under the Securities Act by the Commission;
     and on each such Closing Date such Underlying Shares Registration Statement
     shall be effective, not subject to any stop order and not be subject to any
     suspension pursuant to Section 3(p) of 


                                          22
<PAGE>

     the Registration Rights Agreement, and shall have been effective and shall
     not have been subject to any stop order for the 30 business days prior to
     such Closing Date and no stop order shall be pending or threatened as of
     such Closing Date. 
     
          (e)  NO INJUNCTION. No statute, rule, regulation, executive order,
     decree, ruling or injunction shall have been enacted, entered, promulgated
     or endorsed by any court of governmental authority of competent
     jurisdiction which prohibits the consummation of any of the transactions
     contemplated by this Agreement or the Registration Rights Agreement
     relating to the issuance or conversion of any of the Shares. 
     
          (f)  ADVERSE CHANGES. During the period which is ten Trading Days
     prior to the date of the delivery of either a Series E-2 Subsequent
     Financing Notice or a Series E-3 Subsequent Financing Notice and the date
     of the Series E-2 Closing and the Series E-3 Closing, respectively, the Per
     Share Market Value of the Common Stock shall not have decreased by more
     than 50% from the highest Per Share Market Value during such period;
     provided, however, that if the Per Share Market Value shall have so
     decreased by more than 50%, but shall have subsequently increased so that
     on the applicable Closing Date it has been, for the three consecutive
     Trading Days immediately prior to such Closing Date, no more than 25% below
     the highest Per Share Market Value during such period, then this condition
     shall be satisfied.
     
          (g)  LITIGATION. No litigation shall have been instituted or
     threatened against the Company which could reasonably be expected to,
     individually or in the aggregate, have a Material Adverse Effect. 
     
          (h)  MANAGEMENT. In the reasonable judgment of each Purchaser, there
     have been no substantial changes in the senior management of the Company,
     except for the acquisition of a Chief Scientific Officer, and for changes
     which could not reasonably be expected to, individually or in the
     aggregate, have a Material Adverse Effect.
     
          (i)  NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in the
     Common Stock shall not have been suspended by the Commission or on the
     Nasdaq National Market (except for any suspension of trading of limited
     duration solely to permit dissemination of material information regarding
     the Company). 
     
          (j)  LISTING OF COMMON STOCK. The Common Stock shall have been at all
     times since the Series E-1 Closing Date, and on the Series E-2 Closing Date
     and the Series E-3 Closing Date be listed for trading on the Nasdaq
     National Market. 
     
          (k)  CHANGE OF CONTROL. No Change of Control in the Company shall have
     occurred. "CHANGE OF CONTROL" means the occurrence of any of (i) an
     acquisition after the date hereof by an individual or legal entity or
     "group" (as described in Rule 13d5(b)(1) promulgated under the Exchange
     Act) of in excess of 50% of the voting securities of the Company, (ii) a
     replacement of more than one-half of the members of the Board of Directors
     which is not approved by those individuals who are members of the Board of


                                          23
<PAGE>

     Directors on the date hereof in one or a series of related transactions,
     (iii) the merger of the Company with or into another entity, consolidation
     or sale of all or substantially all of the assets of the Company in one or
     a series of related transactions or (iv) the execution by the Company of an
     agreement to which the Company is a party or by which it is bound,
     providing for any of the events set forth above in (i), (ii) or (iii). 
     
          (l)  LEGAL OPINIONS. The Company shall have delivered to the
     Purchasers the opinions of the Company's legal counsel, in substantially
     the forms attached hereto as EXHIBIT C1 and EXHIBIT C2, dated the
     applicable Closing Date. 
     
          (m)  REQUIRED APPROVALS. All Required Approvals shall have been
     obtained.
     
          (n)  SHARES OF COMMON STOCK. On each of the Series E-2 Closing Date
     and the Series E-3 Closing Date the Company shall have duly reserved the
     number of Underlying Shares required by this Agreement to be reserved for
     issuance upon conversion of Series E-2 Shares and Series E-3 Shares,
     respectively. 
     
