Document:

<PAGE>
                                                                  EXHIBIT 10.38

                                                       February 18, 2002

Mr. David A. Byron
17674 Lasiandra Drive
Chesterfield, Missouri 63017

Dear David:

            This letter follows up on the discussions we have had recently
concerning the mutually agreeable separation of your employment for reasons
other than cause with Sheffield Pharmaceuticals, Inc. (the "Company"). To assist
you in your transition, the Company is offering to you certain severance and
other benefits in exchange for the general release of claims and other terms set
forth below. The specific terms of the Company's proposed agreement (the
"Agreement") are as follows:

            1. TERMINATION OF EMPLOYMENT. The effective date of your termination
shall be January 11, 2002 (the "Termination Date"). The Company will pay you all
wages earned and any accrued and unused vacation time in accordance with Company
policy through your Termination Date. For the period from the date of this
letter through your Termination Date, you will continue to perform your duties
and responsibilities in your current position; provided however that the Company
may at any time and in its sole discretion request that you vacate the Company's
premises and cease performing any duties for the Company. In such event, the
Company shall remain obligated to pay to you all wages due to you through your
Termination Date.

            2. SEVERANCE PAY. The Company will continue to pay your base salary,
as in effect on your Termination Date, for a period of nine months following
your Termination Date, subject to appropriate tax withholdings and authorized
deductions, in accordance with the Company's regular payroll practices and
regular pay schedule.

            3. BENEFIT CONTINUATION.

                        (a) Death and Disability Insurance. The Company will
continue to pay the full premium cost of Company-sponsored death and/or
disability insurance coverage for you in effect as of your Termination Date, if
any, for a period of nine months following your Termination Date. Your rights
and obligations under such insurance plans shall be governed by the specific
terms of the plans. In the event you obtain comparable death and/or disability
insurance coverage through other employment prior to the expiration of the nine
month period of continuation coverage described herein, the Company's obligation
to continue to provide such coverage shall cease as of the effective date of
such comparable coverage. For purposes of this agreement, comparable coverage
shall be deemed to include, at a minimum, coverage at the same benefit level at
no cost to you. Should you obtain such comparable coverage, you agree to
promptly notify the Company's Chief Executive Officer in writing at the
Company's headquarters.

                        (b) Health and Dental Insurance. Upon the termination of
your employment, you and your dependents may be eligible to continue your health
and/or dental insurance coverage under Company-sponsored plans, if any, pursuant
to the federal law known as COBRA. In the event you elect COBRA continuation
coverage, the Company will pay the full premium cost and any administrative fee
for such continuation coverage for a period of nine months following your
Termination Date. After that time, you will become responsible for the full
premium cost and any administrative fee for such continuation coverage. You
understand and acknowledge that it is solely your responsibility to elect COBRA
continuation coverage if you desire such coverage. Your rights and obligations
under such insurance plans shall be governed by the specific terms of the plans
and COBRA. Information concerning COBRA rights, coverage and election will be
sent to you under separate cover. In the event you and/or your dependent(s)
become ineligible for COBRA continuation coverage during the nine month period
of premium payments described herein, the Company shall reimburse you for the
premium cost of health and/or dental insurance coverage at the same monthly rate
the Company would have paid for COBRA continuation coverage had you and/or your
dependents remained eligible for such coverage. In the event you obtain
comparable health and/or dental insurance

                                       1
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coverage through other employment prior to the expiration of the nine month
period of premium payments described herein, the Company's obligation to
continue to provide such premium payments shall cease as of the effective date
of such comparable coverage. For purposes of this agreement, comparable coverage
shall be deemed to include, at a minimum, coverage at the same benefit level at
no cost to you. Should you obtain such comparable coverage, you agree to
promptly notify the Company's Chief Executive Officer in writing at the
Company's headquarters.

                        (c) Other Benefits. Except as specifically set forth in
this Agreement, your right to, and participation in, all employee benefit plans
of the Company shall terminate as of your Termination Date in accordance with
the specific terms of each plan; provided however, and notwithstanding anything
to the contrary herein, in no event shall you have any right to any benefits
upon a change in control, except with respect to the specific benefits set forth
in this Agreement.

            4. STOCK OPTIONS. Except as provided in this paragraph 4, your
interest in and rights in your Vested Stock Options (as defined and set forth in
Exhibit A) shall be governed by and be subject to all conditions, terms and
restrictions contained in the Company's 1993 Stock Option Plan, as amended from
time to time ("the Plan"), and the option letter agreements dated April 25, 1997
(denoted as Exhibits A-1, A-2 and B to your Employment Agreement dated April 25,
1997, a copy of which is attached hereto as Exhibit B (the "Employment
Agreement")), the option letter agreement dated August 28, 1998 (a copy of which
is attached hereto as Exhibit C) and the option letter agreement dated March 1,
2000 (a copy of which is attached hereto as Exhibit D). Your rights with respect
to your Stock Options shall be fixed as of your Termination Date and pursuant to
this Agreement. With respect to the option letter agreements dated April 25,
1997 and denoted as Exhibit A-1 and A-2 to your Employment Agreement, all
250,000 options shall be deemed vested as of your Termination Date and you shall
be entitled to exercise those options on or before January 11, 2003. With
respect to the option letter agreement dated April 25, 1997 and denoted as
Exhibit B to your Employment Agreement, 60,000 options shall be deemed vested as
of your Termination Date and you shall be entitled to exercise those 60,000
options on or before January 11, 2003, and the 90,000 options that would have
been unvested as of your Termination Date shall be accelerated and deemed to
have become fully vested as of your Termination Date and you shall be entitled
to exercise those 90,000 options on or before January 11, 2005. With respect to
the option letter agreement dated August 28, 1998, you shall be entitled to
exercise, at your election, some or all of the 105,000 options that are vested
as of your Termination Date on a cashless basis (defined below) on the later of
either: (a) your Termination Date; or (b) within five (5) business days
following the expiration of the Revocation Period defined in paragraph 11. For
purposes of this Agreement, the term "Cashless Basis" shall mean that in lieu of
exercising some or all of your 105,000 vested stock options for cash, you shall
be entitled to receive up to a total number of shares of common stock of the
Company computed using the following formulas:

            X  =        35,000 (A - $1.2375) ; and
                        --------------------
                                    A

            X  =        35,000 (A - $2.125) ; and
                        -------------------
                                    A

            X  =        35,000 (A - $3.125)
                        -------------------
                                    A

where X equals the number of shares of common stock to be issued to you and A
equals the fair market value of one share of common stock on the date of
exercise. In addition, you may elect to have the Company withhold from the total
number of shares due under the above formulas a number of shares having a fair
market value equal to the minimum amount necessary to satisfy the Company's
aggregate federal, state, local and foreign tax withholding and FICA and FUTA
obligations due as a result of a Cashless Basis exercise. With respect to the
option letter agreement dated March 1, 2000, you shall be entitled to exercise
the 60,000 options that are vested as of your Termination Date on or before
January 11, 2005. You acknowledge and agree that you shall forfeit any right to
those 30,000 unvested stock options under the option letter agreement dated
March 1, 2000, as shown in Exhibit A hereto. You acknowledge and agree that
there has been no change of control at any time up to and including your
Termination

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Date and that you shall have no rights to accelerated vesting or otherwise upon
any change of control occurring after your Termination Date. The Company agrees
to take any action necessary to effectuate the terms of this paragraph 4.

            5. STOCK PROXY. You agree that at the time you execute this
Agreement, you will execute a proxy for all of your shares of Company common
stock in favor of the President of the Company, Loren G. Peterson, or his
designee, which proxy shall be in the form attached hereto as Exhibit E. The
proxy shall be granted for a term of one year and shall not be limited in scope
of authority.

            6. RETURN OF COMPANY PROPERTY. You agree to return to the Company:
(a) all originals and copies of all proprietary and/or confidential information
and trade secrets of the Company; (b) all originals and copies of customer
files; (c) all identification cards, keys, or other means of access to the
Company; and (d) any other property of the Company in your possession, custody
or control. All Company property must be returned no later than your Termination
Date. The parties acknowledge and agree that Mr. Byron has returned his phone
card and keys on his Termination Date and that Mr. Byron has represented that he
has no other Company property in his possession, custody or control.

            7. NONDISPARAGEMENT. You agree that you will not make disparaging or
adverse remarks about, or refer negatively to your association with the Company,
its parents, subsidiaries, affiliates, officers, directors, trustees, employees
or any other Released Party defined in paragraph 10. The Company agrees that its
Board of Directors and executive officers shall not make disparaging or adverse
remarks about you, or refer negatively to your association with the Company.

            8. NON-FILING OF COMPLAINT OR CHARGES. You represent that you have
not filed or asserted any cause of action, claim, charge or other action or
proceeding against the Company.

            9. COOPERATION. You agree that you will cooperate and assist the
Company in the future in the event that the Company is presented with legal
issues as to which you have relevant information and knowledge. To the extent
such cooperation is required, the Company agrees: (a) to reimburse you for
reasonable out-of-pocket expenses actually incurred in connection with providing
such cooperation so long as such expenses are approved in advance; and (b) to
compensate you for your time at a reasonable rate.

            10. GENERAL RELEASE. As a material inducement to the Company to
enter into this Agreement, and in consideration of the good and valuable
consideration contained herein, the receipt and sufficiency of which is hereby
acknowledged, you, on behalf of yourself, your heirs, administrators,
representatives, executors, successors, and assigns, hereby irrevocably and
unconditionally release, acquit, and forever discharge Sheffield
Pharmaceuticals, Inc. and its predecessors (including without limitation
Sheffield Medical Technologies Inc.), parents, subsidiaries, affiliates,
divisions, successors and assigns, and all of their current and former agents,
officers, directors, employees, members, trustees, fiduciaries, representatives
and attorneys (the "Released Parties") from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, damages, causes of
action, suits, demands, losses, debts, and expenses of any nature whatsoever,
known or unknown ("Claims") which you have, had or claim to have against any
Released Party up to and including the date you sign this Agreement. This
General Release of Claims shall include, without limitation, Claims relating to
your employment and separation from employment with the Company, Claims of
discrimination under the common law or any federal or state statute (including,
without limitation, the Civil Rights Act of 1964, the Americans with
Disabilities Act and the Age Discrimination in Employment Act, all as amended),
Claims for wrongful discharge, Claims for the payment of any salary, wages,
vacation time, bonuses or commissions, Claims for severance or other benefits
(other than as specifically set forth in paragraphs 2, 3 and 4 herein), Claims
of detrimental reliance, and all other statutory, common law or other Claims of
any nature whatsoever. This General Release of Claims does not apply to any
Claims concerning a breach of this Agreement, including the option letter
agreements referred to in Paragraph 4 as amended by this Agreement, or any
claims arising after the date you sign this Agreement. With respect to the
Claims you are waiving herein, you acknowledge that you are waiving your right
to receive money or any other relief in any action instituted by you or on your
behalf by any other person, entity or government agency.

                                       3
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            11. NOTICE AND RIGHT TO CONSIDER. You are advised to consult with an
attorney before executing this Agreement. You acknowledge that you have
consulted with an attorney of your choosing, Mark S. Rubin, Esquire, in
connection with your review of this Agreement. In any event, you should
thoroughly review and understand the effect of this Agreement and its General
Release before taking action upon them. You may have up to forty-five (45) days
from January 7, 2002 (the date you first received the Company's written offer
concerning the separation of your employment) to complete your review and sign
this Agreement. You acknowledge that if you sign this Agreement prior to the
expiration of the forty-five (45) day period that you did so voluntarily. You
will also have seven (7) days following your execution of this Agreement to
revoke it (the "Revocation Period"). If you wish to revoke the Agreement, you
must do so in writing, addressed to the Company's Chief Executive Officer at the
Company's headquarters, and such revocation must be received by the Company
prior to the expiration of the Revocation Period.

            If you sign this Agreement prior to your Termination Date, then you
agree to execute the General Release attached hereto as Exhibit F on your
Termination Date. Should you fail to do so, then this Agreement shall
immediately become null and void.

