CONFIDENTIAL TREATMENT REQUESTED	EXHIBIT 10.1 






CONFIDENTIAL TREATMENT REQUESTED
UNDER RULE 24(B)(2) OF THE SECURITIES AND EXCHANGE ACT OF 1934. CONFIDENTIAL TREATMENT
REQUESTED IS REQUESTED AND IS NOTED WITH “[CONFIDENTIAL TREATMENT REQUESTED].”
AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN PREVIOUSLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. 



SUPPLEMENTAL AGREEMENT 



        This
Supplemental Agreement (this “Supplemental Agreement”), dated as of March 15
2002, is made and entered into by and among Inhale Therapeutic Systems, Inc.
(“Inhale”) and Alliance Pharmaceutical Corporation (“Alliance”)
(collectively referred to as the “Parties”). 



        WHEREAS,
Inhale and Alliance have previously entered into the following agreements (collectively,
the “1999 Agreements”): (a) an Asset Purchase Agreement dated as of October 4,
1999 (the “APA”); (b) a License Agreement (License to Inhale) dated as of
November 4, 1999 (the “License to Inhale”); (c) a License Agreement (License to
Alliance) dated as of November 4, 1999 (the “License to Alliance”); (d) a
Product Development Rights Agreement dated as of November 4, 1999 (the “PDRA”);
and (e) an Escrow Agreement dated as of November 4, 1999 (the “Escrow
Agreement”); 



        WHEREAS,
disputes have arisen between the Parties as to their respective rights and obligations
under certain of the 1999 Agreements; 



        WHEREAS,
pursuant to the dispute resolution provisions of the 1999 Agreements, on or about October
30, 2001, Inhale commenced an arbitration proceeding captioned Inhale Therapeutic Systems,
Inc. v. Alliance Pharmaceutical Corp., JAMS Reference No. 1240013539 (the
“Arbitration”); 



        WHEREAS,
on or about December 18, 2001, Inhale filed and served an Amended Demand for Arbitration
(the “Amended Demand”) setting forth certain disputes between the Parties with
respect to certain of the 1999 Agreements; and 



        WHEREAS,
Inhale and Alliance agree that this Supplemental Agreement was negotiated at arms’
length by parties with reasonably equal bargaining power in an effort to avoid the costs,
distractions, and uncertainties associated with protracted litigation; 



        WHEREAS,
Inhale and Alliance agree that the payments by Inhale under this Supplemental Agreement
provide Alliance with fair value, fair consideration, and reasonably equivalent value for
the amendments and modifications of the 1999 Agreements with respect to Inhale’s
purchase and license of the PulmoSphere® Technology and the MediSpheresTM
Technology as contemplated by this Supplemental Agreement and for the additional
proprietary assets, including proprietary assets relating to the Bioavailability
Technology, that Inhale is acquiring pursuant to this Supplemental Agreement; 











CONFIDENTIAL TREATMENT
REQUESTED 





        WHEREAS,
Inhale represents that the Royalty and Milestone Payment obligations of Inhale under the
APA have not yet come due and remain contingent and speculative, and thus Alliance agrees
with Inhale that the payments by Inhale under this Supplemental Agreement provide Alliance
with fair value, fair consideration, and reasonably equivalent value for the modifications
and amendments of those Royalty and Milestone Payment obligations pursuant to this
Supplemental Agreement; 



        WHEREAS,
Inhale and Alliance have agreed that, considered as a whole, the transactions that are the
subject of this Supplemental Agreement involve an exchange of fair value, fair
consideration, and reasonably equivalent value; 



        WHEREAS,
Inhale and Alliance desire to engage in the transactions that are the subject of this
Supplemental Agreement, to settle the disputes that are the subject of the Arbitration,
and to amend and clarify the 1999 Agreements in certain respects, and are willing to enter
into a settlement of the Arbitration, on the terms set forth herein and for good and
valuable consideration; 



        NOW,
THEREFORE, for and in consideration of the premises, and the mutual promises, releases,
and agreements herein contained, the Parties agree as follows: 



	1. 	Impact
Of This Supplemental Agreement On The 1999 Agreements. 






        1.1    
1999 Agreements Remain Effective. The Parties have concluded that it is not
practical to restate in their entirety the 1999 Agreements to reflect the compromises,
agreements, and additional transactions embodied in this Supplemental Agreement. As
modified and explained by this Supplemental Agreement, and except as specifically set
forth in this Supplemental Agreement, the 1999 Agreements remain in full force and
effect.  




        1.2    
This Supplemental Agreement Controls. This Supplemental Agreement modifies and/or
explains certain aspects of the 1999 Agreements and addresses additional subjects not
covered by the 1999 Agreements. In the event of any inconsistency between the provisions
of this Supplemental Agreement and the provisions of any or all of the 1999 Agreements,
this Supplemental Agreement is controlling for all purposes.  




	2. 	Payments
By Inhale. 






        2.1    
     Payment  At  Closing.  Inhale  will pay  Alliance  [CONFIDENTIAL  TREATMENT
 REQUESTED]  in cash on the  Closing  Date of this transaction. 




        2.2    
Royalty And Milestone Payments.  




            (a)                   The
Milestone Payments provisions of Section 1.6 of the APA are amended as
               follows:  




	 	        (i)                   The
provisions apply to Products (A) then covered by a Valid Claim of the
               Assigned Patent Rights or the MediSpheresTM Assigned Patent Rights, or
(B)                which embody or incorporate PulmoSphere® Technology or MediSpheresTM               Technology
and use, incorporate, or are based on the Purchased Assets or the
               MediSpheresTM Purchased Assets.  








2 








CONFIDENTIAL TREATMENT
REQUESTED 



	 	        (ii)                   The
provisions apply to the second and fourth covered Products and not to the
               first and third such products. In no event shall the aggregate payments
from                Inhale to Alliance under Section 1.6 of the APA exceed [CONFIDENTIAL
TREATMENT                REQUESTED]  







            (b)                   The
Royalty Payments provisions of Section 1.7 of the APA are amended as
               follows:  




	 	        (i)                   The
provisions apply to Products (A) then covered by a Valid Claim of the
               Assigned Patent Rights or the MediSpheresTM Assigned Patent Rights, or
(B)                which embody or incorporate PulmoSphere® Technology or MediSpheresTM               Technology
and use, incorporate, or are based on the Purchased Assets or the
               MediSpheresTM Purchased Assets.  







        The
provisions apply to the second and fourth covered Products and not to the first and third
such products. In no event shall Inhale be obligated to make payments to Alliance under
Section 1.7 with respect to more than two products, and the [CONFIDENTIAL TREATMENT
REQUESTED] set forth in Section 1.7 of the APA is reduced to 



        [CONFIDENTIAL
TREATMENT REQUESTED] 




        2.3    
     Royalty Payments On  Bioavailability  Technology.  For purposes of this Section 2.3,
the term "Specified  Products" shall mean Products outside the Inhale Field that do not
constitute Bioavailability Products. 




            (a)                  Inhale
shall pay Alliance a royalty equal to [CONFIDENTIAL TREATMENT REQUESTED]           of Net
Sales of Specified Products sold directly or indirectly by Inhale or its
          Affiliates (other than sales by a Partner). Inhale shall make royalty payments
          to Alliance (by wire transfer) within thirty days after the end of each
calendar           quarter in which Net Sales occur.  




            (b)                  In
respect of sales of Specified Products by any Partner, Inhale shall pay
          Alliance, as and when received by Inhale or its Affiliates from such Partner, a
          royalty equal to [CONFIDENTIAL TREATMENT REQUESTED] of Net Royalties. Inhale
          shall make royalty payments to Alliance (by wire transfer) within thirty days
          after the end of each calendar quarter in which Inhale or its Affiliates
receive           such Net Royalties.  




            (c)                  Inhale’s
royalty obligations to Alliance with respect to Products that           incorporate
PulmoSphere® Technology, MediSpheresTM Technology, and/or
          Bioavailability Technology in the Inhale Field are governed exclusively by
          Section 1.7 of the APA, as amended by this Supplemental Agreement. Except as
          provided in Section 1.7 of the APA, as amended by this Supplemental Agreement,
          Inhale shall only pay Alliance a royalty with respect to the Bioavailability
          Assigned Patent Rights or the Bioavailability Technology for Specified
Products.  





3 








CONFIDENTIAL TREATMENT
REQUESTED 




            (d)                  Upon
the request of Alliance, Inhale shall permit Alliance and its           representatives,
for purposes of auditing the performance of Inhale under this           Section 2.3, to
have access (i) during normal business hours to such of the           records of Inhale
as may be reasonably necessary to verify such performance of           Inhale and (ii) to
any Partners. If any such audit reveals that any payment           required by this
Section 2.3 shall have been deficient, Inhale shall immediately           pay to Alliance
the amount of any such deficiency plus interest from the date           otherwise due at
the lesser of 18% per annum or the maximum rate permitted under           applicable law.
If any such deficiency shall be greater than five percent of the           amount
actually owed, Inhale shall immediately reimburse Alliance for the costs           of
such audit (including, without limitation, the fees of any accounting firm
          employed by Alliance for such purpose).  




	3. 	Certain
Definitions. 






        3.1    
Previously Defined Terms. Unless they are redefined in this Supplemental
Agreement, all terms defined in the 1999 Agreements shall have the same meaning for
purposes of this Supplemental Agreement as was ascribed to them in the 1999 Agreements.
The definitions set forth in this Supplemental Agreement shall control for purposes of
this Supplemental Agreement and the 1999 Agreements, and are intended by the Parties to
replace the definitions set forth in the 1999 Agreements for all purposes.  




        3.2    
Alliance Product. For purposes of this Supplemental Agreement and the 1999
Agreements, Alliance Product shall mean any product for use outside the Inhale Field
involving the use of microstructures in connection with the direct intratracheal or
direct pulmonary administration (e.g., via bronchoscope or endotracheal tube) of
fluorocarbons or other liquids (“Liquid Dose Instillation”) which if made,
used, sold, or imported absent the license granted to Alliance by Inhale would infringe
one or more Valid Claims of the Assigned Patent Rights, the MediSpheresTM Assigned
Patent Rights, or the Bioavailability Assigned Patent Rights, or which in material part
uses, incorporates, or is based on the Assigned Know-How.  




        3.3    
Assigned Know-How. For purposes of this Supplemental Agreement and the 1999
Agreements, Assigned Know-How shall mean all information and data within the Purchased
Assets, the MediSpheresTM Purchased Assets, or the Bioavailability Purchased Assets
other than the Assigned Patent Rights, the MediSpheresTM Assigned Patent Rights, and
the Bioavailability Assigned Patent Rights which is necessary or useful for Alliance to
develop, manufacture, commercialize, or use Products outside the Inhale Field.  