          (o)  DELIVERY OF STOCK CERTIFICATES. The Company shall have delivered
     to each Purchaser or such Purchaser's designee the stock certificate(s)
     representing the Shares being purchased at such Closing, registered in the
     name of such Purchaser, each in form satisfactory to such Purchaser. 
     
          (p)  PERFORMANCE OF CONVERSION/EXERCISE OBLIGATIONS. The Company shall
     have delivered Underlying Shares upon conversion of Shares and otherwise
     performed its obligations in accordance with the terms, conditions and
     timing requirements of each Certificate of Designation. 
     
          (q)  COMMON STOCK PRICE. The Per Share Market Value shall not have
     been less than $3.00 per share for any ten consecutive Trading Days since
     the Series E-1 Closing Date.  
     
          (r)  TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent
     Instructions, in the form of EXHIBIT D attached hereto, shall have been
     delivered to and acknowledged in writing by the Company's transfer agent. 
     
          (s)  OFFICER'S CERTIFICATE. On each Closing Date the Company shall
     deliver to the Purchasers an Officer's Certificate dated the Closing Date
     and signed by an executive officer of the Company confirming the accuracy
     of the Company's representations, warranties and covenants as of such
     Closing Date and confirming the compliance by the Company with the
     conditions precedent set forth in this Section 4.2 as of such Closing Date.

          (t)  INTERIM FINANCINGS.  The Purchasers shall have no obligation to
     purchase the Series E-2 Preferred or the Series E-3 Preferred if, after the
     Series E-1 Closing or after the Series E-2 Closing, respectively, the
     Company has sold or issued, in a private 


                                          24
<PAGE>

     placement transaction or series of such transactions to a single entity or
     a group of entities under common control or which are related such that
     they could be considered a single entity, equity or equity equivalent
     securities in an amount exceeding $500,000, unless such entity is a
     Strategic Partner.


                                     ARTICLE V
                                          
                                   MISCELLANEOUS
     
     5.1  FEES AND EXPENSES. Except (i) as set forth in the Term Letter under
the caption "Fees and Expenses," (ii) as set forth in the Registration Rights
Agreement and (iii) as otherwise set forth in this Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto. 
     
     5.2  ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement and each
Certificate of Designation (each when filed) contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
     
     5.3  NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) 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 the first business day following such delivery (if
delivered on a business day after normal business hours where such notice is to
be received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The addresses for
such communications shall be as set forth below each parties' name on SCHEDULE
1, and if to any Purchaser with copies to Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 1700 Pacific Avenue, Suite 4100, Dallas, Texas 75201, Attn: Diane B.
Muse, Esq., fax: (214) 969-4343, or such other address as may be designated in
writing hereafter, in the same manner, by such person.  Copies of notices to the
Company shall be sent to Stroock & Stroock & Lavan LLP, 1800 Maiden Lane, New
York, New York 10038, Attn: Mel Epstein, Esq., fax: (212) 806-6006, or such
other address as may be designated in writing hereafter, in the same manner, by
such person.
     
     5.4  AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition 


                                          25
<PAGE>

or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right accruing to it thereafter.
Notwithstanding the foregoing, no such amendment shall be effective to the
extent that it applies to less than all of the holders of the Shares
outstanding. The Company shall not offer or pay any consideration to a Purchaser
for consenting to such an amendment or waiver unless the same consideration is
offered to each Purchaser and the same consideration is paid to each Purchaser
which consents to such amendment or waiver. 
     
     5.5  HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 
     
     5.6  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignee must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit a Purchaser's right to transfer securities or transfer
or assign rights under the Registration Rights Agreement. 
     
     5.7  NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person. 
     
     5.8  GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. 
     
     5.9  SURVIVAL. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the Shares
pursuant to this Agreement and each Closing hereunder and any conversion of
Shares. 
     
     5.10 EXECUTION. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding


                                          26
<PAGE>

obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof. 
     
     5.11 PUBLICITY. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure. 
     
     5.12 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement. 
     