            12. AGE AND JOB TITLE INFORMATION. Attached to this letter as
Exhibit G is a description of (i) any class, unit or group of individuals being
offered the benefits that the Company has offered to you, and any applicable
time limits regarding such offer; (ii) the job titles and ages of all
individuals eligible or selected for such offer, and (iii) the ages of all
individuals in the same job classification or organizational unit who are not
eligible or selected for the offer. By signing this Agreement you acknowledge
that you have received Exhibit G and understand its contents.

            13. MISCELLANEOUS. This Agreement constitutes the full understanding
and entire Agreement between you and the Company and supersedes and terminates
any other agreements, communications and understandings of any kind, whether
oral or written, formal or informal, including, without limitation, any
agreement concerning benefits upon a change in control. Except for paragraphs 9,
10 and 11 (excluding any reference in paragraph 11 to paragraph 8) and the
Exhibits to the Employment Agreement which have been referenced in this
Agreement, the Employment Agreement by and between the parties is hereby
superseded by this Agreement and shall be deemed null and void and of no further
force or effect. You represent and acknowledge that in signing this Agreement,
you have not relied upon any promise, inducement, representation or statement,
whether oral or written, not set forth in this Agreement. This Agreement may be
amended or modified only by a written instrument signed by the parties.

            The Company acknowledges that you are entitled to, and will continue
to be entitled to, the same rights of indemnification as current officers and
directors of the Company, to the fullest extent provided for under Delaware law
and as more particularly set forth in the Company's By-Laws.

            The parties agree that the failure of a party at any time to require
performance of any provision of this Agreement shall not affect, diminish,
obviate or void in any way the Party's full right or ability to require
performance of the same or any other provisions of this Agreement at any time
thereafter.

            This Agreement shall inure to the benefit of and shall be binding
upon you, your heirs, administrators, representatives, executors, successors and
assigns and upon the successors and assigns of the Company.

            This Agreement shall be construed in accordance with and governed by
the laws of the State of Missouri, without respect to its conflict of laws
provisions.

            Should any portion, term or provision of this Agreement be declared
or determined by any court to be illegal, invalid or unenforceable, the validity
or the remaining portions, terms and provisions shall not be affected thereby,
and the illegal, invalid or unenforceable portion, term or provision shall be
deemed not to be part of this Agreement.

            The headings of the paragraphs of this Agreement are for convenience
only and are not binding on any interpretation of this Agreement.

            In the event of any conflict between this Agreement and the stock
option letter agreements referred to in paragraph 4, the provisions of this
Agreement shall control.

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                                      * * *

            If you wish to accept this Agreement, please sign and date the
Agreement below and return it to me within the time period specified in
paragraph 11.

            We wish you every success for the future.

                                          Sincerely,

                                          /s/ Loren G. Peterson
                                          --------------------------------------
                                          Loren G. Peterson
                                          President and Chief Executive Officer

            BY SIGNING THIS AGREEMENT, I STATE THAT I HAVE READ IT, I UNDERSTAND
IT, I AGREE WITH EVERYTHING IN IT AND I HAVE SIGNED IT KNOWINGLY AND
VOLUNTARILY.

/s/ David A. Byron
 ------------------
David A. Byron

Date:  2/18/02
      ---------

                                        5
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                                    EXHIBIT A

                      STOCK OPTIONS AS OF TERMINATION DATE

<Table>
<Caption>
                                                                                             Exercise Period for
Grant Date     Total Shares   Vested Stock Options   Unvested Shares     Exercise Price      Vested Stock Options
----------     ------------   --------------------   ---------------     --------------      -------------------
<S>            <C>            <C>                    <C>                 <C>                 <C>
4/25/97        100,000        100,000                0                   $2.75               To and including 1/11/03
(A-1 grant)
4/25/97        150,000        150,000                0                   $2.75               To and including 1/11/03
(A-2 grant)
4/25/97        150,000        150,000                0                   $2.75               60,000 to and including
(B grant)                                                                                    1/11/03
                                                                                             ***
                                                                                             90,000 to and including
                                                                                             1/11/05
8/28/98        105,000        35,000 at $1.2375      0                   35,000 at $1.2375   see n. 1
                              35,000 at $2.125                           35,000 at $2.125
                              35,000 at $3.125                           35,000 at $3.125
3/01/00        90,000         30,000 at $4.75        30,000 at $6.3125   30,000 at $4.75     To and including 1/11/05
                              30,000 at $5.3125                          30,000 at $5.3125
                                                                         30,000 at $6.3125
</Table>

n. 1:  Either (at your election):

            (1) 35,000 at $1.2375; 35,000 at $2.125; 35,000 at $3.125; all
within 90 days from your Termination Date; or

            (2) Some or all of the 105,000 options on a Cashless Basis, defined
in paragraph 4 of the Agreement, on the later of either: (a) your Termination
Date; or (b) within five (5) business days following the expiration of the
Revocation Period, defined in paragraph 12 of the Agreement.

                                       6
<PAGE>

                                    EXHIBIT B

            EMPLOYMENT AGREEMENT (INCLUDING EXHIBITS A-1, A-2 AND B)

                              EMPLOYMENT AGREEMENT

            AGREEMENT made as of the 25th day of April, 1997, by and between
Sheffield Medical Technologies Inc., a Delaware corporation with its principal
offices at 30 Rockefeller Plaza, Suite 4515, New York, New York 10112 (the
"Corporation"), and David A. Byron residing at 17674 Lasiandra Drive,
Chesterfield, Missouri 63017 ("Executive").

                                   WITNESSETH

            WHEREAS, the Corporation desires to employ and retain Executive as
its Executive Vice President - Scientific Affairs, upon the terms and subject to
the conditions of this Agreement; and

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

            1. Employment of Executive. The Corporation hereby employs Executive
as its Executive Vice President - Scientific Affairs, to perform the duties and
responsibilities traditionally incident to such office, subject at all times to
the control and direction of the Board of Directors of the Corporation.

            2. Acceptance of Employment; Offices; Time and Attention, Etc. (a)
Executive hereby accepts such employment and agrees that throughout the period
of his employment hereunder, except as hereinafter provided, he will devote his
full business and professional time in utilizing his business and professional
expertise, with proper attention, knowledge and skills faithfully, diligently
and to the best of his ability in furtherance of the business of the Corporation
and its subsidiaries and will perform the duties assigned to him pursuant to
Paragraph 1 hereof. As Executive Vice President - Scientific Affairs, Executive
shall also perform such specific duties and shall exercise such specific
authority related to the management of the day-to-day operations of the
Corporation and its subsidiaries as may be reasonably assigned to Executive from
time to time by the Board of Directors of the Corporation.

            (b) Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions and restrictions as the Board
of Directors of the Corporation shall from time to time establish. During the
period of his employment hereunder, Executive shall not, directly or indirectly,
accept employment or compensation from, or perform services of any nature for,
any business enterprise other than the Corporation and its subsidiaries.
Notwithstanding the foregoing in this Paragraph 2, Executive shall not be
precluded from engaging in recreational, eleemosynary, educational and other
activities which do not materially interfere with his duties hereunder during
vacations, holidays and other periods outside of business hours.

            (c) It is anticipated that the Corporation's principal executive
office (now located in New York City) shall be relocated to St. Louis, Missouri
but that Executive may be required to spend substantial amounts of time at
locations in and outside of St. Louis, Missouri relating to the business of the
Corporation and its subsidiaries. It is understood that Executive shall continue
to reside in the vicinity of St. Louis, Missouri and that the Corporation shall
maintain an office in St. Louis, Missouri, which is where Executive shall
maintain his principal office until the Corporation relocates from New York City
to St. Louis, Missouri. The Corporation agrees to reimburse Executive for his
reasonable expenses, including hotel and travel costs, associated with the
Corporation's business. In addition, until completion of such relocation, it is
understood that Executive shall visit the Corporation's executive office in New
York City on a regular basis for meetings and to conduct Corporation business
that is more appropriately conducted from such executive office.

            3. Term. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence on the date of the consummation
of the merger of Camelot Pharmacal, L.L.C., a Missouri limited liability
company, with and into a subsidiary of the Company (the "Merger") and shall
continue to and including April 25, 2002. Notwithstanding anything to the
contrary contained in the Agreement, this Agreement shall terminate and have no
force and effect in the event that the Merger is not consummated on or before
June 6, 1997. Unless terminated earlier in accordance with the terms hereof,
this Agreement shall automatically be extended for one or more additional
consecutive one year terms unless either party notifies the other party in
writing at least six months before the end of the then current term (including
the initial term) of its or his desire to terminate this Agreement. The last day
of the term of this Agreement pursuant to this Paragraph 3 (including any early
termination pursuant to the terms hereof) is referred to herein as the
"Termination Date".

            4. Compensation. (a) As compensation for his services hereunder, the
Corporation shall pay to Executive (i) a base annual salary at the rate of
$160,000, payable in equal installments in accordance with the normal payroll
practices of the Corporation but in no event less frequently than semi-monthly,
and (ii) such incentive compensation and bonuses, if any, as the Board of
Directors of the Corporation in its absolute discretion may determine to award
Executive (it being understood that this Agreement shall in no event be
construed to require the payment to Executive of any incentive compensation or
bonuses), it being understood that Executive shall be entitled to receive such
incentive compensation and bonuses determined on a basis comparable to the
incentive compensation and/or bonuses awarded to other executive officers of the
Corporation. All compensation paid to Executive shall be subject to withholding
and other employment taxes imposed by applicable law.

                                       7
<PAGE>

            (b) During the period of Executive's employment hereunder, Executive
shall not be entitled to any additional compensation for rendering employment
services to subsidiaries of the Corporation or for serving in any office of the
Corporation or any of its subsidiaries to which he is elected or appointed.

            (c) In the event that Executive is elected to the Corporation's
Board of Directors, Executive will receive compensation and benefits as a
director of the Corporation consistent with the compensation and benefits
received by the Corporation's other directors who are also employees of the
Corporation.

            5. Stock Options. (a) As additional compensation for his services
hereunder, the Corporation shall grant to Executive an option under the
Corporation's 1993 Stock Option Plan (the "Plan") to acquire a total of 400,000
shares of the Corporation's common stock at an exercise price per share equal to
the closing sale price of the Corporation's common stock as reported by the
American Stock Exchange on the date hereof, with the terms of such option to be
evidenced by (i) one option letter agreement in the form annexed as Exhibit "A"
hereto ("Option Letter A-1") being exercisable for 100,000 shares of Common
Stock, (ii) one option letter agreement in the form annexed as Exhibit "A-2"
hereto ("Option Letter A-2") being exercisable for 150,000 shares of Common
Stock and (iii) one option letter agreement in the form annexed as Exhibit "B"
hereto ("Option Letter B") being exercisable for 150,000 shares of Common Stock
(such option letters being referred to collectively herein as the "Plan Option
Letters").

            (b) The Company represents and warrants that there are sufficient
shares of Common Stock currently available under the Company's 1993 Stock Option
Plan (the "1993 Plan") to cover the shares of Common Stock issuable to Executive
upon exercise of Option Letter A-1.

            (c) In the event that the Company's stockholders fail at the next
annual meeting of stockholders of the Corporation to approve both (i) an
amendment increasing the number of shares available for the issuance of options
under the Plan to an amount at least sufficient to cover all the shares of
Common Stock issuable upon exercise of Option Letter A-2 and Option Letter B and
(ii) appropriate amendments to the Plan specifically confirming the right of the
Corporation's Board of Directors, in the issuance of stock options under the
Plan, to determine provisions regarding terms of the exercise of such stock
options (including without limitation, the period of exercisability of stock
options under the Plan upon termination of employment for cause or without
cause) and provisions regarding forfeiture of stock options under the Plan upon
termination of employment, the Company agrees, upon receipt of a written demand
from Executive, to promptly amend the Plan Option Letters to provide for three
non-qualified options outside the Plan having substantially the same terms and
provisions of the Plan Stock Options.