        3.4    
Bioavailability Product. For purposes of this Supplemental Agreement and the 1999
Agreements, Bioavailability Product shall mean a non-respiratory human pharmaceutical
(that is, a human pharmaceutical that is not within the Inhale Field), the making, using,
selling, or importation of which (i) is then covered by a Valid Claim of both (A) the
Assigned Patent Rights or the MediSpheresTM Assigned Patent Rights and (B) the
Bioavailability Assigned Patent Rights, or (ii) embodies or incorporates both (C)
PulmoSphere® Technology and/or MediSpheresTM Technology and (D) Bioavailability
Technology and in material part uses, incorporates, or is based on both (E) the Purchased
Assets and/or the MediSpheresTMPurchased Assets and (F) the Bioavailability Purchased
Assets.  





4 








CONFIDENTIAL TREATMENT
REQUESTED 





        3.5    
Bioavailability Technology. For purposes of this Supplemental Agreement and the
1999 Agreements, Bioavailability Technology shall mean (i) the method of manufacturing a
microparticle composition for controlling an immune response by downregulating a
pathogenic arm of the immune system, or upregulating the suppressor arm of the immune
system, or simultaneously downregulating the pathogenic arm and upregulating the
suppressor arm of the immune system, and (ii) the microparticle compositions manufactured
by such method, both as further described in [CONFIDENTIAL TREATMENT REQUESTED] and
[CONFIDENTIAL TREATMENT REQUESTED] and (iii) all foreign counterpart patent applications
and patents claiming priority of such patent applications and patents, and (iv) all
patents that have issued or in the future issue from any of the foregoing patent
applications, including utility, model, and design patents and certificates of invention,
and (v) all divisionals, continuations, continuations-in-part, reissues, reexaminations,
renewals, extensions or additions of any of the foregoing patent applications and patents
(the “Bioavailability Assigned Patent Rights”).  




        3.6    
Closing. The consummation of the transactions contemplated by this Supplemental
Agreement (the “Closing”) shall take place at the offices of Pillsbury Winthrop
LLP, 11682 El Camino Real, Suite 200, San Diego, California 92130 (or at such other place
as the Parties shall designate), on March 15, 2002, at 9:00 a.m. (Pacific time). For
purposes of this Supplemental Agreement, “Closing Date” shall mean the time and
date as of which the Closing actually takes place. The Parties shall each receive such
other documents as either Party may reasonably request for the purpose of evidencing or
effecting the transactions contemplated by this Supplemental Agreement, all of which
shall be in full force and effect.  




        3.7    
Improvements. For purposes of this Supplemental Agreement and the 1999 Agreements,
Improvements shall mean (a) all discoveries and inventions regarding PulmoSphere® Technology,
MediSpheresTMTechnology, or Bioavailability Technology, which are conceived and
reduced to practice by or on behalf of Alliance, whether or not such Improvements are
claimed in a pending patent application or an issued patent (“Assignable Improvements”)
and (b) all other discoveries or inventions which are conceived and reduced to practice
by or on behalf of Alliance, whether or not such Improvements are claimed in a pending
patent application or an issued patent (“Licensable Improvements”).  




        3.8    
Inhale Field. For purposes of this Supplemental Agreement and the 1999 Agreements,
Inhale Field shall mean uses of microstructures of the types described in all of the
Assigned Patent Rights and Purchased Proprietary Assets (regardless of their particular
microstructure, physical characteristics, or morphology) within the respiratory tract,
including without limitation the nasal passage; provided, however, the Inhale Field shall
not include the use of microstructures in connection with the direct intratracheal or
direct pulmonary administration (e.g., via bronchoscope or endotracheal tube) of
fluorocarbons or other liquids. For clarity, the Inhale Field includes the administration
of microstructures containing compounds by means of metered dose inhaler, dry powder
inhaler, nasal spray, or by nebulization of microstructures formulated with
fluorochemicals as suspending agents, provided that the quantities of fluorochemicals so
included in such formulation for nebulization do not exceed that which is commercially
reasonably necessary to provide effective delivery of the active agent.  





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CONFIDENTIAL TREATMENT
REQUESTED 




        3.9    
Licensed Know-How. For purposes of this Supplemental Agreement and the 1999
Agreements, Licensed Know-How shall mean (a) all information, inventions, technology, and
data regarding the PulmoSphere®Technology, the MediSpheresTM Technology, or the
Bioavailability Technology which is not generally known and which is necessary or useful
for Inhale to develop, manufacture, commercialize, or use Products, in which Alliance now
has an ownership or licensable interest, and (b) all information and data regarding
Licensable Improvements which is not generally known and which is necessary or useful for
Inhale to develop, manufacture, commercialize or use Products, in which Alliance acquires
an ownership or licensable interest.  




        3.10    
Licensed Patent Rights. For purposes of this Supplemental Agreement and the 1999
Agreements, Licensed Patent Rights shall mean (a) those certain patents listed on
Schedule A of the License to Inhale and all foreign counterpart patent applications and
patents claiming priority of such patent applications and patents; (b) all patents and
patent applications in any country that claim Licensable Improvements; (c) all patents
that have issued or in the future issue from any of the foregoing patent applications,
including utility, model, and design patents and certificates of invention; and (d) all
divisionals, continuations, continuations-in-part, reissues, renewals, extensions, or
additions of any of the foregoing patent applications and patents; in each case which
Alliance now has or in which Alliance hereafter acquires an ownership or licensable
interest.  




        3.11    
MediSpheresTMTechnology. For purposes of this Supplemental Agreement
and the 1999 Agreements, MediSpheresTM Technology shall mean (i) the method of
manufacturing stable, dry metal ion-lipid microparticle compositions for drug delivery
based on the formation of a lipid-metal ion complex matrix that incorporates the drug or
active agent to be delivered, and (ii) the microparticle compositions manufactured by
such method, both as further described in [CONFIDENTIAL TREATMENT REQUESTED] as well as
its related continuation-in-part [CONFIDENTIAL TREATMENT REQUESTED] , and (iii) all
foreign counterpart patent applications and patents claiming priority of such patent
applications and patents, and (iv) all patents that have issued or in the future issue
from any of the foregoing patent applications, including utility, model, and design
patents and certificates of invention, and (v) all divisionals, continuations,
continuations-in-part, reissues, reexaminations, renewals, extensions or additions of any
of the foregoing patent applications and patents (the “MediSpheresTM Assigned
Patent Rights”). The Parties have specifically agreed that all particles described
in the MediSpheresTMAssigned Patent Rights — regardless of their particular
microstructure, physical characteristics, or morphology — are covered by the phrase
MediSpheresTMTechnology.  




        3.12    
Product. For purposes of this Supplemental Agreement and the 1999 Agreements,
Product shall mean a human pharmaceutical, the making, using, selling, or importation of
which (i) is then covered by a Valid Claim of the Assigned Patent Rights, the MediSpheresTM Assigned
Patent Rights, or the Bioavailability Assigned Patent Rights, or (ii) which embodies or
incorporates PulmoSphere® Technology, MediSpheresTM Technology, or
Bioavailability Technology and in material part uses, incorporates, or is based on the
Purchased Assets, the MediSpheresTM Purchased Assets, the Bioavailability Technology,
or Licensed Know-How.  




6 









CONFIDENTIAL TREATMENT
REQUESTED 




        3.13    
PulmoSphere®Technology. For purposes of this Supplemental Agreement and the
1999 Agreements, PulmoSphere® Technology shall mean (i) the method of manufacturing
spray dried particles using a perfluorocarbon emulsion or other blowing agents described
in the Assigned Patent Rights and Purchased Proprietary Assets, and (ii) the particles
manufactured by such method, both as further described in all of the Assigned Patent
Rights and Purchased Proprietary Assets. The Parties have agreed to delete the phrase
“hollow and porous” from the definition of PulmoSphere® Technology. The
Parties have specifically agreed that all particles described in the Assigned Patent
Rights and Purchased Proprietary Assets — regardless of their particular
microstructure, physical characteristics, or morphology — are covered by the phrase
PulmoSphere® Technology, and have further agreed that “raisin-like,” or
“wrinkled,” or other non-perfectly spherical particles are covered by the
phrase PulmoSphere® Technology.  




	4. 	Purchase
And Sale of Assets. 






        4.1    
Agreement With Respect To The APA. The Parties agree that the Assigned Patent
Rights and Purchased Assets conveyed pursuant to Section 1.1 of the APA, as modified by
this Supplemental Agreement, have been conveyed by Alliance to Inhale in their entirety,
with no reservation of any ownership interest or other rights by Alliance, except as
specifically set forth in the APA or this Supplemental Agreement. The Parties have
further specifically agreed that the use of the phrase PulmoSphere® Technology in
Section 1.1 of the APA, or in any other provision of the APA, is not intended to imply or
give rise to any limitation on the scope of the Assigned Patent Rights conveyed by
Alliance to Inhale in the APA, and that the Assigned Patent Rights purchased by Inhale
are co-extensive with the disclosures and claims set forth in the Assigned Patent Rights.  




        4.2    
Purchase And Sale Of MediSpheresTM Assets.  




            (a)                  Upon
the terms and subject to the conditions of this Supplemental Agreement, on           the
Closing Date, Alliance shall sell, transfer, convey, assign, grant, and           deliver
to Inhale, and Inhale shall purchase, acquire, and receive (a) the           MediSpheresTM Assigned
Patent Rights; (b) the trademark MediSpheresTM;           and (c) all Know-How of
Alliance related to the development or use of the           MediSpheresTM Technology
(collectively, the “MediSpheresTM          Purchased Assets”). Within 30
days after the Closing Date, Alliance shall           place in escrow pursuant to the
Escrow Agreement the originals of all laboratory           files, batch records, and
other records listed in Exhibit A, and copies of           portions of laboratory
notebooks listed in Exhibit B, in each case relating to           the MediSpheresTM Technology.  




            (b)                  Alliance
shall not itself retain copies (unless otherwise required by applicable
          governmental laws, rules, and regulations) of such files and records other than
          for portions of the laboratory notebooks, but if Alliance requires access
          thereto to comply with regulatory requirements for its products, it shall so
          notify Inhale and Inhale shall provide Alliance access on a reasonable basis
          during normal business hours as the Parties shall mutually agree.  