     5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers (severally and
not jointly) agree that monetary damages would not be adequate compensation for
any loss incurred by reason of any breach of its obligations described in the
foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate. 
     
     5.14 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. 

                    [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                              SIGNATURE PAGE FOLLOWS]


                                          27
<PAGE>

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

                              ALLIANCE PHARMACEUTICAL CORP.



                              By:
                                 --------------------------------------------
                              Name:  Theodore D. Roth
                              Title: President and Chief Operating Officer


                              BROWN SIMPSON STRATEGIC 
                              GROWTH FUND, LTD.



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


                              BROWN SIMPSON STRATEGIC 
                              GROWTH FUND, L.P.



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


                              WESTOVER INVESTMENTS L.P.



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


                              MONTROSE INVESTMENTS LTD.



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


                                          28
<PAGE>

                              BAY HARBOR INVESTMENTS, INC.



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


                                          29
<PAGE>

                                                                      EXHIBIT II

                                     SCHEDULE I

COMPANY:

ALLIANCE PHARMACEUTICAL CORP.
3040 Science Park Road
San Diego, CA  92121
Attn:  Theodore D. Roth
Fax:  (619) 558-5306

PURCHASERS:

BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn:  Mitchell D. Kaye 
Fax: (212) 247-1329
Portion of Series E-1 Purchase Price    -    $1,700,040
Series E-1 Shares                       -        28,334

BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn:  Mitchell D. Kaye 
Fax: (212) 247-1329
Portion of Series E-1 Purchase Price    -    $799,980
Series E-1 Shares                       -      13,333

WESTOVER INVESTMENTS L.P.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attn:  Will Rose
Fax:  (214) 758-1221
Portion of Series E-1 Purchase Price    -    $679,980
Series E-1 Shares                       -      11,333

MONTROSE INVESTMENTS LTD.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attn:  Will Rose
Fax:  (214) 758-1221
Portion of Series E-1 Purchase Price    -    $1,320,000
Series E-1 Shares                       -        22,000


<PAGE>

                                                     EXHIBIT II

BAY HARBOR INVESTMENTS, INC.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, New York 10111
Attn:  Robert Miller
Fax:  (212) 332-3256
With copies to:
Robinson Silverman Pearce Aronson & Berman, LLP
1290 Avenue of the Americas
New York, New York 10104
Attn:  Kenneth L. Henderson
Fax:  (212) 541-4630
Portion of Series E-1 Purchase Price    -    $1,500,000
Series E-1 Shares                       -        25,000

<PAGE>

                                  SCHEDULE 2.1(a)
                                          
                                          
                                  SUBSIDIARY LIST

ASTRAL, INC., A DELAWARE CORPORATION
MDV TECHNOLOGIES, INC., A DELAWARE CORPORATION
TALCO PHARMACEUTICAL, INC., A DELAWARE CORPORATION

<PAGE>

                                  SCHEDULE 2.1(c)
                                          
                                          
          CAPITAL STOCK, RIGHTS TO ACQUIRE CAPITAL STOCK & 5% SHAREHOLDERS

<TABLE>

<S>                                                              <C>
AUTHORIZED CAPITAL STOCK

Authorized Common Stock, $.01 par value                          50,000,000 
Authorized Preferred Stock, $.01 par value                        5,000,000
     1.5 million shares of Series A Preferred Stock 
     500,000 shares of Series D Preferred Stock

OUTSTANDING SECURITIES AS OF JULY 31, 1998

Common Stock                                                     32,014,005
Series D Preferred Stock                                            500,000
Outstanding Options                                               4,881,221
Outstanding Warrants                                                565,523

</TABLE>

RIGHTS TO ACQUIRE CAPITAL STOCK 

Pursuant to Section 7.1 of a preferred stock purchase agreement, the holder of
all 500,000 shares of Series D Preferred Stock, Schering Berlin Venture Corp.
("SBVC"), has the right to acquire additional shares of Common Stock if the
Company issues (an "Issuance") additional shares of Common Stock in a public or
private offering (including upon the conversion of warrants or other convertible
securities).  The purchase price is to be equal to the price per share of Common
Stock paid in such Issuance.  The number of shares SBVC may purchase is equal to
1.59% of the Common Stock issued in the Issuance.

