# RESCISSION AND
SETTLEMENT AGREEMENT

This
Rescission and Settlement Agreement (the Agreement) is made and entered into
as of September 21, 2004, by and between Alliance Pharmaceutical Corp. (the
Company) and each of the undersigned investors individually (each, an
Electing Investor). A list of the Electing Investors shall be attached as
Exhibit A hereto. The Company and each Electing Investor may be referred to herein
individually as a party and together as the parties.

# RECITALS

A.              On
May 27, 2004, the Company, the Electing Investors and certain investors in           the
Company who are not Electing Investors (the Other Investors, and
          together with the Electing Investors, the Investors) entered into
          that certain Securities Purchase Agreement, pursuant to which the Company
issued           and sold an aggregate of 31,427,137 shares of its Common Stock (the
          Shares) and warrants to purchase an additional 23,570,357 shares of
          its Common Stock (the Warrants) for aggregate gross proceeds to the
          Company of $10,999,500 (the Securities Purchase Agreement).

B.              On
May 27, 2004, the Company, the Electing Investors and the Other Investors           also
entered into that certain Registration Rights Agreement pursuant to which           the
Company agreed to register for resale the Shares and the shares of Common           Stock
to be issued upon exercise of the Warrants pursuant to a registration           statement
on Form SB-2 (the Equity Registration Rights Agreement).

C.              The
closing of the issuance and sale of the Shares and Warrants occurred on June           8,
2004.

D.              Subsequent
to June 8, 2004, a dispute has arisen between the Company, on the one           hand, and
the Electing Investors, on the other hand, arising from and related to           the sale
and issuance of the Shares and Warrants pursuant to the Securities           Purchase
Agreement.

E.              The
Board of Directors of the Company has determined that it is in the best
          interests of the Company and its stockholders to offer to each Investor the
          opportunity to rescind the Securities Purchase Agreement and the Equity
          Registration Rights Agreement and to contemporaneously purchase senior
          convertible promissory notes (the Notes) pursuant to a Senior
          Convertible Note Purchase Agreement (the Note Purchase Agreement)
in           like investment amounts and to enter into a registration rights agreement
          pursuant to which the Company will register the shares of Common Stock issuable
          upon conversion of the Notes pursuant to a registration statement on Form SB-2
          (the Debt Registration Rights Agreement).

F.              Each
of the Electing Investors desires to: (i) rescind each of the Securities
          Purchase Agreement and the Equity Registration Rights Agreement as between the
          Company and such Electing Investor, (ii) return to the Company for cancellation
          the certificate representing the Shares and the Warrant issued to such Electing
          Investor pursuant to the Securities Purchase Agreement, and (iii) to resolve
all           issues and disputes arising from or otherwise related to the issuance and
sale           of the Shares and Warrants or the Securities Purchase Agreement.

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G.              In
entering into this Agreement, none of the parties concedes the sufficiency or
          validity of any claims, counterclaims, or defenses that have been asserted or
          could be asserted by any of them.

# AGREEMENT

In
consideration of the foregoing Recitals (which are incorporated herein by this reference)
and the covenants and conditions set forth below, the parties hereby agree as follows.

1.    Settlement. The
parties intend for this Agreement and the related           transactions to constitute a
full and final resolution and settlement of the           dispute that has arisen between
the Company, on the one hand, and each Electing           Investor, on the other hand,
arising from or otherwise related to the sale and           issuance of the Shares and
Warrants pursuant to the Securities Purchase           Agreement. This Agreement shall
become effective contemporaneously with the           Closing (as defined in the Note
Purchase Agreement) of the sale and issuance of           the Notes to the Electing
Investor (the Effective Time). As such,           this Agreement shall have
no force or effect until the Effective Time. Further,           this Agreement is being
entered into for settlement purposes pursuant to           California Evidence Code §1152,
Federal Rule of Evidence 408 and any           similar statute or rule in any applicable
jurisdiction.