        4.3    
Purchase And Sale Of Bioavailability Assets.  




            (a)                  Upon
the terms and subject to the conditions of this Supplemental Agreement, on           the
Closing Date, Alliance shall sell, transfer, convey, assign, grant, and           deliver
to Inhale, and Inhale shall purchase, acquire, and receive (a) the
          Bioavailability Assigned Patent Rights; and (b) all Know-How of Alliance
related           to the development or use of the Bioavailability Technology
(collectively, the           “Bioavailability Purchased Assets”). Within 30
days after the Closing           Date, Alliance shall place in escrow pursuant to the
Escrow Agreement the           originals of all laboratory files, batch records, and
other records listed in           Exhibit C, and copies of portions of laboratory
notebooks listed in Exhibit D,           in each case relating to the Bioavailability
Technology.  





7 









CONFIDENTIAL TREATMENT
REQUESTED 




            (b)                  Alliance
shall not itself retain copies (unless otherwise required by applicable
          governmental laws, rules, and regulations) of such files and records other than
          for portions of the laboratory notebooks, but if Alliance requires access
          thereto to comply with regulatory requirements for its products, it shall so
          notify Inhale and Inhale shall provide Alliance access on a reasonable basis
          during normal business hours as the Parties shall mutually agree.  




        4.4    
Intent Of The Parties. The Parties intend that the MediSpheresTM Purchased
Assets and the Bioavailability Purchased Assets constitute all of Alliance’s
Proprietary Assets with respect to the MediSpheresTM Technology and Bioavailability
Technology.  




        4.5    
     Representations  And Warranties Of Alliance.  Except as set forth in this
 Supplemental  Agreement,  the 1999  Agreements,  or that certain letter to Inhale's
counsel dated as of the date hereof: 




            (a)                  To
Alliance’s Knowledge, Alliance has the right to grant to Inhale rights           to
all MediSpheresTM Purchased Assets and all Bioavailability Purchased           Assets
that Alliance purports to grant under this Supplemental Agreement, free           and
clear of any Encumbrances. To the Knowledge of Alliance, there are no           defects
in the filing or prosecution of the MediSpheresTM Assigned Patent           Rights or
the Bioavailability Assigned Patent Rights that could reasonably be           expected to
cause either the invalidity of any patent that may issue from the           MediSpheresTM Assigned
Patent Rights or the Bioavailability Assigned Patent           Rights or cause a patent
not to issue from the MediSpheresTM Assigned Patent           Rights or the
Bioavailability Assigned Patent Rights. Alliance is not obligated           to make any
payment to any Person for the use or other exploitation of any of           the
MediSpheresTM Purchased Assets or any of the Bioavailability Purchased
          Assets.  




            (b)                  Alliance
has taken commercially reasonable measures and precautions, consistent           with its
customary practices, appropriate to protect and maintain the           confidentiality
and secrecy of all of the MediSpheresTM Purchased Assets and           all of the
Bioavailability Purchased Assets (except to the extent that public           disclosure
was necessary as part of the process of filing patent applications           for the
MediSpheresTM Assigned Patent Rights or the Bioavailability Assigned           Patent
Rights whose value would be unimpaired by public disclosure).  




            (c)                  All
issued patents and trademarks that are registered with any Governmental Body
          and held by Alliance and included within the MediSpheresTM Purchased Assets
          or the Bioavailability Purchased Assets are subsisting and to the Knowledge of
          Alliance are valid. To the Knowledge of Alliance (without performing any
special           inquiry and recognizing that Alliance’s primary area of expertise
is           outside Inhale’s intended use of the MediSpheresTM Purchased Assets
and           the Bioavailability Purchased Assets), the use of the MediSpheresTM          Purchased
Assets or the Bioavailability Purchased Assets does not infringe or           constitute
a misappropriation of any Proprietary Asset owned or used by any           other Person.
Alliance has not received any written notice or other           communication from any
Person of any actual, alleged, possible, or potential           infringement,
misappropriation, or unlawful use of, any Proprietary Asset owned           or used by
such Person. To the Knowledge of Alliance, no other Person is           infringing,
misappropriating, or making any unlawful use of any           MediSpheresTM Purchased
Asset or any Bioavailability Purchased Asset.  




8 









CONFIDENTIAL TREATMENT
REQUESTED 




            (d)                  The
MediSpheresTM Purchased Assets and the Bioavailability Purchased Assets
          constitute all the Proprietary Assets of Alliance that are necessary to enable
          Alliance to utilize the MediSpheresTM Technology and the Bioavailability
          Technology in the manner in which the MediSpheresTM Technology and the
          Bioavailability Technology are being utilized by Alliance outside of Liquid
Dose           Instillation. Alliance has not licensed any of the MediSpheresTM Purchased
          Assets or any of the Bioavailability Purchased Assets to any Person and has not
          granted any right to any Third Party in or to the MediSpheresTM Purchased
          Assets or the Bioavailability Purchased Assets which would conflict with the
          rights transferred to Inhale pursuant to this Supplemental Agreement. Alliance
          has not entered into any covenant not to compete or Contract restricting its
          right to use or practice any of the MediSpheresTM Purchased Assets or any
of           the Bioavailability Purchased Assets or to transact business regarding the
          MediSpheresTM Purchased Assets or the Bioavailability Purchased Assets in
          any market or geographic area or with any Person. To the Knowledge of Alliance,
          Alliance has, and Inhale will acquire on the Closing Date, the exclusive right
          to use the trademark MediSpheresTM, subject to the nonexclusive license
          granted to Alliance in the License to Alliance to use such mark for Designated
          Products. As a specific remedy for breach of this warranty, in addition to all
          other remedies available at law, Alliance agrees that any Proprietary Asset of
          Alliance in existence as of the Closing Date that is necessary to enable
          Alliance to utilize the MediSpheresTM Technology and the Bioavailability
          Technology in the manner in which the MediSpheresTM Technology and the
          Bioavailability Technology are being utilized by Alliance outside of Liquid
Dose           Instillation as of the Closing Date will be treated, with no further
action by           Inhale or Alliance, as a MediSpheresTM Purchased Asset or a
Bioavailability           Purchased Asset for all purposes under this Supplemental
Agreement.  




            (e)                  Alliance
has provided Inhale with full and complete access to all of           Alliance’s
material records, documents, and data with respect to the           MediSpheresTM Purchased
Assets and the Bioavailability Purchased Assets.  




            (f)                  To
Alliance’s Knowledge, there is no fact or condition relating to the
          MediSpheresTM Purchased Assets or the Bioavailability Purchased Assets
          (including without limitation the practice of the MediSpheresTM Purchased
          Assets or the Bioavailability Purchased Assets) that may interfere materially
          with Inhale’s ability to exploit the MediSpheresTM Purchased Assets or
          the Bioavailability Purchased Assets outside of Liquid Dose Instillation in a
          commercially reasonable manner, and no condition or circumstance exists that
          would be expected to give rise to any such fact or condition.  



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CONFIDENTIAL TREATMENT
REQUESTED 




            (g)                  Alliance
is not now insolvent, and will not be rendered insolvent by any of the
          transactions contemplated by this Supplemental Agreement. In addition,
          immediately after giving effect to the consummation of the transactions
          contemplated by this Supplemental Agreement, (a) Alliance will be able to pay
          its debts as they become due; (b) Alliance will not have unreasonably small
          assets with which to conduct its present or proposed business; and (c) taking
          into account all contingent pending and threatened litigation, final judgments
          against Alliance in actions for money damages are not reasonably anticipated to
          be rendered at a time when, or in amounts such that, Alliance will be unable to
          satisfy any such judgments promptly in accordance with their terms (taking into
          account the maximum probable amount of such judgments in any such actions might
          be rendered) as well as all other obligations of Alliance. The cash available
to           Alliance, taking into account all other anticipated uses of the cash, will
be           sufficient to pay all such judgments promptly in accordance with their
terms. As           used in this Section, (i) “insolvent” means that the sum of
the           present fair saleable value of Alliance’s assets does not and will not
          exceed its debts and other probable liabilities; and (ii) “debts”          includes
any legal liability, whether matured or unmatured, liquidated or           unliquidated,
absolute, fixed or contingent, disputed or undisputed, or secured           or unsecured.  




            (h)                  To
the Knowledge of Alliance, no representation or warranty of Alliance in this
          Supplemental Agreement and no information provided by Alliance to Inhale with
          respect to the Purchased Assets, the MediSpheresTM Purchased Assets, or the
          Bioavailability Purchased Assets fails to state any material fact necessary in
          order to make the representations, warranties, and information of or with
          respect to Alliance, the Purchased Assets, the MediSpheresTM Purchased
          Assets, or the Bioavailability Purchased Assets contained herein and therein
(in           the light of circumstances under which such representations, warranties,
and           information were or will be made or provided) not false or misleading.  




            (i)                  EXCEPT
AS OTHERWISE EXPRESSLY SET FORTH IN THIS SECTION 4.5, NOTHING IN THIS
          SUPPLEMENTAL AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE, OR WARRANTY
          GIVEN, BY ALLIANCE THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT
          APPLICATION WITHIN THE MEDISPHERESTM ASSIGNED PATENT RIGHTS OR THE
          BIOAVAILABILITY ASSIGNED PATENT RIGHTS, THAT ANY PATENT WITHIN THE
          MEDISPHERESTM ASSIGNED PATENT RIGHTS OR THE BIOAVAILABILITY ASSIGNED PATENT
          RIGHTS WHICH ISSUES WILL BE VALID, OR THAT THE USE OF ANY LICENSE GRANTED
          HEREUNDER OR THE USE OF ANY RIGHTS WITH RESPECT THERETO WILL NOT INFRINGE THE
          PATENT OR OTHER PROPRIETARY RIGHTS OF ANY OTHER PERSON. FURTHERMORE, EXCEPT AS
          OTHERWISE EXPRESSLY SET FORTH IN THIS SECTION 4.5, ALLIANCE MAKES NO
          REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
          MEDISPHERESTM PURCHASED ASSETS, THE BIOAVAILABILITY PURCHASED ASSETS OR ANY
          OTHER RIGHTS GRANTED OR LICENSED HEREUNDER, INCLUDING WITHOUT LIMITATION, ANY
          WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.  




        4.6    
Technology Transfer. Following the Closing Date, Alliance and Inhale shall take
all steps reasonable to effect the transfer of all MediSpheresTM Purchased Assets and
all Bioavailability Purchased Assets to Inhale in such a manner as to enable Inhale to
practice the MediSpheresTMTechnology and the Bioavailability Technology with the same
proficiency as such technology is practiced by Alliance as of the Closing Date. Such
transfer shall occur no later than June 30, 2002.  