            (d) In the event that (i) the Corporation is required to amend the
Plan Option Letters pursuant to Paragraph 5(c) or (ii) Executive's employment by
the Corporation is terminated (x) by the Corporation for any reason other than
for Cause, (y) by Executive as a result of an Employer Breach or (z) by the
Corporation by reason of the Executive's disability or death prior to the
expiration of the options evidenced by the Plan Option Letters and Executive is
required after such event to pay any U.S. federal or state income and
withholding tax (collectively, "Income Taxes") on any income recognized by
Executive arising upon any exercise of options evidenced by the Plan Option
Letters, the Corporation agrees to reimburse Executive the difference between
(A) the amount of Income Taxes Executive would have been required to pay had the
income recognized on such exercise been treated as a long term capital gain and
(B) the amount of Income Taxes payable by Executive in respect of such exercise
(the amount of such difference being referred to as the "Tax Difference" in
respect of such exercise). In computing the Tax Difference, the amount of taxes
payable by Executive shall be determined by assuming that the income recognized
as a result of such exercise is taxed at the highest marginal federal and state
income tax rates applicable to ordinary income. In addition, the Corporation
shall pay Executive an amount equal to the Tax Difference arising in respect of
such exercise multiplied by a fraction, the numerator of which is 1 and the
denominator of which is equal to 1 minus (i) the highest marginal federal income
tax rate (currently 39.6%) and (ii) the highest marginal state income tax rate
applicable to Executive, in each case in respect of ordinary income, in effect
at the time of such exercise. Such amount shall be paid by the Corporation
within ninety (90) days after any such exercise. Notwithstanding anything to the
contrary in this Agreement or the Plan Option Letters, the Corporation shall
have no obligation to pay Executive any amount in excess of $250,000 in the
aggregate in respect of its obligations under this subparagraph.

            6. Additional Benefits; Vacation. (a) In addition to such base
salary, Executive shall receive and be entitled to participate, to the extent he
is eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, disability, medical service, insurance or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation agrees to cover Executive
under any directors' and officers' liability policy maintained by the
Corporation.

            (b) Executive shall be entitled to four (4) weeks' paid vacation in
respect of each 12-month period during the term of his employment hereunder,
such vacation to be taken at times mutually agreeable to Executive and the Board
of Directors of the Corporation.

            (c) Executive shall be entitled to recognize as holidays all days
recognized as such by the Corporation.

            7. Reimbursement of Expenses. The Corporation shall reimburse
Executive in accordance with applicable policies of the Corporation for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of the Corporation, upon the submission to the
Corporation of appropriate receipts or vouchers.

            8. Restrictive Covenant. (a) In consideration of the Corporation's
entering into this Agreement, Executive agrees that during the period of his
employment hereunder and, in the event of termination of this Agreement (i) by
the Corporation upon Executive becoming Disabled (as that term is defined in
Paragraph 13 hereof), (ii) by the Corporation for Cause (as that term, is
defined in Paragraph 14 hereof) or (iii) by Executive otherwise than for
Employer Breach (as that term is defined in Paragraph 15 hereof), for a further
period of six months thereafter, he

                                       8
<PAGE>
will not (x) directly or indirectly own, manage, operate, join, control,
participate in, invest in, whether as an officer, director, employee, partner,
investor or otherwise, any business entity that is engaged in a directly
competitive business (as hereinafter defined) to that of the Corporation or any
of its subsidiaries within the United States of America, (y) for himself or on
behalf of any other person, partnership, corporation or entity, call on any
customer of the Corporation or any of its subsidiaries for the purpose of
soliciting away, diverting or taking away any customer from the Corporation or
its subsidiaries, or (z) solicit any person then engaged as an employee,
representative, agent, independent contractor or otherwise by the Corporation or
any of its subsidiaries, to terminate his or her relationship with the
Corporation or any of its subsidiaries. For purposes of this Agreement, the term
"directly competitive business" shall mean any business that is then involved in
the research, development, manufacturing or commercialization in any way of any
product, compound, device or method that acts or functions by, through or on the
same active, binding or receptor site, mechanism of action, signaling pathway or
channel as any product, compound, device or method that is or becomes a part of
the Corporation's business or the business of any of its subsidiaries during
Executive's employment by the Corporation or any of its subsidiaries. Nothing
contained in this Agreement shall be deemed to prohibit Executive from investing
his funds in securities of an issuer if the securities of such issuer are listed
for trading on a national securities exchange or are traded in the
over-the-counter market and Executive's holdings therein represent less than 10%
of the total number of shares or principal amount of the securities of such
issuer outstanding.

            (b) Executive acknowledges that the provisions of this Paragraph 8
are reasonable and necessary for the protection of the Corporation, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 8,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect.

            9.  Confidential Information.

            (a) Executive shall hold in a fiduciary capacity for the benefit of
the Corporation and its subsidiaries all confidential information, knowledge and
data relating to or concerned with its operations, sales, business and affairs,
and he shall not, at any time during his employment hereunder and for two years
thereafter, use, disclose or divulge any such information, knowledge or data to
any person, firm or corporation other than to the Corporation and its
subsidiaries or their respective designees or except as may otherwise be
reasonably required or desirable in connection with the business and affairs of
the Corporation and its subsidiaries.

            (b) Notwithstanding anything to the contrary contained herein,
Executive's obligations under Paragraph 9(a) hereof shall not apply to any
information which:

            (i) becomes rightfully known to Executive subsequent or prior to his
            employment by the Corporation;

            (ii) is or becomes available to the public other than as a result of
            wrongful disclosure by Executive;

            (iii) becomes available to Executive subsequent to his employment by
            the Corporation on a nonconfidential basis from a source other than
            the Corporation or its agents which source has a right to disclose
            such information; or

            (iv) results from research and development and/or commercial
            operations at any time by or on behalf of any person, company or
            other entity with which or with whom Executive shall become
            associated (in a manner consistent with the terms of this Agreement)
            subsequent to his employment by the Corporation or its agents
            totally independent from any disclosure from the Corporation or its
            agents.

            (c) Notwithstanding anything to the contrary contained herein, in
the event that Executive becomes legally compelled to disclose any confidential
information, Executive will provide the Corporation with prompt notice so that
the Corporation may seek a protective order or other appropriate remedy. In the
event that such protective order or other remedy is not obtained, Executive
shall furnish only such confidential information which is legally required to be
disclosed.

            10. Intellectual Property. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by Executive alone or with others, during
the period of his employment hereunder and applicable to the business of the
Corporation or any of its subsidiaries, whether or not patentable or
registrable, shall become the sole and exclusive property of the Corporation or
such subsidiary. Executive shall disclose the same promptly and completely to
the Corporation and shall, during the period of his employment hereunder and at
any time and from time to time hereafter at no cost to Executive (i) execute all
documents reasonably requested by the Corporation for vesting in the Corporation
or any of its subsidiaries the entire right, title and interest in and to the
same, (ii) execute all documents reasonably requested by the Corporation for
filing and prosecuting such applications for patents, trademarks, service marks
and/or copyrights as the Corporation, in its sole discretion, may desire to
prosecute, and (iii) give the Corporation all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect the Corporation's right therein and thereto.

            11. Equitable Relief. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under Paragraphs 8, 9
or 10 this Agreement, the Corporation shall not have an adequate remedy at law.
Accordingly, in the event of any such breach or threatened breach by Executive,
the Corporation shall be entitled to such equitable and injunctive relief as may
be available to restrain Executive and any business, firm, partnership,
individual, corporation or entity participating in such breach or threatened
breach from the violation of the provisions of Paragraph 8, 9 or 10 hereof.
Nothing herein

                                       9
<PAGE>
shall be construed as prohibiting the Corporation from pursuing any other
remedies available at law or in equity for such breach or threatened breach,
including the recovery of damages and the immediate termination of the
employment of Executive hereunder, if and to the extent permitted hereunder.

            12. Termination of Agreement; Termination of Employment; Severance;
Survival. (a) This Agreement and Executive's employment hereunder shall
terminate upon the first to occur of the following: (i) Executive becoming
Disabled (as that term is defined in Paragraph 13 hereof); (ii) Executive's
death; (iii) termination of Executive's employment by the Corporation for Cause
or pursuant to subparagraph (b) of this Paragraph 12; (iv) termination of
Executive's employment for Employer Breach and (v) the termination of this
Agreement at the end of the term of this Agreement on the Termination Date
pursuant to Paragraph 3.

            (b) Notwithstanding anything to the contrary contained in this
Agreement, in the event of the termination of the Executive's employment by the
Corporation for any reason (other than for Cause), Executive shall be paid a
severance payment equal to 75% of Executive's then current annual base salary
payable in nine equal monthly installments, with the first installment being
payable on the date falling two weeks after the date of such termination and
each additional installment being paid every month after such date until such
severance is paid in full. In the event of such termination of the Executive's
employment by the Corporation (other than for Cause), the Corporation shall have
no further obligation to the Executive under this Agreement other than the
Corporation's obligation (i) to make such severance payment to the Executive
(ii) to pay Executive's COBRA premium payments for hospitalization and medical
insurance coverage provided by the Corporation and to pay Executive's premiums
on any death and/or disability insurance being maintained by the Corporation for
Executive at the time of such termination, in each case until the payment in
full of such severance payments

            (c) Paragraph 5(c) of this Agreement shall survive the termination
of Executive's employment hereunder until the earlier to occur of Executive's
exercise of all of the stock options granted pursuant to paragraph 5 and the
expiration of all such stock options pursuant to the Stock Option Letters.
Paragraphs 7, 8, 9, 10, 11 and 26 of this Agreement shall survive the
termination of Executive's employment hereunder, except in the case of
termination pursuant to Paragraph 15.

            13. Disability. In the event that during the term of his employment
by the Corporation Executive shall become Disabled (as that term is hereinafter
defined) he shall continue to receive the full amount of the base salary to
which he was theretofore entitled for a period of six months after he shall be
deemed to have become Disabled (the "First Disability Payment Period"). If the
First Disability Payment Period shall end prior to the Termination Date,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to 80% of his then current base salary for a further period ending on the
earlier of (i) six months thereafter or (ii) the Termination Date (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporation shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporation
may terminate Executive's employment hereunder at any time after Executive is
Disabled, upon at least 10 days' prior written notice; provided, however, that
such termination shall not relieve the Corporation from its obligation to make
the payments to Executive described above in this Paragraph 13. For the purposes
of this Agreement, Executive shall be deemed to have become Disabled when (x) by
reason of physical or mental incapacity, Executive is not able to perform his
duties hereunder for a period of 90 consecutive days or for 120 days in any
consecutive 180-day period or (y) when Executive's physician or a physician
designated by the Corporation shall have determined that Executive shall not be
able, by reason of physical or mental incapacity, to perform a substantial
portion of his duties hereunder. In the event that Executive shall dispute any
determination of his disability pursuant to clauses (x) or (y) above, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the United States of America, one to be selected by each of the
Corporation and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the Corporation, the Corporation shall be entitled to deduct the
amount equal to the benefits so received from base salary that it otherwise
would have been required to pay to Executive as provided above.

            14. Termination for Cause. The Corporation may at any time upon
written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
failure or gross negligence is given to Executive; (ii) except as permitted
hereunder, unexplained, willful and regular absences of Executive from the
Corporation; (iii) excessive use of alcohol or illegal drugs, interfering with
the performance of Executives duties hereunder; (iv) indictment for a crime of
theft, embezzlement, fraud, misappropriation of funds, other acts of dishonesty
or the violation of any law or ethical rule relating to Executive's employment;
(v) indicted for any other felony or other crime involving moral turpitude by
Executive; or (vi) the breach by Executive of any of the provisions of
paragraphs 8, 9 or 10 and if such breach is susceptible of cure by Executive,
the failure to effect such cure within twenty (20) days after written notice of
such breach is given to Executive. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination.