2.    Rescission
of Agreements and Delivery of Shares and Warrants. As of the           Effective
Time, the Company and each Electing Investor hereby rescind each of           the
Securities Purchase Agreement and the Equity Registration Rights Agreement           as
between the Company and such Electing Investor, and such Securities Purchase
          Agreement and Equity Registration Rights Agreement shall be of no further force
          or effect as between the Company and such Electing Investor; provided, however,
          that the parties acknowledge that the Securities Purchase Agreement and the
          Equity Registration Rights Agreement will continue in full force and effect as
          between the Company and each of the Other Investors. Each Electing Investor
          hereby agrees that it shall deliver to the Company for cancellation the
          certificate evidencing the Shares and the Warrant issued to it pursuant to the
          Securities Purchase Agreement in accordance with the terms of the Note Purchase
          Agreement.

3.    Electing
Investor Release. As of the Effective Time as provided in           paragraph 1
above, and except for and subject only to the other provisions of           this
Agreement and any claims, accusations, demands, liabilities, damages,
          obligations, responsibilities, suits, actions and causes of action, whether
          liquidated or unliquidated, fixed or contingent, known or unknown, direct or
          derivative, or otherwise, arising under the Note Purchase Agreement and the
          agreements and Notes contemplated thereby, for and in consideration of the
          mutual covenants set forth herein, each Electing Investor shall, and each
hereby           does on behalf of itself and its officers, directors, employees, agents,
          successors, assigns, control persons, members, managers, partners, attorneys
and           any other subsidiary or affiliate entities (each, a Releasor,          collectively,
the Releasors), release and forever discharge the           Company and its
officers, directors, employees, agents, successors, assigns,           control persons,
members, managers, partners, attorneys, and any other           subsidiaries or affiliate
entities (each, a Releasee, collectively,           the Releasees)
from any and all claims, accusations, demands,           liabilities, damages,
obligations, responsibilities, suits, actions and causes           of action, whether
liquidated or unliquidated, fixed or contingent, known or           unknown, direct or
derivative, or otherwise, arising prior to the Effective Time           or otherwise
arising out of, resulting from, or relating to, directly or           indirectly, the
Securities Purchase Agreement, the Equity Registration Rights           Agreement or the
purchase, sale and/or issuance of the Shares and Warrants           (collectively, the
Released Claims).

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4.    Civil
Code Section 1542 Waiver. With respect to the Released Claims, it           is
further understood and agreed that notwithstanding California Civil Code
          Section 1542, which presently provides:

| | A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR,
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

the release by each Electing Investor
contained herein extends to all claims of every nature and kind whatsoever, known and
unknown.

Each Electing Investor hereby waives
any and all rights that it may have under Section 1542 as it presently reads or as it
shall hereinafter be amended. In connection with this waiver, each Electing Investor
acknowledges that it is aware that it may hereafter discover claims presently unknown or
unsuspected or facts in addition to or different from those it now knows or believes to be
true with respect to the Released Claims. Nevertheless, it intends through this Agreement
to release fully, finally, and forever, in the manner described herein, all Released
Claims. Accordingly, the release contained herein shall remain in effect as a full and
complete release of the Released Claims in accordance with its terms notwithstanding the
discovery or existence of any such additional facts or different claims relating thereto.

5.    No
Admission of Liability. This Agreement is entered into solely for the
          purpose of compromise and settlement and may not be construed as an admission
of           liability, wrongdoing or responsibility on the part of any party, at any
time or           for any purpose whatsoever.