10 









CONFIDENTIAL TREATMENT
REQUESTED 




	5. 	License
To Inhale. 






        5.1    
Effect Of This Supplemental Agreement. Following the Closing Date, the definitions
set forth in this Supplemental Agreement will apply with full force and effect to the
License to Inhale for all purposes. The effect of this Supplemental Agreement is to
clarify and broaden the scope of the license granted by Alliance to Inhale under the
License to Inhale. As amended by this Supplemental Agreement, the License to Inhale
remains in full force and effect.  




        5.2    
Amendments To The License To Inhale.  




            (a)                  The
first “Whereas” clause of the License to Inhale is hereby deleted           in
its entirety and replaced with the following: “WHEREAS, Alliance and
          Inhale have entered into an Asset Purchase Agreement dated as of October 4,
1999           (as amended or restated from time to time) (the “Asset Purchase
          Agreement”) and a Supplemental Agreement dated as of March 15, 2002 (the
          “Supplemental Agreement”), pursuant to which Alliance assigned and
          sold to Inhale certain patent rights and know-how relating to the
          PulmoSphere® Technology, the MediSpheresTM Technology, and the
          Bioavailability Technology.” 




            (b)                  Section
3.1 of the License to Inhale is hereby deleted in its entirety and           replaced
with the following: “Alliance hereby grants to Inhale an           irrevocable,
nonexclusive, worldwide, royalty-free (except as provided in the           Asset Purchase
Agreement, as amended by the Supplemental Agreement) license           (including the
nonexclusive right to grant sublicenses) under the Licensed           Patent Rights (as
defined in the Supplemental Agreement) solely to make, use,           offer for sale,
sell, and import Products (as defined in the Supplemental           Agreement) other than
Products involving Liquid Dose Instillation (as defined in           the Supplemental
Agreement).” 




            (c)                  Section
3.2 of the License to Inhale is hereby deleted in its entirety and           replaced
with the following: “Alliance hereby grants to Inhale an           irrevocable,
nonexclusive, worldwide, royalty-free (except as provided in the           Asset Purchase
Agreement, as amended by the Supplemental Agreement) license           (including the
nonexclusive right to grant sublicenses) under the Licensed           Know-How (as
defined in the Supplemental Agreement) solely to make, use, offer           for sale,
sell, and import Products (as defined in the Supplemental Agreement)           other than
Products involving Liquid Dose Instillation (as defined in the           Supplemental
Agreement).” 




            (d)                  Section
3.3 of the License to Inhale is hereby deleted in its entirety and           replaced
with the following: “Alliance shall, and hereby does, grant to           Inhale all
right, title, and interest in and to all Assignable Improvements (as           defined in
the Supplemental Agreement), together with all intellectual property           rights
relating thereto (including without limitation all patent applications or
          patents claiming such Assignable Improvements). Alliance agrees promptly to
          disclose to Inhale any such Assignable Improvements and to execute such
          documents and perform such other acts as Inhale may reasonably request to
          obtain, perfect, and enforce such rights to the Assignable Improvements and the
          assignment thereof.” 




            (e)                  Section
3.4 of the License to Inhale is hereby deleted in its entirety and           replaced
with the following: “Inhale shall not knowingly use or sell           products or
compounds involving Liquid Dose Instillation (as defined in the           Supplemental
Agreement) where such products or compounds are claimed in the           Licensed Patent
Rights or incorporate or are made using the Licensed           Know-How.” 




11 









CONFIDENTIAL TREATMENT
REQUESTED 




            (f)                  Section
5.3 of the License to Inhale is hereby deleted in its entirety and           replaced
with the following: “Alliance hereby represents and warrants to           Inhale
that, except as set forth on Schedule A to this Agreement, as of the           Closing of
the Supplemental Agreement, Alliance does not own or control any           patents or
patent applications that would be infringed by the use of the           PulmoSphere® Technology,
the MediSpheresTM Technology, or the           Bioavailability Technology, as
described in the Assigned Patent Rights, the           MediSpheresTM Assigned Patent
Rights, or the Bioavailability Assigned Patent           Rights, respectively, as of the
Closing of the Supplemental Agreement. As a           specific remedy for breach of this
warranty, in addition to all other remedies           available at law, Alliance agrees
that any Proprietary Asset of Alliance in           existence as of the Closing Date that
is necessary to enable Alliance to utilize           the MediSpheresTM Technology and
the Bioavailability Technology in the           manner in which the MediSpheresTM Technology
and the Bioavailability           Technology are being utilized by Alliance outside of
Liquid Dose Instillation as           of the Closing Date will be treated, with no
further action by Inhale or           Alliance, as a MediSpheresTM Purchased Asset or
a Bioavailability Purchased           Asset for all purposes under this Agreement.” 




	6. 	License
To Alliance. 






        6.1    
Effect Of This Supplemental Agreement. Following the Closing Date, the definitions
set forth in this Supplemental Agreement will apply with full force and effect to the
License to Alliance for all purposes. The effect of this Supplemental Agreement is to
amend and clarify the scope of the license granted by Inhale to Alliance under the
License to Alliance. As amended by this Supplemental Agreement, the License to Alliance
remains in full force and effect.  




        6.2    
Amendments To The License To Alliance.  




            (a)                  The
second “Whereas” clause of the License to Alliance is hereby           deleted
in its entirety and replaced with the following: “WHEREAS, pursuant           to the
Supplemental Agreement dated as of March 15, 2002 (the “Supplemental
          Agreement”), Inhale has agreed to grant Alliance a license under the
          assigned patent rights and know-how, together with other intellectual property
          rights, relating to the PulmoSphere® Technology, the MediSpheresTM          Technology,
and the Bioavailability Technology for all applications involving           Liquid Dose
Instillation, and for certain products within the Inhale Field as to           which
Alliance exercises its rights under the Product Development Rights           Agreement,
as amended by the Supplemental Agreement (the “Product           Development Rights
Agreement”). The definitions for certain terms used in           this Agreement with
initial letters capitalized (as this Agreement is amended           pursuant to the
Supplemental Agreement) are set forth in the Supplemental           Agreement.” 




            (b)                  Section
3.1 of the License to Alliance is hereby deleted in its entirety and           replaced
with the following:  




	 	        “(a)                      Inhale
hereby grants to Alliance an irrevocable, exclusive, worldwide,
               royalty-free license (including the right to grant sublicenses) under the
               Assigned Patent Rights, the MediSpheresTM Assigned Patent Rights, the
               Bioavailability Assigned Patent Rights, the Assignable Improvements, and
the                Assigned Know-How for use in applications involving Liquid Dose
Instillation,                including without limitation the right to make, use, offer
for sale, sell, and                import Alliance Products for use in applications
involving Liquid Dose                Instillation.  








12 








CONFIDENTIAL TREATMENT
REQUESTED 




	 	        (b)                      Inhale
hereby grants to Alliance an irrevocable, exclusive, worldwide,
               royalty-free license (including the right to grant sublicenses) under the
               Bioavailability Purchased Assets and any Assignable Improvements regarding
               Bioavailability Technology for uses outside the Inhale Field to make, use,
offer                for sale, sell, and import Products that do not constitute
Bioavailability                Products.” 







            (c)                  Section
3.2 of the License to Alliance is hereby deleted in its entirety and           replaced
with the following: “Inhale hereby grants to Alliance a           non-exclusive,
worldwide, royalty-free license (without the right to grant           sublicenses, other
than to its Affiliates and parties to whom the rights of           Alliance under the
Product Development Rights Agreement may be assigned as           permitted thereby)
under the Assigned Patent Rights, the MediSpheresTM          Assigned Patent Rights,
the Bioavailability Assigned Patent Rights, the           Assignable Improvements, and
the Assigned Know-How to perform research and           development activities to
identify products with respect to which Alliance may           desire to exercise a
Product Development Right (as defined in the Product           Development Rights
Agreement) therefor under the Product Development Rights           Agreement. Such
license shall be effective for so long as Alliance has any           unused Product
Development Right(s) available to it under the Product           Development Rights
Agreement.” 




            (d)                  Section
3.3 of the License to Alliance is hereby deleted in its entirety and           replaced
with the following: “Inhale hereby grants to Alliance an           irrevocable,
exclusive, worldwide (subject to Section 3.9 of the Product           Development Rights
Agreement), royalty-free (except as provided in Section 3.8           of the Product
Development Rights Agreement) license (including the exclusive           right to grant
sublicenses to Third Parties that are not Competitors of Inhale,           subject to
Section 3.7 of the Product Development Rights Agreement) under the           Designated
Product Patent Rights and Designated Product Know-How to use, offer           for sale,
sell, import, manufacture and have manufactured Designated Products           for all
purposes; provided, however, that the right to manufacture or have           manufactured
a Powder Formulation of the Active Substance of such Designated           Product shall
be suspended to the extent that Inhale or its Partner (as the           foregoing terms
are defined for purposes of the Product Development Rights           Agreement) is
manufacturing such Powder Formulation pursuant to a manufacturing           agreement
entered into as contemplated by Section 3.5 of the Product Development           Rights
Agreement.” 




            (e)                  The
trademark MediSpheresTM is added to Section 3.4 of the License to           Alliance
for all purposes.  




            (f)                  Section
3.5 of the License to Alliance is hereby deleted in its entirety and           replaced
with the following: “Except in the case of Designated Products or           products
or compounds involving Liquid Dose Instillation (as defined in the           Supplemental
Agreement), or, as to the Bioavailability Purchased Assets and any           Assignable
Improvements regarding Bioavailability Technology, for applications           outside the
Inhale Field, Alliance shall not knowingly use or sell products or           compounds
that are made using or that incorporate PulmoSphere® Technology,           MediSpheresTM Technology,
or Bioavailability Technology.” 





13 








CONFIDENTIAL TREATMENT
REQUESTED 




            (g)              Sections
5.1 and 5.2 of the License to Alliance are hereby deleted in their           entirety and
replaced with the following:  




	 	        “5.1    
Prosecution and Maintenance. 







	 	        5.1.1    
Subject to the provisions of this Section 5.1, Inhale shall be responsible for and shall
control, at its sole cost, the preparation, filing, prosecution (including oppositions)
and maintenance of the Assigned Patent Rights, Designated Product Patent Rights,
MediSpheresTM Assigned Patent Rights and Bioavailability Assigned Patent Rights.
Inhale shall consider in good faith the interests of Alliance in so doing. Inhale (a)
shall supply Alliance with a copy of each patent application within the Assigned Patent
Rights, Designated Product Patent Rights, MediSpheresTM Assigned Patent Rights and
Bioavailability Assigned Patent Rights as filed, together with notice of its filing date
and serial number; (b) shall consult with Alliance regarding the prosecution and
maintenance of the Assigned Patent Rights, Designated Product Patent Rights, MediSpheresTM Assigned
Patent Rights and Bioavailability Assigned Patent Rights, and shall implement all
reasonable requests of Alliance regarding claims with application (i) for Liquid Dose
Instillation, (ii) as to the Bioavailability Assigned Patent Rights, for uses outside the
Inhale Field, and (iii) as to the Designated Products or their use; and (c) shall inform
Alliance promptly of the allowance and issuance of each patent within the Assigned Patent
Rights, Designated Product Patent Rights, MediSpheresTM Assigned Patent Rights or
Bioavailability Assigned Patent Rights, together with the date and patent number thereof,
and shall provide Alliance with a copy of such patent as issued.  