            15. Termination for Employer Breach. Executive may upon written
notice to the Corporation terminate this Agreement (including paragraphs 8, 9,
10 and 11) in the event of the breach by the Corporation of any material
provision of this Agreement, and if such breach is susceptible of cure, the
failure to effect such cure within 20 days after written notice of such breach
is given to the Corporation (an "Employer Breach"). Executive's right to
terminate this Agreement under this Paragraph 15 shall be in addition to any
other remedies Executive may have under law or equity. Paragraphs 2(d), 7 and
12(b) of this Agreement shall survive the termination of this Agreement
by Executive pursuant to this Paragraph 15.

                                       10
<PAGE>

            16. Insurance Policies. The Corporation shall have the right from
time to time to purchase, increase, modify or terminate insurance policies on
the life of Executive for the benefit of the Corporation, in such amounts as the
Corporation shall determine in its sole discretion. In connection therewith,
Executive shall, at such time or times and at such place or places as the
Corporation may reasonably direct, submit himself to such physical examinations
and execute and deliver such documents as the Corporation may reasonably deem
necessary or desirable.

            17. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement of the parties hereto, and any prior agreement between the
Corporation and Executive is hereby superseded and terminated effective
immediately and shall be without further force or effect. No amendment or
modification himself shall be valid or binding unless made in writing and signed
by the party against whom enforcement thereof is sought.

            18. Notices. Any notice required, permitted or desired to be given
pursuant to any of the provisions of this Agreement shall be delivered in person
or sent by responsible overnight delivery service or sent by certified mail,
return receipt requested, postage and fees prepaid, if to the Corporation, at
its address set forth above to the attention of the Corporation's Chief
Financial Officer and, if to Executive, at his address set forth above. Either
of the parties hereto may at any time and from time to time change the address
to which notice shall be sent hereunder by notice to the other party given under
this Paragraph 18. Notices shall be deemed effective upon receipt.

            19. No Assignment; Binding Effect. Neither this Agreement, nor the
right to receive any payments hereunder, may be assigned by either party without
the other party's prior written consent. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and upon the Corporation, its
successors and assigns.

            20. Waivers. No course of dealing nor any delay on the part of
either party in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.

            21. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, except that body of law
relating to choice of laws.

            22. Invalidity. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.

            23. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.

            24. Headings. The headings contained in this Agreement have been
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

            25. Publicity. The Corporation and Executive agree that they will
not make any press releases or other announcements prior to or at the time of
execution of this Agreement with respect to the terms contemplated hereby,
except as required by applicable law, without the prior approval of the other
party, which approval will not be unreasonably withheld.

            26. Arbitration. Any disputes arising under this Agreement shall be
submitted to and determined by arbitration in New York City, New York; provided,
however, that such arbitration shall be held in St. Louis, Missouri in the event
that the Company's principal executive offices is located at the time of such
dispute in St. Louis, Missouri. Such arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Any award or
decision of the arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be paid by the non-prevailing party to the
extent directed by the arbitrator(s).

THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY
THE PARTIES.

                                       11
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.

                                     SHEFFIELD MEDICAL TECHNOLOGIES INC.

                                     By:   /s/ George Lombardi
                                           --------------------------
                                               George Lombardi
                                               Vice President and Chief
                                               Financial Officer

                                     /s/ David A. Byron
                                     -------------------
                                     David A. Byron

                                       12
<PAGE>

                                                                  EXHIBIT A-1 TO
                                                            EMPLOYMENT AGREEMENT

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.
                        30 ROCKEFELLER PLAZA, SUITE 4515
                            NEW YORK, NEW YORK 10112

                                 April 25, 1997

David A. Byron
17674 Lasiandra Drive
Chesterfield, Missouri 63017

            At a meeting of the Board of Directors of Sheffield Medical
Technologies Inc. (the "Company") held on April 22, 1997, the Board authorized
the grant to you of an option (the "Option") to purchase one hundred thousand
(100,000) shares (the "Shares") of Common Stock, par value $.01 per share, of
the Company. The Option is being granted in connection with the Employment
Agreement dated as of April 25, 1997 between the Company and you (the
"Employment Agreement"). The terms of the Option are set forth below.

            1. No part of the Option is currently exercisable. Subject to any
adjustment pursuant to paragraph 5 below, the Option is exercisable at an
exercise price of $2.75 per Share. Subject to the paragraph 2 below, the Option
may first be exercised on April 25, 1998 for 10,000 Shares and shall become
exercisable for an additional 10,000 Shares on each April 25 thereafter to and
including April 25, 2007. Subject to paragraph 2 below, the Option must be
exercised as to any and all Shares on or prior to April 25, 2007 (on which date
the Option will, to the extent not previously exercised, expire).

            2. Notwithstanding anything to the contrary contained herein or in
the Plan (as defined below):

                        (a) In the event your employment by the Company is
            terminated for Cause (as such term is defined in the Employment
            Agreement) prior to the expiration of the Option, the Option will be
            exercisable for 90 days from the date of such termination, but only
            as to such Shares that had become exercisable pursuant to paragraph
            1 above (and not previously purchased) prior to such date. The
            Option shall then expire to the extent not exercised within such 90
            day period.

                        (b) In the event that your employment by the Company is
            terminated by the Company for any reason other than for Cause, by
            you as a result of an Employer Breach (as such term is defined in
            the Employment Agreement) or by the Company by reason of your
            disability or death prior to the expiration of the Option, the
            Option shall become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period.

                        (c) In the event that your employment by the Company is
            terminated by you for any reason other than an Employer Breach prior
            to the expiration of the Option, the Option will be exercisable for
            90 days from the date of such termination, but only as to such
            Shares that had become exercisable pursuant to paragraph 1 above
            (and not previously purchased) prior to such date; provided,
            however, that if such termination occurs after the second
            anniversary of the date of this letter, the Option shall become
            immediately exercisable for such 90 day period as to all Shares not
            previously purchased. The Option shall then expire to the extent not
            exercised within such 90 day period.

                        (d) In the event that your employment by the Company is
            terminated by the Company by reason of your death or disability, the
            Option shall become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period.

                        (e) In the event of a Change of Control, the Option
            shall, at your option exercised by written notice delivered to the
            Company, become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period. As used in this
            paragraph, "Change of Control" shall mean (i) the merger,
            consolidation or other business combination of the Company with or
            into another corporation with the effect that the shareholders of
            the Company immediately following the merger, consolidation or other
            business combination, hold 50% or less of the combined voting power
            of the then outstanding equity interests of the surviving
            corporation of such merger, consolidation or other business
            combination ordinarily (and apart from rights accruing under special
            circumstances) having the right to vote in the election of directors
            or (ii) the replacement of a majority of the Board of Directors of
            the Company in any given year as compared to the directors who
            constituted the Board at the beginning of such year, and such
            replacement shall not have been approved by the Board of Directors
            of the Company as constituted at the beginning of such year.

            If any of the options granted hereunder are treated as nonqualified
stock options ("NQO") as the result of exceeding the $100,000 exercise limit
contained in Section 422(d) of the Internal Revenue Code of 1986, as amended,
the Company shall issue separate certificates representing those shares
constituting incentive stock options ("ISO") and those shares constituting NQO's
and shall identify the ISO shares as such on its stock transfer records.

            3. Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if, in
the opinion of counsel to the

                                       13
<PAGE>
Company, the Shares to be so issued are required to be registered or otherwise
qualified under the Act or under any other applicable statute, regulation or
ordinance affecting the sale of securities, unless and until such Shares have
been so registered or otherwise qualified.

            4. You understand and acknowledge that, under existing law, unless
at the time of the exercise of the Option a registration statement under the Act
is in effect as to such Shares (i) any Shares purchased by you upon exercise of
this option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the number
of shares which may be sold and the manner in which shares may be sold); (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.

            5. In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial liquidation dividend or by way
of return of capital; then, upon the subsequent exercise of the Option, the
exercise price of the Shares issuable upon the exercise hereof shall be
appropriately adjusted by the Board of Directors of the Company so that you
shall receive for the exercise price, in addition to or in substitution for the
Shares to which you would be entitled upon such exercise, such additional shares
of stock of the Company, or such reclassified shares of stock of the Company, or
such securities or property of the Company resulting from such consolidation or
merger or transfer, of such assets of the Company, which you would have been
entitled to receive had you exercised the Option prior to the happening of any
of the foregoing events.

            6. The Option (or installment thereof) is to be exercised by
delivering to the Company a written notice of exercise in the form attached
hereto as Annex A, specifying the number of Shares to be purchased, together
with payment of the purchase price of the Shares to be purchased. The purchase
price is to be paid in cash.

            7. The Option does not confer upon you any right whatsoever as a
stockholder of the Company. The Option is granted to you under the Company's
1993 Stock Option Plan, as amended, (the "Plan") and is intended to be an
incentive stock option. The terms of the Plan are incorporated by reference into
the Option, except as modified in accordance with the Plan by the terms set
forth herein. A copy of the Plan has been delivered to you with this letter. The
Option shall be binding upon any successors or assigns of the Company.

            If the foregoing correctly sets forth our understanding of the
option, please indicate your acceptance by signing this letter in the space
provided below.

                                        Very truly yours,

                                        SHEFFIELD MEDICAL TECHNOLOGIES INC.

                                    By: /s/ George Lombardi
                                        ----------------------------------
                                        George Lombardi
                                        Chief Financial Officer

AGREED TO AND ACCEPTED:

/s/ David A. Byron
------------------
David A. Byron

                                       14
<PAGE>
                                                                         Annex A

                             STOCK SUBSCRIPTION FORM

To: Sheffield Medical Technologies Inc.

Gentlemen:

            I hereby exercise my option to purchase from Sheffield Medical
Technologies Inc. (the "Company"), pursuant to the Stock Option Letter Agreement
between us dated as of April 25, 1997, ________ shares of the Company's Common
Stock, $.01 par value, and herewith tender payment therefor at the rate of $____
per share. The option was originally granted pursuant to the terms of the
Company's 1993 Stock Option Plan.

            I represent and warrant that I am acquiring the said shares for my
own account for investment purposes only; that I have no present intention of
selling or otherwise disposing of such shares or any part thereof; that I will
not transfer said shares in violation of the securities laws of the United
States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.

            The form in which I wish my name and address to appear on the
Company's stock records is as follows:

                                     Name:
                                               -----------------------

                                     Address:
                                               -----------------------
                                               -----------------------
                                               -----------------------

                                               Very truly yours,

                                               -----------------------
                                               David A. Byron

                                       15
<PAGE>

                                                                  EXHIBIT A-2 TO
                                                            EMPLOYMENT AGREEMENT

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.
                        30 ROCKEFELLER PLAZA, SUITE 4515
                            NEW YORK, NEW YORK 10112

                                                                  April 25, 1997

David A. Byron
17674 Lasiandra Drive
Chesterfield, Missouri 63017

            At a meeting of the Board of Directors of Sheffield Medical
Technologies Inc. (the "Company") held on April 22, 1997, the Board authorized
the grant to you of an option (the "Option") to purchase one hundred thousand
(150,000) shares (the "Shares") of Common Stock, par value $.01 per share, of
the Company. The Option is being granted in connection with the Employment
Agreement dated as of April 25, 1997 between the Company and you (the
"Employment Agreement"). The terms of the Option are set forth below.

            1. No part of the Option is currently exercisable. Subject to any
adjustment pursuant to paragraph 5 below, the Option is exercisable at an
exercise price of $2.75 per Share. Subject to the paragraph 2 below, the Option
may first be exercised on April 25, 1998 for 15,000 Shares and shall become
exercisable for an additional 15,000 Shares on each April 25 thereafter to and
including April 25, 2007. Subject to paragraph 2 below, the Option must be
exercised as to any and all Shares on or prior to April 25, 2007 (on which date
the Option will, to the extent not previously exercised, expire).

            2. Notwithstanding anything to the contrary contained herein or in
the Plan (as defined below):

                        (a) In the event your employment by the Company is
            terminated for Cause (as such term is defined in the Employment
            Agreement) prior to the expiration of the Option, the Option will be
            exercisable for 90 days from the date of such termination, but only
            as to such Shares that had become exercisable pursuant to paragraph
            1 above (and not previously purchased) prior to such date. The
            Option shall then expire to the extent not exercised within such 90
            day period.