6.    Representations
and Warranties: The parties to this Agreement, and each           of them, represent
and warrant that:

6.1
    Each party has received independent legal advice from its attorneys with respect to the
advisability of making the settlement provided for in this Agreement;

6.2
    No party (nor any officer, agent, partner, employee, representative, or attorney for any
party), has made any statement or representation to any other party regarding any fact
relied upon in entering into this Agreement, except as set forth herein, and each party
does not rely upon any statement, representation or promise of any other party (or any
officer, agent, partner, employee, representative, or attorney of or for any party), in
executing this Agreement, or in making the settlement provided for herein, except as set
forth herein;

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6.3
    Each party to this Agreement has made such independent investigation of the facts
pertaining to this Agreement, and of all matters pertaining to it, as it deems necessary;

6.4
    Each party, or its responsible officers, has read this Agreement and understands the
contents hereof, and any individual executing this Agreement is legally competent to
execute this agreement, and any person executing this Agreement in a representative
capacity of any of the parties is authorized and empowered to do so and thereby has the
authority to bind the party on whose behalf this Agreement is signed; and

6.5
    The parties will execute all such further and additional documents as shall be reasonably
necessary to carry out the provisions of this Agreement.

7.    No
Prior Assignment of Rights. Each Electing Investor is the sole owner           of the
Released Claims being released by it hereby and such Electing Investor           has not
assigned or otherwise transferred, voluntarily or involuntarily, any           such
Released Claims.

8.    Assertion
of Agreement as Bar to Proceedings. This Agreement may be           asserted by any
of the Releasees as a defense and complete bar to any action,           claim, cross
claim, cause of action, arbitration or other proceeding that may be           brought, or
could have been brought, instituted or taken by, against, or           involving any of
the Releasors, or anyone acting or purporting to act on behalf           of any of the
Releasors with respect to any Released Claim.

9.    Entire
Agreement. This Agreement, together with the Note Purchase           Agreement and
the Exhibits and Schedules hereto and thereto, contain the entire           understanding
of the parties with respect to the subject matter hereof and           supersede all
prior and contemporaneous agreements, understandings, discussions           and
representations, oral or written, with respect to such matters, which the
          parties acknowledge have been merged into such documents, exhibits and
          schedules.

10.    Notices.
Any and all notices or other communications or deliveries           required or permitted
to be provided hereunder shall be in writing and shall be           deemed given and
effective on the earliest of (a) the date of transmission, if           such notice or
communication is delivered via facsimile (provided the sender           receives a
machine-generated confirmation of successful transmission) at the           facsimile
number specified in this Section prior to 6:30 p.m. (New York City           time) on a
business day, (b) the next business day after the date of           transmission, if such
notice or communication is delivered via facsimile at the           facsimile number
specified in this section on a day that is not a business day           or later than
6:30 p.m. (New York City time) on any business day, (c) the           business day
following the date of mailing, if sent by U.S. nationally           recognized overnight
courier service, or (d) upon actual receipt by the party to           whom such notice is
required to be given. The address for such notices and           communications shall be
as follows:

|If to the Company: | Alliance Pharmaceutical Corp.     
|------------------ | ----------------------------------
|                   | 6175 Lusk Boulevard               
|                   | San Diego, California 92121       
|                   | Facsimile No.: (858) 410-5201     
|                   | Telephone No.: (858) 410-5200     
|                   | Attention: Chief Financial Officer

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|With a copy to:             | Foley & Lardner LLP                                         
|--------------------------- | ------------------------------------------------------------
|                            | 402 W. Broadway                                             
|                            | San Diego, CA 92101                                         
|                            | Facsimile No.: (619) 234-3510                               
|                            | Attention: Kenneth D. Polin, Esq.                           
|If to an Electing Investor: | To the address set forth under such Electing Investor's name
|                            | on the signature pages hereof;                              

or
such other address as may be designated in writing hereafter, in the same manner, by such
Person.

11.    Amendments;
Waivers. Except as expressly set forth herein, no provision           of this
Agreement may be waived or amended as between the Company and any           Electing
Investor except in a written instrument signed by the Company and such           Electing
Investor. No waiver of any default with respect to any provision,           condition or
requirement of this Agreement shall be deemed to be a continuing           waiver in the
future or a waiver of any subsequent default or a waiver of any           other
provision, condition or requirement hereof, nor shall any delay or           omission of
either party to exercise any right hereunder in any manner impair           the exercise
of any such right.