	 	        5.1.2    
Inhale shall use its commercially reasonable efforts to obtain the strongest commercially
reasonable patent protection (under the circumstances) for applications of the Assigned
Patent Rights, MediSpheresTM Assigned Patent Rights and Bioavailability Assigned
Patent Rights for Liquid Dose Instillation and, as to the Bioavailability Assigned Patent
Rights, for applications outside the Inhale Field (collectively, “Applications”).
Inhale (a) shall inform Alliance promptly of any substantive action or proposed action
with respect to any Applications and shall provide Alliance with advance copies of all
proposed responses thereto reasonably in advance of any proposed action and shall
implement all reasonable requests of Alliance relating to the Applications; (b) shall not
abandon or materially narrow the substantive claims of the Assigned Patent Rights,
MediSpheresTM Assigned Patent Rights or Bioavailability Assigned Patent Rights with
respect to any Applications without the prior express written consent of Alliance (which
shall not be unreasonably withheld or delayed) unless Inhale first files a continuation
of such application claiming the subject matter of the application to be abandoned or
materially narrowed; (c) shall provide Alliance with copies of all filings and
submissions, together with all correspondence with the applicable patent authorities,
regarding the Assigned Patent Rights, MediSpheresTM Assigned Patent Rights and
Bioavailability Assigned Patent Rights; and (d) shall prosecute all reexaminations and
reissues of the Assigned Patent Rights, MediSpheresTM Assigned Patent Rights and
Bioavailability Assigned Patent Rights relating to any Applications as reasonably
requested by Alliance.  








14 









CONFIDENTIAL TREATMENT
REQUESTED 




	 	        5.1.3   
If requested by Alliance and to the extent commercially practicable, Inhale shall seek
separate divisionals and continuations for claims under the Assigned Patent Rights,
MediSpheresTM Assigned Patent Rights and Bioavailability Assigned Patent Rights for
Liquid Dose Instillation and, as to the Bioavailability Assigned Patent Rights, for
applications outside the Inhale Field. With respect to each such patent application and
patent issuing therefrom within the Assigned Patent Rights, MediSpheresTM Assigned
Patent Rights or Bioavailability Assigned Patent Rights that solely claims an application
or use for Liquid Dose Instillation (or, as to the Bioavailability Assigned Patent
Rights, for applications outside the Inhale Field), Alliance shall, at its sole cost and
in its sole discretion, assume control of the preparation, filing, prosecution and
maintenance of such patent application or patent. For any patent application or patent
for which Alliance assumes such responsibility under this Section 5.1.3, Alliance (a)
shall consult with Inhale regarding the prosecution and maintenance of such Assigned
Patent Rights, MediSpheresTM Assigned Patent Rights or Bioavailability Assigned
Patent Rights, and (b) shall inform Inhale promptly of any substantive action or proposed
action with respect to such Assigned Patent Rights, MediSpheresTM Assigned Patent
Rights or Bioavailability Assigned Patent Rights and shall provide Inhale with advance
copies of all proposed responses thereto at least ten (10) business day in advance of any
proposed action. Notwithstanding the foregoing, if Alliance proposes to make any
statement or take any action that is reasonably likely to have a material adverse effect
on Inhale’s ability to obtain issued claims within the Assigned Patent Rights,
MediSpheresTMAssigned Patent Rights or Bioavailability Assigned Patent Rights with
application in the Inhale Field, and during such ten (10) business day period, Inhale
gives reasonably specific written notice thereof stating reasonably acceptable grounds
therefor, Alliance shall not make such statement or take such action.  







	 	        5.1.4    
If Inhale elects to abandon any patent application (for which it does not file a
continuation application), or not to pursue the filing of any foreign patent application
or maintain any patent within the Assigned Patent Rights, Designated Product Patent
Rights, MediSpheresTM Assigned Patent Rights or Bioavailability Assigned Patent
Rights that relates solely to uses for Liquid Dose Instillation or any Designated Product
(or, as to the Bioavailability Assigned Patent Rights, for applications outside the
Inhale Field), Inhale shall give Alliance written notice thereof not less than sixty (60)
days prior to the last day permitted to timely continue such patent application or to
maintain such patent and protect its rights under this Section 5.1.4. Alliance shall have
the right, at its sole cost and in its sole discretion, to assume control of the
preparation, filing, prosecution (including oppositions) and maintenance of such patent
application or patent. With respect to each patent application or patent for which
Alliance assumes control pursuant to this Section 5.1.4, Inhale promptly shall assign to
Alliance all right, title and interest therein, and thereafter each such patent
application or patent no longer shall be included within the Assigned Patent Rights,
Designated Product Patent Rights, MediSpheresTM Assigned Patent Rights or
Bioavailability Assigned Patent Rights.  








15 









CONFIDENTIAL TREATMENT
REQUESTED 




	 	        5.1.5    
Each party shall cooperate with the other, execute all lawful papers and instruments and
make all rightful oaths and declarations as may be necessary in the preparation, filing,
prosecution and maintenance of the Assigned Patent Rights, Designated Product Patent
Rights, MediSpheresTM Assigned Patent Rights and Bioavailability Assigned Patent
Rights.  







        5.2    
Enforcement of Patent Rights. Each party shall notify the other party of any
infringement known to such party of any [CONFIDENTIAL TREATMENT REQUESTED] and shall
provide the other party with the available evidence, if any, of such infringement.  




	 	        5.2.1    
Subject to the provisions of Sections 5.2.2 and 5.2.3 below, Inhale shall have the right,
at its sole cost and in its sole discretion, to determine the appropriate course of
action to enforce the [CONFIDENTIAL TREATMENT REQUESTED] or otherwise abate the
infringement thereof, to take (or refrain from taking) appropriate action to enforce the
[CONFIDENTIAL TREATMENT REQUESTED], to control any litigation or other enforcement action
and to enter into, or permit, the settlement of any such litigation or other enforcement
action with respect to the [CONFIDENTIAL TREATMENT REQUESTED], and shall consider, in
good faith, the interests of Alliance in so doing.  







	 	        5.2.2    
Except as provided in the last sentence of this Section 5.2.2, Alliance shall have the
right, at its sole cost and in its sole discretion, to determine the appropriate course
of action to enforce one or more patents within the [CONFIDENTIAL TREATMENT REQUESTED] or
otherwise abate the infringement thereof, to take (or refrain from taking) appropriate
action to enforce the [CONFIDENTIAL TREATMENT REQUESTED] to control any litigation or
other enforcement action with respect to one or more patents within the [CONFIDENTIAL
TREATMENT REQUESTED], and shall consider, in good faith, the interests of Inhale in so
doing. Inhale shall have the right in its sole discretion and at its cost, to jointly
defend any challenge to the validity, enforceability or scope of the [CONFIDENTIAL
TREATMENT REQUESTED] under this section 5.2.2. Alliance may exercise its rights under
this Section 5.2.2 only on a [CONFIDENTIAL TREATMENT REQUESTED] basis; Alliance shall not
settle any action or otherwise consent to an adverse judgment in any such action that
diminishes the rights of Inhale in the [CONFIDENTIAL TREATMENT REQUESTED] without the
prior written consent of Inhale. All monies recovered upon final judgment or settlement
of any such suit to enforce the [CONFIDENTIAL TREATMENT REQUESTED] as permitted under
this Section 5.2.2 shall first be allocated to reimburse each party’s expenses
incurred in conducting such action and then allocated between the parties in proportion
to their respective damages incurred by reason of such infringement, as determined in
such suit, or as agreed upon in such settlement.  








16 









CONFIDENTIAL TREATMENT
REQUESTED 




	 	        5.2.3    
If Alliance learns that a Third Party is infringing the [CONFIDENTIAL TREATMENT
REQUESTED] by making and selling a product competitive with a Designated Product, it may
request that Inhale enforce the [CONFIDENTIAL TREATMENT REQUESTED] against such Third
Party. If the parties agree that such Third Party’s actions infringe a [CONFIDENTIAL
TREATMENT REQUESTED] and that such infringement is material [CONFIDENTIAL TREATMENT
REQUESTED], then Inhale shall have the first right, but not the obligation, to enforce
the [CONFIDENTIAL TREATMENT REQUESTED] or otherwise abate the infringement thereof, and
to enter into, or permit, the settlement of any such litigation or other enforcement
action with respect to the [CONFIDENTIAL TREATMENT REQUESTED] against such Third Party,
at Inhale’s cost. If Inhale does not bring such action within one hundred eighty
(180) days after the parties agree that such infringement exists and is material, then
Alliance may enforce the [CONFIDENTIAL TREATMENT REQUESTED] or otherwise abate the
infringement thereof by such Third Party, at Alliance’s cost, and Inhale may
participate in such suit at its cost. Neither party shall settle any such suit or
otherwise take any action in such suit that would affect the scope or validity of the
[CONFIDENTIAL TREATMENT REQUESTED] or otherwise adversely affect the other party without
the other party’s prior written consent. All monies recovered upon final judgment or
settlement of any such suit to enforce the [CONFIDENTIAL TREATMENT REQUESTED] as
permitted under this Section 5.2.3 shall first be allocated to reimburse each party’s
expenses incurred in conducting such action and then allocated between the parties in
proportion to their respective damages incurred by reason of such infringement, as
determined in such suit, or as agreed upon in such settlement.  







	 	        5.2.4    
Notwithstanding the foregoing, the non-controlling party shall reasonably cooperate with
the controlling party, at the expense of the controlling party, in the planning and
prosecution of any action to enforce the [CONFIDENTIAL TREATMENT REQUESTED] as set forth
above. Each party shall keep the other party and its counsel reasonably informed as to
the status of any such action.” 







	7. 	Alliance’s
Product Development Eights. 






        7.1    
Effect Of This Supplemental Agreement. Following the Closing Date, the definitions
set forth in this Supplemental Agreement will apply with full force and effect to the
PDRA for all purposes. The effect of this Supplemental Agreement is to amend, clarify,
and limit the scope of the product development rights granted by Inhale to Alliance under
the PDRA. As amended by this Supplemental Agreement, the PDRA remains in full force and
effect.  