                        (b) In the event that your employment by the Company is
            terminated by the Company for any reason other than for Cause, by
            you as a result of an Employer Breach (as such term is defined in
            the Employment Agreement) or by the Company by reason of your
            disability or death prior to the expiration of the Option, the
            Option shall become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period.

                        (c) In the event that your employment by the Company is
            terminated by you for any reason other than an Employer Breach prior
            to the expiration of the Option, the Option will be exercisable for
            90 days from the date of such termination, but only as to such
            Shares that had become exercisable pursuant to paragraph 1 above
            (and not previously purchased) prior to such date; provided,
            however, that if such termination occurs after the second
            anniversary of the date of this letter, the Option shall become
            immediately exercisable for such 90 day period as to all Shares not
            previously purchased. The Option shall then expire to the extent not
            exercised within such 90 day period.

                        (d) In the event that your employment by the Company is
            terminated by the Company by reason of your death or disability, the
            Option shall become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period.

                        (e) In the event of a Change of Control, the Option
            shall, at your option exercised by written notice delivered to the
            Company, become immediately exercisable for one year as to all
            Shares not previously purchased. The Option shall then expire to the
            extent not exercised within such one year period. As used in this
            paragraph, "Change of Control" shall mean (i) the merger,
            consolidation or other business combination of the Company with or
            into another corporation with the effect that the shareholders of
            the Company immediately following the merger, consolidation or other
            business combination, hold 50% or less of the combined voting power
            of the then outstanding equity interests of the surviving
            corporation of such merger, consolidation or other business
            combination ordinarily (and apart from rights accruing under special
            circumstances) having the right to vote in the election of directors
            or (ii) the replacement of a majority of the Board of Directors of
            the Company in any given year as compared to the directors who
            constituted the Board at the beginning of such year, and such
            replacement shall not have been approved by the Board of Directors
            of the Company as constituted at the beginning of such year.

            If any of the options granted hereunder are treated as nonqualified
stock options ("NQO") as the result of exceeding the $100,000 exercise limit
contained in Section 422(d) of the Internal Revenue Code of 1986, as amended,
the Company shall issue separate certificates representing those shares
constituting incentive stock options ("ISO") and those shares constituting NQO's
and shall identify the ISO shares as such on its stock transfer records.

            3. Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if, in
the opinion of counsel to the

                                       16
<PAGE>
Company, the Shares to be so issued are required to be registered or otherwise
qualified under the Act or under any other applicable statute, regulation or
ordinance affecting the sale of securities, unless and until such Shares have
been so registered or otherwise qualified.

            4. You understand and acknowledge that, under existing law, unless
at the time of the exercise of the Option a registration statement under the Act
is in effect as to such Shares (i) any Shares purchased by you upon exercise of
this option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the number
of shares which may be sold and the manner in which shares may be sold); (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.

            5. In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial liquidation dividend or by way
of return of capital; then, upon the subsequent exercise of the Option, the
exercise price of the Shares issuable upon the exercise hereof shall be
appropriately adjusted by the Board of Directors of the Company so that you
shall receive for the exercise price, in addition to or in substitution for the
Shares to which you would be entitled upon such exercise, such additional shares
of stock of the Company, or such reclassified shares of stock of the Company, or
such securities or property of the Company resulting from such consolidation or
merger or transfer, of such assets of the Company, which you would have been
entitled to receive had you exercised the Option prior to the happening of any
of the foregoing events.

            6. The Option (or installment thereof) is to be exercised by
delivering to the Company a written notice of exercise in the form attached
hereto as Annex A, specifying the number of Shares to be purchased, together
with payment of the purchase price of the Shares to be purchased. The purchase
price is to be paid in cash.

            7. The Option does not confer upon you any right whatsoever as a
stockholder of the Company. The Option is granted to you under the Company's
1993 Stock Option Plan, as amended, (the "Plan") and is intended to be an
incentive stock option. The terms of the Plan are incorporated by reference into
the Option, except as modified in accordance with the Plan by the terms set
forth herein. A copy of the Plan has been delivered to you with this letter. The
Option shall be binding upon any successors or assigns of the Company.

            If the foregoing correctly sets forth our understanding of the
option, please indicate your acceptance by signing this letter in the space
provided below.

                                   Very truly yours,

                                   SHEFFIELD MEDICAL TECHNOLOGIES INC.

                               By: /s/ George Lombardi
                                   -----------------------------------
                                       George Lombardi
                                       Chief Financial Officer

AGREED TO AND ACCEPTED:

/s/ David A. Byron
 ---------------------
David A. Byron

                                       17
<PAGE>

                                                                         Annex A

                             STOCK SUBSCRIPTION FORM

To: Sheffield Medical Technologies Inc.

Gentlemen:

            I hereby exercise my option to purchase from Sheffield Medical
Technologies Inc. (the "Company"), pursuant to the Stock Option Letter Agreement
between us dated as of April 25, 1997, ________ shares of the Company's Common
Stock, $.01 par value, and herewith tender payment therefor at the rate of $____
per share. The option was originally granted pursuant to the terms of the
Company's 1993 Stock Option Plan.

            I represent and warrant that I am acquiring the said shares for my
own account for investment purposes only; that I have no present intention of
selling or otherwise disposing of such shares or any part thereof; that I will
not transfer said shares in violation of the securities laws of the United
States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.

            The form in which I wish my name and address to appear on the
Company's stock records is as follows:

                                     Name:
                                               -----------------------

                                     Address:
                                               -----------------------
                                               -----------------------
                                               -----------------------

                                                        Very truly yours,

                                                        ---------------------
                                                        David A. Byron

                                       18
<PAGE>

                                                                    EXHIBIT B TO
                                                            EMPLOYMENT AGREEMENT

                       SHEFFIELD MEDICAL TECHNOLOGIES INC.
                        30 ROCKEFELLER PLAZA, SUITE 4515
                            NEW YORK, NEW YORK 10112

April 25, 1997

David A. Byron
17674 Lasiandra Drive
Chesterfield, Missouri 63017

            At a meeting of the Board of Directors of Sheffield Medical
Technologies Inc. (the "Company") held on April 22, 1997, the Board authorized
the grant to you of an option (the "Option") to purchase one hundred and fifty
(150,000) shares (the "Shares") of Common Stock, par value $.01 per share, of
the Company. The Option is being granted in connection with the Employment
Agreement dated as of April 25, 1997 between the Company and you (the
"Employment Agreement"). The terms of the Option are set forth below.

            1. No part of the option is currently exercisable. Subject to any
adjustment pursuant to paragraph 5 below, the Option is exercisable at an
exercise price of $2.75 per Share. Subject to the paragraph 2 below, the Option
may first be exercised on April 25, 1998 for 15,000 Shares and shall become
exercisable for an additional 15,000 Shares on each April 25 thereafter to and
including April 25, 2007. Subject to paragraph 2 below, the Option must be
exercised as to any and all Shares on or prior to April 25, 2007 (on which date
the Option will, to the extent not previously exercised, expire).

            2. Notwithstanding anything to the contrary contained herein or in
the Plan (as defined below):

                        (a) In the event your employment by the Company is
            terminated for Cause (as such term is defined in the Employment
            Agreement) prior to the expiration of the Option, the Option will be
            exercisable for 90 days from the date of such termination, but only
            as to such Shares that had become exercisable pursuant to paragraph
            1 above (and not previously purchased) prior to such date. The
            Option shall then expire to the extent not exercised within such 90
            day period.

                        (b) In the event that your employment by the Company is
            terminated by the Company for any reason other than for Cause, by
            you as a result of an Employer Breach (as such term is defined in
            the Employment Agreement) or by the Company by reason of your
            disability or death prior to the expiration of the Option, the
            Option shall be exercisable for one year from the date of such
            termination, but only as to such Shares that had become exercisable
            pursuant to paragraph 1 above (and not previously purchased) prior
            to such date; provided, however, that if such termination occurs
            after the fifth anniversary of the date of this letter, the Option
            shall become immediately exercisable for such one year period as to
            all Shares not previously purchased. The Option shall then expire to
            the extent not exercised within such one year period.

                        (c) In the event that your employment by the Company is
            terminated by you for any reason other than an Employer Breach other
            than an Employer Breach prior to the expiration of the Option, the
            Option will be exercisable for 90 days from the date of such
            termination, but only as to such Shares that had become exercisable
            pursuant to paragraph 1 above (and not previously purchased) prior
            to such date; provided, however, that if such termination occurs
            after the fifth anniversary of the date of this letter, the Option
            shall become immediately exercisable for such 90 day period as to
            all Shares not previously purchased. The Option shall then expire to
            the extent not exercised within such 90 day period.

                        (d) In the event that your employment by the Company is
            terminated by the Company by reason of your death or disability, the
            Option shall be exercisable for one year from the date of such
            termination, but only as to such Shares that had become exercisable
            pursuant to paragraph 1 above (and not previously purchased) prior
            to such date; provided, however, that if such termination occurs
            after the fifth anniversary of the date of this letter, the Option
            shall become immediately exercisable for such one year period as to
            all Shares not previously purchased. The Option shall then expire to
            the extent not exercised within such one year period.

                        (e) in the event of a Change of Control, the Option
            shall, at your option exercised by written notice delivered to the
            Company, be exercisable for one year from the date of such
            termination, but only as to such Shares that had become exercisable
            pursuant to paragraph 1 above (and not previously purchased) prior
            to such date; provided, however, that if such termination occurs
            after the fifth anniversary of the date of this letter, the Option
            shall become immediately exercisable for such one year period as to
            all Shares not previously purchased. The Option shall then expire to
            the extent not exercised within such one year period. As used in
            this paragraph, "Change of Control" shall mean (i) the merger,
            consolidation or other business combination of the Company with or
            into another corporation with the effect that the shareholders of
            the Company immediately following the merger, consolidation or other
            business combination, hold 50% or less of the combined voting power
            of the then outstanding equity interests of the surviving
            corporation of such merger, consolidation or other business
            combination ordinarily (and apart from rights accruing under special
            circumstances) having the right to vote in the election of directors
            or (ii) the replacement of a majority of the Board of Directors of
            the Company in any given year as compared to the directors who
            constituted the Board at the beginning of such year, and such
            replacement shall not have been approved by the Board of Directors
            of the Company as constituted at the beginning of such year.

                                       19
<PAGE>

            If any of the options granted hereunder are treated as nonqualified
stock options ("NQO") as the result of exceeding the $100,000 exercise limit
contained in Section 422(d) of the Internal Revenue Code of 1986, as amended,
the Company shall issue separate certificates representing those shares
constituting incentive stock options ("ISO") and those shares constituting NQO's
and shall identify the ISO shares as such on its stock transfer records.

            3. Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if, in
the opinion of counsel to the Company, the Shares to be so issued are required
to be registered or otherwise qualified under the Act or under any other
applicable statute, regulation or ordinance affecting the sale of securities,
unless and until such Shares have been so registered or otherwise qualified.

            4. You understand and acknowledge that, under existing law, unless
at the time of the exercise of the Option a registration statement Under the Act
is in effect as to such Shares (i) any Shares purchased by you upon exercise of
this option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the number
of shares which may be sold and the manner in which shares may be sold) ; (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.

            5. In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial liquidation dividend or by way
of return of capital; then, upon the subsequent exercise of the Option, the
exercise price of the Shares issuable upon the exercise hereof shall be
appropriately adjusted by the Board of Directors of the Company so that you
shall receive for the exercise price, in addition to or in substitution for the
Shares to which you would be entitled upon such exercise, such additional shares
of stock of the Company, or such reclassified shares of stock of the Company, or
such securities or property of the Company resulting from such consolidation or
merger or transfer, of such assets of the Company, which you would have been
entitled to receive had you exercised the option prior to the happening of any
of the foregoing events.

            6. The Option (or installment thereof) is to be exercised by
delivering to the Company a written notice of exercise in the form attached
hereto as Annex A, specifying the number of Shares to be purchased, together
with payment of the purchase price of the Shares to be purchased. The purchase
price is to be paid in cash.