In November 1996, the Company acquired MDV Technologies, Inc. ("MDV") by a
merger (the "MDV Merger") of a wholly owned subsidiary of the Company into MDV. 
The Company may pay up to $20 million to former shareholders of MDV if advanced
clinical development or licensing milestones are achieved in connection with
MDV's technology.  The Company will also make certain royalty payments on the
sales of products, if any, developed from such technology.  The Company may buy
out its royalty obligation for $10 million at any time prior to the first
anniversary of the approval by U.S. regulatory authorities of any products based
upon the MDV technology (the amount increasing thereafter over time).  All of
such payments to the former MDV shareholders may be made in cash or, at the
Company's option, shares of the Company's common stock, except for the royalty
obligations which will be payable only in cash.  The Company has not determined
whether subsequent payments (other than royalties) will be made in cash or in
common stock.

5% SHAREHOLDERS

Wellington Management Company, LLP
FMR Corp. and related entities and funds / Edward C. Johnson, III / Abigail P.
Johnson

<PAGE>

                                  SCHEDULE 2.1(f)
                                          
                                          
                           NOTICES, CONSENTS AND WAIVERS


1.   SBVC owns 500,000 shares of Series D Preferred Stock which must consent to
     the issuance of additional preferred stock with rights that are senior to
     or on a parity with the Series D Preferred Stock with respect to dividends,
     redemptions or upon liquidation or dissolution of the Company.

2.   The Company is required to give notice to the holders of outstanding
     warrants listed on Schedule 2.1(u) of registration with the Securities and
     Exchange Commission of the shares of common stock receivable on conversion
     of Series E Preferred Stock (and to offer the opportunity to register
     common stock upon exercise of the warrants with respect to warrants with
     piggyback registration rights).

<PAGE>

                                  SCHEDULE 2.1(g)
                                          
                                          
                              LITIGATION; PROCEEDINGS


None.

<PAGE>

                                  SCHEDULE 2.1(u)
                                          
                                          
                                REGISTRATION RIGHTS

REGISTRATION RIGHTS

1)   The holders of outstanding warrants for 465,523 shares of Common Stock
     issuable at prices ranging from $6.67 to $20 per share have demand and/or
     piggyback registration rights.

2)   Hoechst Marion Roussel, Inc. ("HMRI") received 345,327 shares of common
     stock upon conversion in June 1997 of preferred stock of Alliance.  HMRI
     has demand registration rights for such shares.

3)   SBVC owns 500,000 shares of Series D Preferred Stock which converts into a
     number of shares of Common Stock, such number to be determined by a
     formula.  The Company has an obligation to register the Common Stock to be
     received upon conversion and other shares of Common Stock received by SBVC
     pursuant to a right to participate in Issuances (see Schedule 2.1(c)) or
     Common Stock issued pursuant to stock dividends, stock splits or similar
     distributions.

4)   In connection with the MDV Merger (see Schedule 2.1(c)), the Company
     registered the estimated number of shares to potentially be received by the
     former MDV shareholders.  Under certain circumstances the Company could be
     required to issue and register additional shares of Common Stock which
     would be required to be registered.

<PAGE>

                                  SCHEDULE 2.1(v)
                                          
                                          
                                          
                                  TITLE AND LIENS

In connection with the purchase of the Otisville, New York facility in 1983, the
Company entered into a land use agreement with the New York City Development
Corporation, the provisions of which require the Company to care for retired
police horses.  The provisions are "covenants running with the land" binding
upon the Company and subsequent owners.

The Company has a line of credit for up to $1.5 million with Wells Fargo Bank. 
The loan is secured by certain cash and securities accounts.

In June 1998, Imperial Bank entered into a credit agreement providing for a loan
of up to $15 million to the Company.  As security for the loan the Company
granted a security interest in all then existing or thereafter acquired personal
property of the Company, excluding certain specific equipment and all intangible
assets (including intellectual property, patents and patent applications).