        7.2    
Amendments To The PDRA.  





17 








CONFIDENTIAL TREATMENT
REQUESTED 




            (a)              The
“Whereas” clauses of the PDRA are hereby deleted in their entirety
          and replaced with the following: “WHEREAS, Alliance and Inhale have
entered           into a Supplemental Agreement dated as of March 15, 2002 (the “Supplemental
          Agreement”), pursuant to which the product development rights granted to
          Alliance in connection with the Asset Purchase Agreement and this Agreement
have           been substantially altered and amended.” 




            (b)              Section
3.1 of the PDRA is hereby deleted in its entirety and replaced with the
          following:  




	 	        “3.1
Product Development Rights. 







	 	        (a)                      Subject
to the last sentence of this Section 3.1(a), in the [CONFIDENTIAL
               TREATMENT REQUESTED] following the Closing of the Supplemental Agreement,
               Alliance shall have the right (a “Product Development Right”) to
(i)                select, on a [CONFIDENTIAL TREATMENT REQUESTED] for development and
               commercialization of products in the Inhale Field which are manufactured
by                means of or incorporate PulmoSphere® Technology, MediSpheresTM               Technology,
and/or Bioavailability Technology, or (ii) initiate Phase II trials                on up
to four products in the Inhale Field which are manufactured by means of or
               incorporate PulmoSphere® Technology, MediSpheresTM Technology,
and/or                Bioavailability Technology, whichever comes first. Alliance may not
exercise                Product Development Rights under this Section without first
obtaining from                Inhale a Product Development Rights License under the
procedures set forth in                Section 3.2 of this Agreement. Alliance shall not
have the right to exercise any                additional Product Development Rights
granted to Alliance under this Agreement                following the earliest of (i) the
date on which Alliance has initiated                development on [CONFIDENTIAL
TREATMENT REQUESTED]; (ii) the date on which                Alliance has initiated Phase
II trials on four products; or (iii) [CONFIDENTIAL                TREATMENT REQUESTED]
from the Closing Date of the Supplemental Agreement                (although none of
these events shall disrupt the continuing exercise of Product                Development
Rights that have been initially exercised prior thereto).                Alliance’s
Product Development Rights granted under this Agreement are                subject to
termination as provided in Section 9.7 of the Asset Purchase                Agreement.  







	 	        (b)                      The
Product Development Rights granted to Alliance under Section 3.1(a) apply
               only to [CONFIDENTIAL TREATMENT REQUESTED] together with any Immune
Modulator                that can be included in such Designated Product (a “Combination”)
               without requiring the entity or entities commercializing such product to
obtain                regulatory approval of such [CONFIDENTIAL TREATMENT REQUESTED] as a
single drug                prior to obtaining regulatory approval of a Designated Product
containing such                [CONFIDENTIAL TREATMENT REQUESTED]. Alliance may exercise
Product Development                Rights only with respect to [CONFIDENTIAL TREATMENT
REQUESTED] that are                proprietary compounds protected by a claim in a
pending patent application or an                unexpired, enforceable claim in an issued
patent. In the event Alliance                exercises a Product Development Right for a
Combination, Inhale shall be free to                develop and commercialize, either
itself or with a third party, products                containing as an active agent, only
either such [CONFIDENTIAL TREATMENT                REQUESTED] or such [CONFIDENTIAL
TREATMENT REQUESTED]; provided, however, that                nothing in this sentence
shall be deemed to grant Inhale any implied license                under Alliance’s
proprietary technologies. Furthermore, Alliance may                exercise a Product
Development Right for a product only if it owns or controls                rights
necessary to make, use and sell such product in the United States or in
               four (4) of the remaining six (6) Major Countries at the time of such
exercise.  








18 









CONFIDENTIAL TREATMENT
REQUESTED 




	 	        (c)                      As
of March 15, 2002, Alliance has [CONFIDENTIAL TREATMENT REQUESTED] under
               development for which Alliance must seek Product Development Rights from
Inhale                under this Agreement. Alliance can continue these programs only if
(i) Alliance                discloses the identity of the [CONFIDENTIAL TREATMENT
REQUESTED] under                development to Inhale prior to the grant by Inhale to
Alliance of any Product                Development Rights License with respect to those
molecules, and (ii) the                molecules under development qualify under Section
3.1(b) of the PDRA as                originally executed by the Parties. Alliance waives
any Call Rights that it may                have had with respect to these molecules under
the PDRA as originally drafted                and waives the right to require Inhale to
perform development work for Alliance,                but Alliance retains the right to
develop and commercialize the molecules                without product development work
by Inhale if Inhale grants a Product                Development Rights License with
respect to the molecules under Section 3.2 of                this Agreement. The
[CONFIDENTIAL TREATMENT REQUESTED] that are the subject of                this Section
will count against the total of [CONFIDENTIAL TREATMENT REQUESTED]                set
forth in Section 3.1(a) if Alliance requests, and Inhale grants to Alliance,
               a Product Development Rights License under Section 3.2 of this Agreement
with                respect to such molecules.” 








            (c)                  Section
3.2 of the PDRA is hereby deleted in its entirety and replaced with the
          following:  




	 	        “3.2
Notice Mechanism; Excluded Products. 







	 	        (a)                      In
order to exercise a Product Development Right with respect to a product,
               Alliance must receive a product-specific Product Development Rights
License from                Inhale. Alliance shall give written notice to Inhale of such
exercise with a                description of such product and other information in
Alliance’s possession                and control that is reasonably sufficient for
Inhale to decide whether to grant                Product Development Rights to Alliance
under this Section 3.2(a). Alliance must                give such notice before the
initiation of Phase I in order to receive a Product                Development Rights
License. Within forty-five days after Inhale’s receipt                of such notice
and information, Inhale shall either confirm its grant of a                Product
Development Rights License or notify Alliance that it is not granting a
               Product Development Rights License with respect to the proposed product.
Inhale                may reject the proposed product if Inhale reasonably and in good
faith makes one                of the following determinations: (i) Inhale has already
begun development of the                product prior to the date of receipt of the
Alliance notice, either through an                internal development program or with a
partner; (ii) granting a Product                Development Rights License with respect
to the proposed product would constitute                a breach by Inhale of a then
existing agreement to which Inhale is bound; or                (iii) Inhale began
negotiating prior to the date of receipt of the Alliance                notice an
agreement with a prospective customer and believes that the principal
               terms of such an agreement will be agreed upon within ninety days of the
               Alliance notice and granting a Product Development Rights License to
Alliance                would constitute a breach of such agreement if consummated. If
Inhale rejects a                Product Development Rights License for a specific
Alliance product based on a                determination covered by clause (iii), Inhale
shall diligently pursue the                conclusion of such negotiations with the
prospective customer and Inhale shall                notify Alliance promptly if Inhale
concludes that it is not going to execute a                definitive agreement for such
product with such prospective customer.  








19 









CONFIDENTIAL TREATMENT
REQUESTED 




	 	        (b)                      Inhale
will grant Product Development Rights Licenses to Alliance under this
               Agreement on a [CONFIDENTIAL TREATMENT REQUESTED] basis. Products as to
which a                Product Development Rights License has been granted by Inhale
shall constitute                Designated Products. Except in the case of Designated
Products for which Inhale                has granted a specific Product Development
Rights License under this Agreement                or products or compounds involving
Liquid Dose Instillation (as defined in the                Supplemental Agreement) or, as
to the Bioavailability Purchased Assets (as                defined in the Supplemental
Agreement) and any Assignable Improvements regarding                Bioavailability
Technology (as defined in the Supplemental Agreement), for                applications
outside the Inhale Field, Alliance shall not use or sell knowingly
               products or compounds that are made using or that incorporate PulmoSphere®               Technology,
MediSpheresTM Technology, or Bioavailability Technology.  







	 	        (c)                      Alliance
may obtain up to [CONFIDENTIAL TREATMENT REQUESTED] Product Development
               Rights Licenses, but may obtain no additional Product Development Rights
               Licenses after Phase II trials have been initiated with respect to four
               Designated Products or after [CONFIDENTIAL TREATMENT REQUESTED] years have
               elapsed from the Closing Date, whichever is earlier.  







	 	        (d)                      If
Alliance terminates development on a Designated Product, rights with respect
               to the [CONFIDENTIAL TREATMENT REQUESTED] under development revert to
Inhale.                Alliance is not entitled to seek additional Product Development
Rights to                replace rights that have reverted to Inhale as a result of
Alliance’s                termination of development on a Designated Product.” 







            (d)                  Sections
3.3 and 3.4 of the PDRA are hereby deleted in their entirety. Alliance           may seek
to develop Designated Products on its own and is not required to           contract with
Inhale to do so. Except in the case of Liquid Dose Instillation,           Alliance is
not permitted to partner or contract with Competitors of Inhale for           the
development or commercialization of Designated Products in the Inhale Field.
          Alliance may seek to contract with Inhale for the development of Designated
          Products pursuant to a Collaboration Agreement negotiated in good faith by the
          Parties, but Inhale is not required to enter into any Collaboration Agreement.  





20 









CONFIDENTIAL TREATMENT
REQUESTED 




            (e)                  Section
3.5 of the PDRA is hereby deleted in its entirety and replaced with the
          following:  




	 	        “(a)                      Inhale
shall have a right of first offer, either by itself or through a Partner,
               for the manufacture and supply of a Powder Formulation of any Designated
Product                that is [CONFIDENTIAL TREATMENT REQUESTED]. With respect to
Designated Products                that are not [CONFIDENTIAL TREATMENT REQUESTED]
products for which Alliance and                Inhale do not enter into a commercial
supply agreement as provided in this                Section 3.5, Alliance may manufacture
a Powder Formulation of the Active                Substance of the Designated Product
itself or enter into a manufacturing                agreement therefor with a Third Party
that is not a Competitor of Inhale.  