            7. The Option does not confer upon you any right whatsoever as a
stockholder of the Company. The Option is granted to you under the Company's
1993 Stock Option Plan, as amended, (the "Plan") and is intended to be an
incentive stock option. The terms of the Plan are incorporated by reference into
the option, except as modified in accordance with the Plan by the terms set
forth herein. A copy of the Plan has -been delivered to you with this letter.
The option shall be binding upon any successors or assigns of the Company.

            If the foregoing correctly sets forth our understanding of the
Option, please indicate your acceptance by signing this letter in the space
provided below.

                                   Very truly yours,

                                   SHEFFIELD MEDICAL TECHNOLOGIES INC.

                                   By: /s/ George Lombardi
                                       --------------------------------
                                       George Lombardi
                                       Chief Financial Officer

AGREED TO AND ACCEPTED:

/s/ David A. Byron
------------------------
David A. Byron

                                       20
<PAGE>

                                                                         Annex A

                             STOCK SUBSCRIPTION FORM

To:           Sheffield Medical Technologies Inc.

Gentlemen:

            I hereby exercise my option to purchase from Sheffield Medical
Technologies Inc. (the "Company"), pursuant to the Stock Option Letter Agreement
between us dated as of April 25, 1997, _________ shares of the Company's Common
Stock, $.01 par value, and herewith tender payment therefor at the rate of
$______ per share. The option was originally granted pursuant to the terms of
the Company's 1993 Stock Option Plan.

            I represent and warrant that I am acquiring the said shares for my
own account for investment purposes only; that I have no present intention of
selling or otherwise disposing of such shares or any part thereof; that I will
not transfer said shares in violation of the securities laws of the United
States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.

            The form in which I wish my name and address to appear on the
Company's stock records is as follows:

                                     Name:
                                               -----------------------

                                     Address:
                                               -----------------------
                                               -----------------------
                                               -----------------------

                                                        Very truly yours,

                                                        ---------------------
                                                        David A. Byron

                                       21
<PAGE>

                                    EXHIBIT C

                  OPTION LETTER AGREEMENT DATED AUGUST 28, 1998

                         SHEFFIELD PHARMACEUTICALS, INC.
                            425 SOUTH WOODSMILL ROAD
                            ST. LOUIS, MISSOURI 63017

                                                                 August 28, 1998

To:           David A. Byron
              17674 Lasiandra Drive
              Chesterfield, Missouri 63017

            At a meeting of the Stock Option Committee of the Board of Directors
of Sheffield Pharmaceuticals, Inc. (the "Company") held on August 25, 1998, the
Company authorized the grant to you as of the date hereof of an option (the
"Option") to purchase one Hundred Fifty Five Thousand (105,000) shares (the
"Shares") of Common Stock, par value $.01 per share, of the Company (the "Common
Stock").

            No part of the option is currently exercisable. On or after August
28, 1999 and prior to August 28, 2008 (on which date the Option, to the extent
it has not previously been exercised or has not previously expired, will
expire), the Option may be exercised as follows: (i) as to 35,000 Shares,
subsequent to the time that the Fair Market Value (as hereinafter defined) of
the Common Stock equals or exceeds $1.2375 for 10 consecutive trading days (such
Shares constituting the "First Tranche" of the Option); (ii) as to 35,000
Shares, subsequent to the time that the Fair Market Value of the Common Stock
equals or exceeds $2.125 for 10 consecutive trading days (such shares
constituting the "Second Tranche" of the Option) and (iii) as to the remaining
35,000 Shares, subsequent to the time that the Fair Market Value of the Common
Stock exceeds $3.125 for 10 consecutive trading days (such Shares constituting
the "Third Tranche" of the Option). As used herein, "Fair Market Value" means
the closing price of the Common Stock on the principal U.S. national securities
exchange on which the Common Stock is listed for trading (if the shares are so
listed) or on the Nasdaq National Market or Small Cap Market (if the Common
Shares are regularly quoted on the Nasdaq National Market or Small Cap Market),
or, if not so listed or regularly quoted or if there is no such closing price,
the mean between the closing bid and asked prices of the Common Stock on such
exchange or on Nasdaq or in the over-the-counter market or, if such bid and
asked prices shall not be available, as reported by any nationally recognized
quotation service selected by the Company.

            Shares may be purchased by you upon exercise of the Option at the
following respective purchase prices: (i) Shares constituting the First Tranche
$1.2375 per Share; (ii) Shares constituting the Second Tranche $2.125 per Share;
and (iii) Shares constituting the Third Tranche - $3.125 per Share.

            This Option must be exercised as to any and all Shares on or prior
to August 28, 2008 (on which date the Option, to the extent it has not
previously been exercised or has not previously expired, will expire).

            Notwithstanding anything to the contrary contained in this letter
agreement, the following provisions shall apply:

            (a) In the event that Fair Market Value does not equal or exceed
            $1.2375 for 10 consecutive trading days prior to August 28, 2001
            (the "Target Date"), the First Tranche of the Option may be
            exercised on the Target Date and for 60 days thereafter (after which
            60th day the Option in respect of the First Tranche will, to the
            extent not previously exercised, expire);

            (b) In the event that Fair Market Value does not equal or exceed
            $2.125 for 10 consecutive trading days prior to the Target Date, the
            Second Tranche of the Option may be exercised on the Target Date and
            for 60 days thereafter (after which 60th day the Option in respect
            of the Second Tranche will, to the extent not previously exercised,
            expire); and

                                       22
<PAGE>

            (c) In the event that Fair Market Value does not equal or exceed
            $3.125 for 10 consecutive trading days prior to the Target Date, the
            Third Tranche of the Option may be exercised on the Target Date and
            for 60 days thereafter (after which 60th day the Option in respect
            of the Third Tranche will, to the extent not previously exercised,
            expire).

            Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if, in
the opinion of counsel to the Company, the Shares to be so issued are required
to be registered or otherwise qualified under the Act or under any other
applicable statute, regulation or ordinance affecting the sale of securities,
unless and until such Shares have been so registered or otherwise qualified.

            You understand and acknowledge that, under existing law, unless at
the time of the exercise of the Option a registration statement under the Act is
in effect as to such Shares (i) any Shares purchased by you upon exercise of
this Option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the number
of shares which may be sold and the manner in which shares may be sold); (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.

            In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial liquidation dividend or by way
of return of capital; then, upon the subsequent exercise of the Option, the
purchase price of the Shares issuable upon the exercise hereof shall be
appropriately adjusted by the Board of Directors of the Company so that you
shall receive for the exercise price, in addition to or in substitution for the
Shares to which you would be entitled upon such exercise, such additional shares
of stock of the Company, or such reclassified shares of stock of the Company, or
such securities or property of the Company resulting from such consolidation or
merger or transfer, of such assets of the Company, which you would have been
entitled to receive had you exercised the Option prior to the happening of any
of the foregoing events.

            The Option (or installment thereof) is to be exercised by delivering
to the Company a written notice of exercise in the form attached hereto as Annex
A, specifying the number of Shares to be purchased, together with payment of the
purchase price of the Shares to be purchased. The purchase price is to be paid
in cash.

            The Option does not confer upon you any right whatsoever as a
stockholder of the Company.

            By accepting the Option, you acknowledge your agreement to advise
the Company in writing at least five trading days prior to selling, assigning or
otherwise transferring any of the Shares.

            The Option is granted to you under the Company's 1993 Stock Option
Plan, as amended, (the "Plan") and is not intended to be an incentive stock
option. The terms of the Plan are incorporated by reference into the Option,

                                       23
<PAGE>

except as modified by the terms set forth herein. A copy of the Plan has been
delivered to you with this letter.

            The Option shall be binding upon any successors or assigns of the
Company.

            If the foregoing correctly sets forth our understanding, please
indicate your acceptance by signing this letter in the space provided below.

                                         Very truly yours,

                                         Sheffield Pharmaceuticals, Inc.

                                         By: /s/ Loren G. Peterson
                                             --------------------------------
                                             Loren G. Peterson
                                             President and CEO

AGREED TO AND ACCEPTED:

/s/ David A. Byron
 ----------------------
David A. Byron

                                       24
<PAGE>
                                                                         Annex A

                             STOCK SUBSCRIPTION FORM

To: Sheffield Pharmaceuticals, Inc.

Gentlemen:

            I hereby exercise my option to purchase from Sheffield
Pharmaceuticals, Inc. (the "Company"), pursuant to the Stock Option Letter
Agreement between us dated August 28, 1998, ______ shares of the Company's
Common Stock, $.01 par value, and herewith tender payment therefor at the rate
of $____ per share. The option was originally granted pursuant to the terms of
the Company's 1993 Stock Option Plan, as amended.

            I represent and warrant that I am acquiring the said shares for my
own account for investment purposes only; that I have no present intention of
selling or otherwise disposing of such shares or any part thereof; that I will
not transfer said shares in violation of the securities laws of the United
States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.

            The form in which I wish my name and address to appear on the
Company's stock records is as follows:

                                     Name:
                                               -----------------------

                                     Address:
                                               -----------------------
                                               -----------------------
                                               -----------------------

                                               Very truly yours,

                                               ---------------------
                                               David A. Byron

                                       25
<PAGE>

                                    EXHIBIT D

                   OPTION LETTER AGREEMENT DATED MARCH 1, 2000

                         SHEFFIELD PHARMACEUTICALS, INC.
                            425 SOUTH WOODSMILL ROAD
                            ST. LOUIS, MISSOURI 63017

                                                          March 1, 2000

To:         David A. Byron
            17674 Lasiandra Drive
            Chesterfield, MO 63005

            At a meeting of the Stock Option Committee of the Board of Directors
of Sheffield Pharmaceuticals, Inc. (the "Company") held on February 29, 2000,
the Company authorized the grant to you as of the date hereof of an option (the
"Option") to purchase Ninety Thousand (90,000) shares (the "Shares") of Common
Stock, par value $.01 per share, of the Company (the "Common Stock").

            No part of the Option is currently exercisable. On or after March 1,
2001 and prior to March 1, 2010 (on which date the Option, to the extent it has
not previously been exercised or has not previously expired, will expire), the
Option may be exercised as follows: (i) as to 30,000 Shares, subsequent to the
time that the Fair Market Value (as hereinafter defined) of the Common Stock
equals or exceeds $4.75 for 10 consecutive trading days (such Shares
constituting the "First Tranche" of the Option); (ii) as to 30,000 Shares,
subsequent to the time that the Fair Market Value of the Common Stock equals or
exceeds $5.3125 for 10 consecutive trading days (such shares constituting the
"Second Tranche" of the Option) and (iii) as to the remaining 30,000 Shares,
subsequent to the time that the Fair Market Value of the Common Stock exceeds
$6.3125 for 10 consecutive trading days (such Shares constituting the "Third
Tranche" of the Option). As used herein, "Fair Market Value" means the closing
price of the Common Stock on the principal U.S. national securities exchange on
which the Common Stock is listed for trading (if the shares are so listed) or on
the Nasdaq National Market or Small Cap Market (if the Common Shares are
regularly quoted on the Nasdaq National Market or Small Cap Market), or, if not
so listed or regularly quoted or if there is no such closing price, the mean
between the closing bid and asked prices of the Common Stock on such exchange or
on Nasdaq or in the over-the-counter market or, if such bid and asked prices
shall not be available, as reported by any nationally recognized quotation
service selected by the Company.

            Shares may be purchased by you upon exercise of the Option at the
following respective purchase prices: (i) Shares constituting the First Tranche
- $4.75 per Share; (ii) Shares constituting the Second Tranche - $5.3125 per
Share; and (iii) Shares constituting the Third Tranche - $6.3125 per Share.

            This Option must be exercised as to any and all Shares on or prior
to March 1, 2010 (on which date the Option, to the extent it has not previously
been exercised or has not previously expired, will expire).