12.    Construction.
The headings herein are for convenience only, do not           constitute a part of this
Agreement and shall not be deemed to limit or affect           any of the provisions
hereof. The language used in this Agreement will be deemed           to be the language
chosen by the parties to express their mutual intent, and no           rules of strict
construction will be applied against any party. This Agreement           shall be
construed as if drafted jointly by the parties, and no presumption or           burden of
proof shall arise favoring or disfavoring any party by virtue of the           authorship
of any provisions of this Agreement or any of the documents           contemplated
hereby. 13. Successors and Assigns. This Agreement shall be           binding upon
and inure to the benefit of the parties and their successors and           assigns.

14.    Governing
Law. All questions concerning the construction, validity,           enforcement and
interpretation of 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           agrees that
all proceedings concerning the interpretations, enforcement and           defense of the
transactions contemplated by this Agreement (whether brought           against a party
hereto or its respective affiliates, employees or agents) shall           be commenced
exclusively in the state and federal Courts of the State of New           York, sitting
in the City of New York, Borough of Manhattan (the New York           Courts).
Each party hereto hereby irrevocably submits to the exclusive           jurisdiction of
the New York Courts 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
proceeding, any claim that it is not personally subject to the jurisdiction           of
any such New York Court, or that such proceeding has been commenced in an
          improper or inconvenient forum. Each party hereto hereby irrevocably waives
          personal service of process and consents to process being served in any such
          proceeding by mailing a copy thereof via registered or certified mail or
          overnight delivery (with evidence of delivery) to such party at the address in
          effect for notices to it under this Agreement and agrees that such service
shall           constitute good and sufficient service of process and notice thereof.
Nothing           contained herein shall be deemed to limit in any way any right to serve
process           in any manner permitted by law. Each party hereto hereby irrevocably
waives, to           the fullest extent permitted by applicable law, any and all right to
trial by           jury in any legal proceeding arising out of or relating to this
Agreement or the           transactions contemplated hereby. If either party shall
commence a proceeding to           enforce any provisions hereof, then the prevailing
party in such proceeding           shall be reimbursed by the other party for its
reasonable attorneys fees           and other costs and expenses incurred with the
investigation, preparation and           prosecution of such proceeding.

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15.    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           obligation of the
party executing (or on whose behalf such signature is           executed) with the same
force and effect as if such facsimile signature page           were an original thereof.

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

17.    Fees
and Expenses. The Company shall pay the reasonable legal fees and           expenses
of a single counsel representing the Electing Investors in connection           with the
preparation and negotiation of this Agreement, the Note Purchase           Agreement and
the Debt Registration Rights Agreement in an amount not to exceed           $35,000,
unless fees and expenses above $35,000 are approved by a representative           of the
Electing Investors who shall be David Kroin; provided, further, however,           that
such fees and expenses shall not exceed $50,000 in any event.

18.    Arms
Length Negotiations. This Agreement is being entered into in           good faith by
the parties and was negotiated through arms length           bargaining.

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IN
WITNESS WHEREOF, the parties have executed this Rescission and Settlement Agreement as of
the date first written above.

| | ALLIANCE PHARMACEUTICAL CORP.       
| | ------------------------------------
| | By:_________________________________
| | Name:    Duane Roth                 
| | Title:      Chief Executive Officer 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK;                                  SIGNATURE PAGES OF ELECTING
INVESTORS TO FOLLOW]

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IN
WITNESS WHEREOF, the parties have executed this Rescission and Settlement Agreement as of
the date first written above.

| | NAME OF ELECTING INVESTOR                    
| | ---------------------------------------------
| | _______________________________________      
| | AUTHORIZED SIGNATORY                         
| | By:_____________________________________     
| | Name:                                        
| | Title:                                       
| | ADDRESS FOR NOTICE                           
| | c/o:______________________________________   
| | Street:____________________________________  
| | City/State/Zip:______________________________
| | Attention:_________________________________  
| | Tel:______________________________________   
| | Fax:______________________________________   
| | Email:_____________________________________