	 	        (b)                      Before
entering into a manufacturing agreement with any Third Party with respect
               to a Powder Formulation of any Designated Product that is [CONFIDENTIAL
               TREATMENT REQUESTED], Alliance will give Inhale notice containing the
terms of                its offer to Inhale to enter into a manufacturing agreement. Such
notice will                include the financial and other material terms which Alliance
is prepared to                accept and, if requested by Inhale, (i) sufficient
information to define the                manufacturing process and (ii) reasonable data
regarding anticipated volume                requirements for the Designated Product. For
the 60-day period following                delivery of such notice, the parties will
negotiate in good faith in an effort                to achieve (and, if applicable,
execute) a definitive manufacturing agreement.                If such an agreement is not
executed prior to the end of such 60-day period,                Alliance may (x) do its
own manufacturing or (y) negotiate and execute a                definitive manufacturing
agreement with one or more Third Parties that are not                Competitors of
Inhale on terms no more favorable, in the aggregate, than the                last terms
offered by Inhale to Alliance. In such an event, Alliance may request                that
Inhale provide reasonable advice regarding whether Alliance’s proposed
               formulation for the relevant Designated Product is compatible with Inhale’s
               proprietary technology for manufacturing a Powder Formulation of such
Designated                Product, and other reasonable technical assistance as may be
relevant to the                manufacture of such product. Any technology transfer to
Alliance or                Alliance’s Third Party manufacturer(s) in connection with
such advice or                assistance shall be governed by a written agreement between
Inhale, Alliance,                and any such Third Party manufacturer(s) in customary
form imposing upon                Alliance and such Third Party manufacturer(s)
obligations of confidentiality and                limitations on use of Inhale’s
proprietary technology for the relevant                Designated Product, which
agreement shall be negotiated and entered into prior                to the transfer of
such technology pursuant to this Section 3.5.” 







            (f)                  Section
3.7 of the PDRA is hereby deleted in its entirety and replaced with the
          following: “The Product Development Rights and other rights described
          herein shall not be transferable by Alliance to any other person, except (i) as
          provided in Section 7.7 and (ii) that Alliance, as to each Designated Product,
          shall have the right at any time after commencement of Phase IIa clinical
trials           for such Designated Product to grant sublicenses under the license
granted to           Alliance for such Designated Product to Third Parties other than
Competitors of           Inhale. Any such right to sublicense includes the right to grant
a sublicense to           use, sell, offer for sale, import, manufacture, or have
manufactured the           relevant Designated Product; provided, however, that the right
to manufacture or           have manufactured a Powder Formulation of the Active
Substance of such           Designated Product shall be suspended to the extent that
Inhale or any Partner           of Inhale is manufacturing such Powder Formulation
pursuant to a manufacturing           agreement entered into as contemplated by Section
3.5. Any sublicensee of           Alliance that manufactures such a Powder Formulation of
the Active Substance           shall be subject to confidentiality obligations and use
limitations with respect           to the Inhale Technology substantially similar to
those provided in the last           sentence of Section 3.5(b).” 





21 









CONFIDENTIAL TREATMENT
REQUESTED 




            (g)                  Section
3.8 of the PDRA is hereby deleted in its entirety and replaced with the
          following: “Further Payments. Other than the payments agreed to by the
          Parties (if any) in any manufacturing agreement contemplated by Section 3.5 or
          any other agreement contemplated by Section 3.6, Alliance shall have no
          obligation to pay Inhale any amounts, by way of royalties or otherwise, in
          connection with the development, manufacture, sale, or use of the [CONFIDENTIAL
          TREATMENT REQUESTED] Designated Products commercialized pursuant to the
exercise           of Product Development Rights. However, if the Parties enter into an
agreement           pursuant to this Article 3 under which Inhale agrees to perform final
container           filling or packaging of a Powder Formulation of a Designated Product,
or to           supply devices to Alliance as provided in Section 3.6, then such
agreement shall           provide for additional payments to Inhale as the parties may
mutually agree that           will provide Inhale reasonable and customary compensation
for a license under           Inhale’s proprietary technology covering or including
such Other Inhale           Technology. In addition to the payments referred to above,
Alliance shall pay           Inhale a royalty equal to [CONFIDENTIAL TREATMENT REQUESTED]
of Net Sales of any           Designated Products after the [CONFIDENTIAL TREATMENT
REQUESTED] Designated           Products sold by Alliance or its Affiliates or Partners.
Alliance shall make           royalty payments to Inhale (by wire transfer) within thirty
days after the end           of each calendar quarter in which Net Sales occur.  




Upon the request of Inhale, Alliance
shall permit Inhale and its representatives, for purposes of auditing the performance of
Alliance under this Section 3.8, to have access (i) during normal business hours to such
of the records of Alliance as may be reasonably necessary to verify such performance of
Alliance and (ii) to any Partners. If any such audit reveals that any payment required by
this Section 3.8 shall have been deficient, Alliance shall immediately pay to Inhale the
amount of any such deficiency plus interest from the date otherwise due at the lesser of
18% per annum or the maximum rate permitted under applicable law. If any such deficiency
shall be greater than five percent of the amount actually owed, Alliance shall immediately
reimburse Inhale for the costs of such audit (including, without limitation, the fees of
any accounting firm employed by Inhale for such purpose).” 



            (h)                  Section
3.9 of the PDRA is hereby deleted in its entirety and replaced with the
          following: “Each Product Development Rights License shall become effective
          with respect to the related Designated Product on a worldwide basis.
          Notwithstanding the foregoing, if, as of the second anniversary of the grant
          date for any Product Development Rights License, Alliance (or a sublicensee)
          does not own or acquire rights to any patent applications or patents covering
          the related Designated Product and the use thereof outside of Liquid Dose
          Instillation in the United States and four (4) of the remaining Major Countries
          (other than pursuant to the License to Alliance), then effective as of such
          date, such license granted to Alliance for such Designated Product shall revert
          to Inhale with respect to those Major Countries in which Inhale has Designated
          Product Patent Rights covering such Designated Products and the use thereof
          outside of Liquid Dose Instillation and in which Alliance does not own or
          possess rights under patent applications or patents covering such Designated
          Product in such countries (other than pursuant to the License to Alliance),
          without otherwise affecting such license granted to Alliance (or a sublicensee)
          for such Designated Product with respect to all other countries.” 





22 









            (i)                  The
trademark MediSpheresTM is added to Section 3.11 of the PDRA for all
          purposes.  




            (j)                  Section
7.7 of the PDRA is hereby deleted in its entirety and replaced with the
          following: “Except as otherwise expressly provided under this Agreement,
          neither this Agreement nor any right or obligation hereunder may be assigned or
          otherwise transferred (whether voluntarily, by operation of law, or otherwise),
          without the prior express written consent of the other party; provided,
however,           that either party may, without such consent, assign this Agreement and
its           rights and obligations hereunder in connection with the transfer or sale of
all           or substantially all of its business to which this Agreement relates, or in
the           event of a merger, consolidation, change in control, or similar
transaction; and           further provided, that in the event of a transfer or sale of
all or           substantially all of Alliance’s business to which this Agreement
relates,           or in the event of a merger or consolidation in which Alliance is not
the           acquiring or surviving entity and in which the stockholders of Alliance
          immediately prior to such event do not own at least a majority of the voting
          power of the acquiring or surviving entity, Alliance will forfeit any unused
          Product Development Rights (i.e., its right to seek any further Product
          Development Rights Licenses with respect to additional [CONFIDENTIAL TREATMENT
          REQUESTED]) regardless of whether Alliance’s rights thereto have otherwise
          expired under the terms of this Agreement; and further provided, that in no
          event shall Alliance assign this Agreement or its rights and obligations
          hereunder to a Competitor of Inhale or shall Inhale assign its rights under
this           Agreement to an entity that has fewer than two hundred employees without
          Alliance’s prior written consent, not to be unreasonably withheld.
          Notwithstanding the foregoing, Alliance may only assign its rights and
          obligations under this Agreement to a party that provides adequate assurance of
          future performance in form and substance satisfactory in Inhale, and Inhale may
          only assign its obligations under this Agreement to a third party in
conjunction           with an assignment of sufficient rights under the PulmoSphere® Technology,
          the MediSpheresTM Technology, and the Bioavailability Technology necessary
          for the performance of its obligations hereunder. Any permitted assignee shall
          assume all obligations of its assignor under this Agreement. Any purported
          assignment or transfer in violation of this Section 7.7 shall be void.” 




	8. 	Alliance’s
Escrow Obligations. 






        8.1    
Effect Of This Supplemental Agreement. Following the Closing Date, the definitions
set forth in this Supplemental Agreement will apply with full force and effect to the
Escrow Agreement for all purposes. The effect of this Supplemental Agreement is to
clarify and broaden the scope of Alliance’s obligations under the Escrow Agreement.
As amended by this Supplemental Agreement, the Escrow Agreement remains in full force and
effect.  




23 










CONFIDENTIAL TREATMENT
REQUESTED 




        8.2    
Previously Requested Information. On the Closing Date, Alliance will place into
escrow with DSI Technology Escrow Services, Inc. pursuant to the terms of the APA and the
Escrow Agreement the following: (a) the original laboratory notebooks of Alliance
employees relating to the [CONFIDENTIAL TREATMENT REQUESTED] and included in the
Purchased Assets; and (b) a copy of Alliance’s preclinical toxicology and safety
studies and human safety studies directly related to or necessary for the use or
development of the [CONFIDENTIAL TREATMENT REQUESTED], and in particular the use of
[CONFIDENTIAL TREATMENT REQUESTED], and additional data owned or controlled by Alliance
directly relating to the use or development of the [CONFIDENTIAL TREATMENT REQUESTED],
including but not limited to (i) [CONFIDENTIAL TREATMENT REQUESTED] invention
disclosures; (ii) LiquiVent toxicology studies; (iii) clinical safety data in support of
long-term stability of [CONFIDENTIAL TREATMENT REQUESTED]; (iv) overview of material
compatibility for [CONFIDENTIAL TREATMENT REQUESTED]; (v) [CONFIDENTIAL TREATMENT
REQUESTED] -related safety studies; (v) AFO 160 clinical raw data, including data on
aerosol testing (reports from Magellan), chemical stability, cleaning verification, etc.;
(vi) analytical methods for [CONFIDENTIAL TREATMENT REQUESTED] and [CONFIDENTIAL
TREATMENT REQUESTED] analysis in blood/tissues; (vii) reports on nitrogen blowing agent
process; (viii) schematics for high pressure nozzle; (ix) certain historical batch
production records for OxygentTM production (as reasonably determined by both
Parties); and (x) history files/logbook for the Propellant capping and filling station.  




        8.3    
Information On MediSpheresTM and Bioavailability Technology. Within twelve
months of the Closing Date of this Supplemental Agreement, Inhale may request that
Alliance place into escrow a copy of Alliance’s [CONFIDENTIAL TREATMENT REQUESTED]
related to the development of the MediSpheresTM Technology and the Bioavailability
Technology. From time to time, Inhale may request that Alliance place into escrow copies
of such additional data owned or controlled by Alliance directly related to the
development of the MediSpheresTMTechnology and the Bioavailability Technology.
Alliance will honor such requests within thirty days.  