            Notwithstanding anything to the contrary contained in this letter
agreement, the following provisions shall apply:

                        (a) In the event that Fair Market Value does not equal
            or exceed $4.75 for 10 consecutive trading days prior to March 1,
            2003 (the "Target Date"), the First Tranche of the Option may be
            exercised on the Target Date and for 60 days thereafter (after which
            60th day the Option in respect of the First Tranche will, to the
            extent not previously exercised, expire);

                                       26
<PAGE>

                        (b) In the event that Fair Market Value does not equal
            or exceed $5.3125 for 10 consecutive trading days prior to the
            Target Date, the Second Tranche of the Option may be exercised on
            the Target Date and for 60 days thereafter (after which 60th day the
            Option in respect of the Second Tranche will, to the extent not
            previously exercised, expire); and

                        (c) In the event that Fair Market Value does not equal
            or exceed $6.3125 for 10 consecutive trading days prior to the
            Target Date, the Third Tranche of the Option may be exercised on the
            Target Date and for 60 days thereafter (after which 60th day the
            Option in respect of the Third Tranche will, to the extent not
            previously exercised, expire).

            Unless at the time of the exercise of the Option a registration
statement under the Securities Act of 1933, as amended (the "Act"), is in effect
as to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if, in
the opinion of counsel to the Company, the Shares to be so issued are required
to be registered or otherwise qualified under the Act or under any other
applicable statute, regulation or ordinance affecting the sale of securities,
unless and until such Shares have been so registered or otherwise qualified.

            You understand and acknowledge that, under existing law, unless at
the time of the exercise of the Option a registration statement under the Act is
in effect as to such Shares (i) any Shares purchased by you upon exercise of
this option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the number
of shares which may be sold and the manner in which shares may be sold); (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required; (iv) certificates for Shares to be issued to you hereunder shall
bear a legend to the effect that the Shares have not been registered under the
Act and that the Shares may not be sold, hypothecated or otherwise transferred
in the absence of an effective registration statement under the Act relating
thereto or an opinion of counsel satisfactory to the Company that such
registration is not required; and (v) the Company will place an appropriate
"stop transfer" order with its transfer agent with respect to such Shares. In
addition, you understand and acknowledge that the Company has no obligation to
you to furnish information necessary to enable you to make sales under Rule 144.

            In the event that the Company shall at any time prior to the
expiration of the Option and prior to the exercise thereof: (i) declare or pay
to the holders of the Common Stock a dividend payable in any kind of shares of
stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially all of its assets
to any other corporation; or (iv) make any distribution of its assets to holders
of its Common Stock as a liquidation, or partial liquidation dividend or by way
of return of capital; then, upon the subsequent exercise of the Option, the
purchase price of the Shares issuable upon the exercise hereof shall be
appropriately adjusted by the Board of Directors of the Company so that you
shall receive for the exercise price, in addition to or in substitution for the
Shares to which you would be entitled upon such exercise, such additional shares
of stock of the Company, or such reclassified shares of stock of the Company, or
such securities or property of the Company resulting from such consolidation or
merger or transfer, of such assets of the Company, which you would have been
entitled to receive had you exercised the Option prior to the happening of any
of the foregoing events.

            The Option (or installment thereof) is to be exercised by delivering
to the Company a written notice of exercise in the form attached hereto as Annex
A, specifying the number of Shares to be purchased, together with payment of the
purchase price of the Shares to be purchased. The purchase price is to be paid
in cash.

            The Option does not confer upon you any right whatsoever as a
stockholder of the Company.

            By accepting the Option, you acknowledge your agreement to advise
the Company in writing at least five trading days prior to selling, assigning or
otherwise transferring any of the Shares.

                                       27
<PAGE>

            The Option is granted to you under the Company's 1993 Stock Option
Plan, as amended, (the "Plan") and is not intended to be an incentive stock
option. The terms of the Plan are incorporated by reference into the Option,
except as modified by the terms set forth herein. A copy of the Plan has been
delivered to you with this letter.

            The Option shall be binding upon any successors or assigns of the
Company.

            If the foregoing correctly sets forth our understanding, please
indicate your acceptance by signing this letter in the space provided below.

                                         Very truly yours,

                                         Sheffield Pharmaceuticals, Inc.

                                         By: /s/ Loren G. Peterson
                                             --------------------------------
                                                 President

AGREED TO AND ACCEPTED:

/s/ David A. Byron
  ------------------
David A. Byron

                                       28
<PAGE>

                                                                         Annex A

                             STOCK SUBSCRIPTION FORM

To: Sheffield Pharmaceuticals, Inc.

Gentlemen:

            I hereby exercise my option to purchase from Sheffield
Pharmaceuticals, Inc. (the "Company"), pursuant to the Stock Option Letter
Agreement between us dated March 1, 2000, _______ shares of the Company's Common
Stock, $.01 par value, and herewith tender payment therefor at the rate of $____
per share. The option was originally granted pursuant to the terms of the
Company's 1993 Stock Option Plan, as amended.

            I represent and warrant that I am acquiring the said shares for my
own account for investment purposes only; that I have no present intention of
selling or otherwise disposing of such shares or any part thereof; that I will
not transfer said shares in violation of the securities laws of the United
States; that I am familiar with the business operations, management and
financial condition and affairs of the Company; that I have not relied upon any
representation of the Company with respect thereto; and that I have the personal
financial means to comply with all of said representations. I further confirm
that I have been advised that said shares will not be registered under the
Securities Act of 1933, as amended, and that I have consulted with and been
advised by counsel as to the restrictions on resale to which said shares will
thereby be subject.

            The form in which I wish my name and address to appear on the
Company's stock records is as follows:

                                     Name:
                                               -----------------------

                                     Address:
                                               -----------------------
                                               -----------------------
                                               -----------------------

                                               Very truly yours,

                                               -----------------------
                                               David A. Byron

                                       29
<PAGE>

                                    EXHIBIT E

                                IRREVOCABLE PROXY

            The undersigned, David A. Byron ("Holder"), an individual with a
residential address of 17674 Lasiandra Drive, Chesterfield, Missouri, 63017,
hereby revokes any and all proxies heretofore granted with respect to any shares
of common stock, $.01 par value (the "Stock"), of Sheffield Pharmaceuticals,
Inc. ("Sheffield") held by Holder and, hereby irrevocably appoints the President
of Sheffield, Loren G. Peterson, or his designee, and each of them, as
attorney-in-fact and proxy of Holder to attend any and all meetings of the
stockholders of Sheffield and to vote such Holder's Stock, to represent and
otherwise to act for Holder in the same manner and with the same effect as if
such Holder were personally present and to act by consent in the same manner and
with the same effect as if Holder were executing such consent, with respect to
any matter.

            Holder agrees that, so long as this Irrevocable Proxy remains in
effect, Holder will not execute or deliver to any persons, any proxy forms
relating to any meeting, or written consent in lieu of a meeting, of
stockholders of Sheffield, will promptly provide Sheffield with copies of any
communications related to Sheffield received by Holder and will not take any
action inconsistent with this Irrevocable Proxy.

            The foregoing appointment shall be (a) absolute and irrevocable and
(b) deemed coupled with an interest.

            This Irrevocable Proxy shall be effective for a period of one (1)
year in accordance with Delaware law and may be relied upon by any third party.

            IN WITNESS WHEREOF, the undersigned Holder has executed this
Irrevocable Proxy as of February 18, 2002.

Witness:
                                                DAVID A. BYRON

/s/ Sally Reiter                                /s/ David A. Byron
-------------------------------                 -------------------------------

Witness print name: Sally Reiter
                    ------------

                                       30
<PAGE>

                                    EXHIBIT F

                                 GENERAL RELEASE

            David A. Byron, in consideration of the good and valuable
consideration contained in the attached Agreement ("the Agreement"), the receipt
and sufficiency of which is hereby acknowledged, on behalf of himself, his
heirs, administrators, representatives, executors, successors, and assigns,
hereby irrevocably and unconditionally releases, acquits, and forever discharges
Sheffield Pharmaceuticals, Inc. and its predecessors (including without
limitation Sheffield Medical Technologies Inc.), parents, subsidiaries,
affiliates, divisions, successors and assigns, and all of their current and
former agents, officers, directors, employees, members, trustees, fiduciaries,
representatives and attorneys (the "Released Parties") from any and all charges,
complaints, claims, liabilities, obligations, promises, agreements, damages,
causes of action, suits, demands, losses, debts, and expenses of any nature
whatsoever, known or unknown ("Claims") which he has, had or claims to have
against any Released Party up to and including the date he signs this General
Release. This General Release of Claims shall include, without limitation,
Claims relating to his employment and separation from employment with the
Company, Claims of discrimination under the common law or any federal or state
statute (including, without limitation, the Civil Rights Act of 1964, the
Americans with Disabilities Act and the Age Discrimination in Employment Act,
all as amended), Claims for wrongful discharge, Claims for the payment of any
salary, wages, vacation time, bonuses or commissions, Claims for severance or
other benefits (other than as specifically set forth in paragraphs 2, 3 and 4 of
the Agreement), Claims of detrimental reliance, and all other statutory, common
law or other Claims of any nature whatsoever. This General Release of Claims
does not apply to any Claims concerning a breach of the Agreement, including the
option letter agreements referred to in Paragraph 4 of the Agreement as amended
by the Agreement, or any claims arising after the date you sign this General
Release. With respect to the Claims being waived herein, Byron acknowledges that
he is waiving his right to receive money or any other relief in any action
instituted by him or on his behalf by any other person, entity or government
agency.

            IN WITNESS WHEREOF, the undersigned David A. Byron has executed this
General Release as of February 18, 2002.

Witness:
                                                DAVID A. BYRON

/s/ Sally Reiter                                /s/ David A. Byron
-------------------------------                 -------------------------------

Witness print name: Sally Reiter
                    ------------

                                       31

<PAGE>

                                    EXHIBIT G

                      OLDER WORKERS BENEFIT PROTECTION ACT
                               NOTICE TO EMPLOYEES
                          AGE AND JOB TITLE INFORMATION

In connection with the Agreement and the offer of benefits described therein,
you are being provided with information as to (i) any class, unit or group of
individuals covered by such offer; (ii) the job titles and ages of all
individuals eligible or selected for the offer, and (iii) the ages of all
individuals in the same job classification or organizational unit who are not
eligible or selected for the offer. Eligible employees age forty (40) and over
shall have forty-five (45) days to consider the Company's offer and may revoke
their agreement to the offer within seven (7) days after their execution of the
Agreement.

<Table>
<Caption>
Departments or                                             Ages of Employees    Ages of Ineligible
Units Affected          Job Title                          Affected             Employees
--------------          ---------                          -----------------    ------------------
<S>                     <C>                                <C>                  <C>
Executive Officers      Chairman                                                51
                        President and Chief                                     45
                        Executive Officer
                        Executive Vice President,          58
                        Corporate Development
                        Executive Vice President,          53
                        Scientific Affairs
                        Vice President, Finance and                             37
                        Administration and
                        Chief Financial Officer
                        Vice President, Pulmonary                               48
                        Delivery Systems
</Table>

                                       32<PAGE>
                                                                  EXHIBIT 10.39

                         SHEFFIELD PHARMACEUTICALS, INC.

                            INDEMNIFICATION AGREEMENT

            THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into this 23rd day of January, 2002 by and between Sheffield Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), and the individuals listed on
Schedule I hereto (each such individual an "Indemnitee" and collectively the
"Indemnitees"):

            WHEREAS, qualified persons are reluctant to serve publicly-held
corporations as directors or officers or in other capacities, unless they are
provided with adequate protection against inordinate risks of claims and actions
against them arising out of their service to and activities on behalf of such
corporations;

            WHEREAS, the uncertainties related to obtaining adequate insurance
and indemnification have increased the difficulty of attracting and retaining
such quality persons;

            WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify such persons to the fullest extent
permitted by law, so that such persons will serve or continue to serve the
Company free from undue concern that they will not be adequately indemnified;

            WHEREAS, the Company and the Indemnitees recognize that the legal
risks and potential liabilities, and the threat thereof, associated with
lawsuits filed against persons serving the Company, and the resultant time,
expense and anxiety spent and endured in defending lawsuits bears no reasonable
relationship to the compensation received by such persons, and thus poses a
significant deterrent and increased reluctance on the part of experienced and
capable individuals to serve the Company;

            WHEREAS, the By-laws of the Company and the laws of the State of
Delaware provide for the indemnification of directors, officers, agents and
employees of the Company and specifically provide that they are not exclusive,
and thereby contemplate that contracts may be entered into between the Company
and persons providing services to it; and

            WHEREAS, the Indemnitees are willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that he be indemnified according to the terms of this Agreement;

            NOW, THEREFORE, in consideration of the premises and promises
contained herein, the parties agree as follows:

Section 1.  Services by Indemnitee. Indemnitees agree to serve as directors
            and/or officers of the Company, and, with their subsequent consent,
            at the Company's request or for its benefit, as directors, officers,
            employees, agents or fiduciaries of certain other corporations and
            entities. Nothing contained herein shall entitle or require any
            Indemnitee to continue in his or her present position or any future
            position with the Company.