	9. 	Supply
of Perflubron. 






        9.1    
Initial Purchase. On the Closing Date, Alliance will supply Inhale with
[CONFIDENTIAL TREATMENT REQUESTED] metric tons of Perflubron.  




        9.2    
Inhale’s Option. Inhale shall have an option, exercisable within one year of
the Closing Date, to purchase from Alliance up to an additional [CONFIDENTIAL TREATMENT
REQUESTED] metric tons of Perflubron, in units of not less than [CONFIDENTIAL TREATMENT
REQUESTED] metric tons, at a price of [CONFIDENTIAL TREATMENT REQUESTED] per metric ton.
In the event Inhale exercises the option but does not purchase all twelve metric tons of
Perflubron in a single purchase, Inhale may purchase any portion of the remaining balance
of the [CONFIDENTIAL TREATMENT REQUESTED] metric tons, in units of approximately
[CONFIDENTIAL TREATMENT REQUESTED] metric tons, at any time prior to the expiration of
the twelve-month period following the Closing Date. Inhale’s option can be extended,
at Inhale’s request at any time during the initial twelve-month period, for an
additional six months, in which case the price per metric ton for Perflubron purchased
during the extended option period will be [CONFIDENTIAL TREATMENT REQUESTED].  





24 










        9.3    
Application Of The APA. All purchases of Perflubron under this Supplemental
Agreement will be subject to the provisions of Sections 1.3, 10.6(b), 10.6(e), and 11.2
of the APA and to the title, risk of loss, and warranty provisions of Section 10.6(c) of
the APA.  




	10. 	Dismissal
Of The Arbitration. 






        Promptly
following the Closing Date, Inhale will cause its counsel in the Arbitration to dismiss
the Arbitration. 



	11. 	Releases. 






        11.1    
Inhale Releases. In consideration of Alliance’s agreement to resolve the
Arbitration on the terms set forth in this Supplemental Agreement, the execution of this
Supplemental Agreement by Alliance, the satisfaction of the obligations of Alliance under
this Supplemental Agreement, and the consummation of the transactions set forth in this
Supplemental Agreement, and in consideration of the Alliance Release set forth in Section
11.2, the receipt, performance and sufficiency of which are hereby acknowledged, Inhale,
for itself and its divisions, subsidiaries, and affiliates and their successors and
assigns, hereby releases, and forever discharges Alliance; its successors, assigns,
divisions, subsidiaries, and affiliates; their present and former officers, directors,
shareholders, employees, attorneys and agents; and each of them (hereinafter collectively
termed the “Alliance Releasees”) from any and all manner of claims, demands,
damages, actions, causes of action, contracts, agreements, charges, sums of money, claims
for attorneys’ fees, and lawsuits of every kind and description, whether known or
unknown, now existing or which may hereafter arise against the Alliance Releasees, or any
of them, under the laws of the United States, any State thereof, or any other
jurisdiction based upon, arising out of or having connection in any way whatsoever with
[CONFIDENTIAL TREATMENT REQUESTED].  




        11.2    
Alliance Release. In consideration of Inhale’s agreement to resolve the
Arbitration on the terms set forth in this Supplemental Agreement, the execution of this
Supplemental Agreement by Inhale, the satisfaction of the obligations of Inhale under
this Supplemental Agreement and the consummation of the transactions set forth in this
Supplemental Agreement, and in consideration of the Inhale Release set forth in Section
11.1, the receipt, performance, and sufficiency of which are hereby acknowledged,
Alliance, for itself and its divisions, subsidiaries, and affiliates and their successors
and assigns, hereby releases, and forever discharges Inhale; its successors, assigns,
divisions, subsidiaries, and affiliates; their present and former officers, directors,
shareholders, employees, attorneys and agents; and each of them (hereinafter collectively
termed the “Inhale Releasees”) from any and all manner of claims, demands,
damages, actions, causes of action, contracts, agreements, charges, sums of money, claims
for attorneys’ fees, and lawsuits of every kind and description, whether known or
unknown, now existing or which may hereafter arise against the Inhale Releases, or any of
them, under the laws of the United States, any State thereof, or any other jurisdiction
based upon, arising out of or having connection in any way whatsoever with [CONFIDENTIAL
TREATMENT REQUESTED].  




25 










     12.        
          Enforcement. The Parties agree that all disputes arising out of or
          relating to this Supplemental Agreement will be subject to the dispute
          resolution provisions of the 1999 Agreements. 



	13.  	Miscellaneous. 






        13.1    
Notices. All notices, requests, waivers, releases, consents, and other
communications required or permitted by this Supplemental Agreement (collectively, “Notices”)
must be given in writing. Notices will be deemed sufficiently given for all purposes when
delivered in person or when dispatched by electronic facsimile transmission or upon
confirmation of receipt when dispatched by a nationally recognized overnight courier
service to the appropriate party as follows: (a) If to Inhale, at 150 Industrial Road,
San Carlos, CA 94070, to the attention of the General Counsel, with a copy to Richard I.
Werder, Jr., Jones, Day, Reavis & Pogue, North Point, 901 Lakeside Avenue, Cleveland,
Ohio 44114, and (b) if to Alliance, at 3040 Science Park Road, San Diego, CA 92121, to
the attention of the President and Chief Operating Officer, with a copy to Mike Hird,
Pillsbury Winthrop LLP, 11682 El Camino Real, Suite 200, San Diego, California 92130.  




        13.2    
Amendment And Waiver. This Supplemental Agreement may be amended, modified,
waived, discharged, or terminated only by an instrument in writing signed by all Parties.  




        13.3    
Survival Of Representations And Warranties. All representations and warranties
contained herein will survive the execution and delivery of this Supplemental Agreement
and the Closing Date; provided, however, that the representations and warranties made by
Alliance in this Supplemental Agreement (including, without limitation, the
representations and warranties set forth in Section 4.5) shall survive the Closing solely
for, and shall expire, two years after the Closing Date and any liability of Alliance
with respect to such representations and warranties shall thereupon cease; provided,
further, that if, at any time prior to such second anniversary of the Closing Date,
Inhale (acting in good faith) shall deliver a written notice to Alliance alleging the
breach by Alliance of any such representation or warranty, then the representations and
warranties of Alliance in this Supplemental Agreement, but solely as they relate to the
claim asserted, shall survive until such time as such claim is resolved.  




        13.4    
Successors And Assigns. This Supplemental Agreement will be binding upon and inure
to the benefit of the Parties and their respective successors and permitted assigns, but
will not be assignable or delegable by any Party without the prior written consent of
each other Party. In the absence of such prior written consent, any purported assignment
or delegation of any right or obligation hereunder will be null and void.  




        13.5    
Rights Of The Parties. Nothing expressed or implied in this Supplemental Agreement
is intended or will be construed to confer upon or give any person or entity other than
the Parties any rights or remedies under or by reason of this Supplemental Agreement or
any transaction contemplated hereby.  




26 









CONFIDENTIAL TREATMENT
REQUESTED 




        13.6    
Expenses. Each of the Parties to this Supplemental Agreement will bear its own
expenses incurred in connection with this Supplemental Agreement and the transactions
contemplated hereby.  




        13.7    
Titles And Headings. Titles and headings to Sections herein are inserted for
convenience of reference only, and are not intended to be part of or to affect the
meaning or interpretation of this Supplemental Agreement.  




        13.8    
Entire Agreement. This Supplemental Agreement, together with its Exhibits,
constitutes the entire agreement between the Parties hereto with respect to the subject
matter hereof, and there are no agreements among the Parties hereto with respect thereto
except as expressly set forth herein.  




        13.9    
Severability. In case any provision contained in this Supplemental Agreement is
invalid or unenforceable, the validity and enforceability of the remaining provisions
will not in any way be affected or impaired thereby.  




        13.10    
Governing Law. This Supplemental Agreement will be governed by and construed in
accordance with the laws of the State of California.  




        13.11    
Counterparts. This Supplemental Agreement may be executed in any number of
counterparts, each of which so executed will be deemed to be an original; such
counterparts will together constitute but one agreement.  




        IN
WITNESS WHEREOF, the Parties hereto have duly executed this Supplemental Agreement as of
this 15 day of March, 2002. 



		ALLIANCE PHARMACEUTICAL CORPORATION
	

 	By: ______________________________________
	 	Its:______________________________________
	

 	INHALE THERAPEUTIC SYSTEMS, INC.
	
 	By: ______________________________________
		Its:______________________________________











27 









CONFIDENTIAL TREATMENT
REQUESTED 




EXHIBIT A 



Report Title: 



During 2000 all reports and data were
incorporated into the following quarterly reports: 



	|_|  	Quarterly
Report 1 and 2 for Alliance Pharmaceutical Corp. Dept. For Biological Research: January 1
-          March 31, 2000;






	|_|  	Quarterly
Report 1 and 2  For Biological Research: April 1 - June 30 , 2000;






	|_|  	Quarterly
Report 1 For Biological Research: July 1 - September 30, 2000.






For periods after September 30, 2000, draft
reports will be placed into escrow and supplemented by final reports when completed. 



Invention Disclosures: 



	 	1) 	[CONFIDENTIAL
TREATMENT REQUESTED] 











CONFIDENTIAL TREATMENT
REQUESTED 




EXHIBIT B 



Laboratory Notebooks: 



	Assignee	Notebook Number
	
[CONFIDENTIAL TREATMENT REQUESTED]  	# 1196
	
 	# 1216












CONFIDENTIAL TREATMENT
REQUESTED 




EXHIBIT C 



Report Title: 



During 2000 all reports and data were
incorporated into the following quarterly reports: 



	|_|  	Quarterly
Report  1 and 2 for Alliance Pharmaceutical Corp. Dept. For Biological        Research:
January 1 - March 31, 2000;






	|_|  	Quarterly
Report 1 and 2  For Biological Research: April 1 - June 30 , 2000;






	|_|  	Quarterly
Report 1 For Biological Research: July 1 - September 30, 2000.






For periods after September 30, 2000, draft
reports will be placed into escrow and supplemented by final reports when completed. 



Invention Disclosures: 



	 	1)	[CONFIDENTIAL
TREATMENT REQUESTED]











CONFIDENTIAL TREATMENT
REQUESTED 




EXHIBIT D 



Laboratory Notebooks: 


	Assignee	Notebook Number
	
[CONFIDENTIAL TREATMENT REQUESTED]	# 1196
	
 	# 1216
	
[CONFIDENTIAL TREATMENT REQUESTED]	# 1183
	
[CONFIDENTIAL TREATMENT REQUESTED]	# 1127
	
 	# 1211
	
[CONFIDENTIAL TREATMENT REQUESTED]	# 1162
	
 	# 1172
	
 	# 1186
	
 	# 1218