Section 2.  Term of Agreement. For any Indemnitee, this Agreement shall
            continue until and terminate upon the later of: (a) ten years after
            the date that such Indemnitee ceases to hold a Corporate Status or
            (b) 120 days after the final termination of all pending Proceedings
            in respect of which Indemnitee is granted rights of indemnification
            or advancement of Expenses hereunder and of any proceeding commenced
            by such Indemnitee pursuant to Section 8 of this Agreement.

Section 3.  Indemnification.

            3.1 General. The Company shall hold harmless and indemnify the
Indemnitees against all Liabilities and advance to the Indemnitees all Expenses
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, or by any amendment thereof (but in the case of any amendment, only to
the extent such amendment permits the Company to provide broader indemnification
than provided prior to such amendment), or by other statutory provisions
authorizing or permitting indemnification applicable from time to time
hereafter.

            3.2 Proceedings Other Than Proceedings by or in the Right of the
Company. The Indemnitees shall be entitled to the rights of indemnification
provided in this Section 3.2 if, by reason of an Indemnitee's Corporate Status,
such Indemnitee is, or is threatened to be, made a party to any threatened,
pending or completed Proceeding, other than a Proceeding by or in the right of
the Company. Under this Section 3.2, any such Indemnitee shall be indemnified
against all Liabilities actually and reasonably incurred by the Indemnitee or on
the Indemnitee's behalf in connection with such Proceeding or any claim, issue
or matter therein, if the Indemnitee acted in good faith and in a manner that
the Indemnitee reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, if the Indemnitee
had no reasonable cause to believe the conduct was unlawful.

            3.3 Proceedings by or in the Right of the Company. Each Indemnitee
shall be entitled to the rights of indemnification provided in this Section 3.3,
if, by reason of such Indemnitee's Corporate Status, the Indemnitee is, or is
threatened to be, made a party to any threatened, pending or completed
Proceeding

                                       1
<PAGE>

brought by or in the right of the Company to procure a judgment in its favor.
Subject to the last sentence of this Section 3.3, any such Indemnitee shall be
indemnified against all Liabilities actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection with such Proceeding in
good faith and in a manner that the Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company. No indemnification of
Liabilities shall be made in respect of any claim, issue or matter in such
Proceeding as to which an Indemnitee shall have been adjudged to be liable to
the Company unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such Proceeding was brought, determines
such indemnification is proper.

            3.4 Indemnification for Expenses as a Witness. Notwithstanding any
other provision of this Agreement, to the extent that any Indemnitee is, by
reason of such Indemnitee's Corporate Status, a witness in any Proceeding, he or
she shall be indemnified against all Expenses actually and reasonably incurred
by him or her or on his or her behalf in connection therewith.

            3.5 Partial Indemnity. If an Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Liabilities but not, however, for all the total amount thereof,
the Company shall nevertheless indemnify such Indemnitee for the portion thereof
to which the Indemnitee is entitled. Moreover, notwithstanding any other
provision of this Agreement, to the extent that an Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
such Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.

Section 4.  Advancement of Expenses. The Company shall advance all Expenses
            incurred or to be incurred by or on behalf of an Indemnitee in
            connection with any Proceeding within fifteen (15) days after the
            receipt by the Company of a statement from such Indemnitee
            requesting such advance from time to time, whether prior to or after
            final disposition of such Proceeding. Each statement shall
            reasonably evidence the Expenses incurred or to be incurred by the
            Indemnitee. The Indemnitee hereby undertakes to repay any Expenses
            so advanced if it shall ultimately be determined that the Indemnitee
            is not entitled to be indemnified against such Expenses.

Section 5.  Specific Limitations on Indemnity. No Indemnitee shall be
            entitled to indemnification under this Agreement:

                   (a) In respect to remuneration paid to or advantage gained by
            such Indemnitee, if it shall be determined by final judgment or
            other final adjudication that such Indemnitee was not legally
            entitled to such remuneration or advantage;

                   (b) On account of such Indemnitee's conduct which is finally
            adjudged to have been knowingly fraudulent, deliberately dishonest
            or willful misconduct; or

                   (c) Prior to a Change in Control in respect of any Proceeding
            initiated by an Indemnitee against the Company or any director or
            officer of the Company, unless the Company has joined in or
            consented to the initiation of such Proceeding, except (i) as
            provided in Section 8 hereof, (ii) in respect of any counterclaims
            made against Indemnitee in any such Proceeding and (iii) to the
            extent Indemnitee seeks contribution or apportionment of an award or
            settlement against Indemnitee and against the Company and/or any
            other director or officer of the Company.

Section 6.  Procedure for Determination of Entitlement to Indemnification.

            6.1 Initial Request. To obtain indemnification under this Agreement
in connection with any Proceeding, and for the duration thereof, an Indemnitee
shall submit to the Company a written request, including such documentation and
information as is reasonably available to such Indemnitee and is reasonably
necessary to

                                       2
<PAGE>
determine whether and to what extent the Indemnitee is entitled to
indemnification. The Secretary of the Company shall, promptly upon receipt of
any request for indemnification, advise the Board in writing that the Indemnitee
has requested indemnification.

            6.2 Method of Determination. Upon written request by an Indemnitee
for indemnification pursuant to Section 6.1 hereof, a determination, if required
by applicable law, with respect to the Indemnitee's entitlement thereto shall be
made in such case: (a) if a Change in Control shall have occurred, by
Independent Counsel (unless Indemnitee shall request that such determination be
made by the Board of Directors or the stockholders, in which case in the manner
provided for in clauses (b) or (c) of this Section 6.2) in a written opinion to
the Board of Directors, a copy of which shall be delivered to the Indemnitee;
(b) if a Change of Control shall not have occurred, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors,
or (ii) if a quorum of the Board consisting of Disinterested Directors is not
obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to the
Indemnitee(s), or (y) by the stockholders of the Company, as determined by such
quorum of Disinterested Directors, or a quorum of the Board, as the case may be;
or (c) as provided in Section 7.2 of this Agreement. If it is determined that an
Indemnitee is entitled to indemnification, payment to such Indemnitee shall be
made within ten (10) days after such determination.

            6.3 Selection, Payment and Discharge of Independent Counsel. If
required, Independent Counsel shall be selected as follows: (a) if a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board, and the Company shall give written notice to the Indemnitee advising him
or her of the identity of Independent Counsel so selected; or (b) if a Change of
Control shall have occurred, Independent Counsel shall be selected by the
Indemnitee (unless the Indemnitee shall request that such selection be made by
the Board, in which event clause (a) shall apply), and the Indemnitee shall give
written notice to the Company advising it of the identity of Independent Counsel
so selected. In either event, the Indemnitee or the Company, as the case may be,
may, within seven (7) days after such written notice of selection shall have
been given, deliver to the Company or to the Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is made, Independent Counsel so selected may not serve as Independent
Counsel, unless and until a court has determined that such objection is without
merit. If, within twenty (20) days after submission by the Indemnitee of a
written request for indemnification pursuant to Section 6.1 hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or the Indemnitee may petition the Court of Chancery of the State of
Delaware, or other court of competent jurisdiction, for resolution of any
objection which shall have been made by the Company or by the Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by such court or by such other person
as such court shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as Independent Counsel under
Section 6.2 hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with its actions pursuant to this Agreement, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6.3, regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement date of any judicial proceeding or
arbitration pursuant to Section 8.1 of this Agreement, Independent Counsel shall
be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).

            6.4 Cooperation. Both the Company and the Indemnitees shall
cooperate with the person, persons or entity making the determination with
respect to any Indemnitee's entitlement to indemnification, including providing
to such person, persons or entity any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to the Indemnitees or to the Company, as the case may be, and
reasonably necessary to such determination. Any reasonable costs or expenses
(including attorneys' fees and disbursements) incurred by an Indemnitee in so
cooperating with the person, persons or entity making such determination shall
be borne by the Company (irrespective of the determination as to the
Indemnitee's entitlement to indemnification).

Section 7.  Presumptions and Effects of Certain Proceedings.

            7.1 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons or entity making
such determination shall presume that an Indemnitee is entitled to
indemnification under this Agreement if the Indemnitee has submitted a request
for indemnification in accordance with Section 6.1 of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.

                                       3
<PAGE>

            7.2 Failure to Determine Entitlement. If the person, persons or
entity empowered or selected under Section 6 of this Agreement to determine
whether the Indemnitee is entitled to indemnification shall not have made a
determination within sixty (60) days after receipt by the Company of the request
therefor, the requisite determination of entitlement to indemnification shall be
deemed to have been made and the Indemnitee shall be entitled to such
indemnification; provided, however, that such 60-day period may be extended for
a reasonable time, not to exceed an additional thirty (30) days, if the person,
persons or entity making the determination with respect to entitlement to
indemnification in good faith require(s) such additional time for the obtaining
or evaluating of documentation or information relating thereto; and provided,
further, that the foregoing provisions of this Section 7.2 shall not apply if
the determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 6.2 of this Agreement and if (a) within fifteen
(15) days after receipt by the Company of the request for such determination the
Board has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy-five (75)
days after such receipt and such determination is made thereat, or (b) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.

            7.3 Effect of Other Proceedings. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of an Indemnitee to indemnification or create a presumption (i)
that an Indemnitee did not act in good faith and in a manner which such
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company or (ii) with respect to any criminal Proceeding, that the Indemnitee
had reasonable cause to believe that the conduct was unlawful.

            Section 8. Remedies of Indemnitee.

            8.1 Adjudication. In the event that (a) a determination is made
pursuant to Section 6 of this Agreement that an Indemnitee is not entitled to
indemnification under this Agreement, (b) advancement of Expenses is not timely
made pursuant to Section 4 of this Agreement, (c) payment of indemnification is
not made pursuant to Section 3 of this Agreement within ten (10) days after
receipt by the Company of a written request therefor, or (d) payment of
indemnification is not made within ten (10) days after a determination has been
made that Indemnitee is entitled to indemnification or such determination is
deemed to have been made pursuant to Sections 6 or 7 of this Agreement, such
Indemnitee shall be entitled to an adjudication, in any court of competent
jurisdiction and in a venue to be determined by the Indemnitee. Alternatively,
an Indemnitee, at his or her option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association. Indemnitees shall commence any action under this
Section 8.1 within 180 days following the date on which they first have the
right to commence such action hereunder.

            8.2 Good Faith. The Company hereby covenants and agrees to perform
its obligations under this Agreement in good faith; and in any judgement or
arbitration brought by an Indemnitee to enforce any such obligations the Company
shall have the burden of establishing by a preponderance of the evidence that it
(and its Board of Directors, if applicable) so performed such obligations and
that the Indemnitee is not entitled to indemnification or the advancement of
Expenses.

            8.3 De Novo Review. In the event that a determination shall have
been made pursuant to Section 6 of this Agreement that an Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to Section 8.1 shall be conducted in all respects as a de novo trial or
arbitration on the merits and such Indemnitee shall not be prejudiced by reason
of that adverse determination.

            8.4 Company Bound. If a determination shall have been made or deemed
to have been made pursuant to Section 6 or 7 of this Agreement that an
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration absent (a) a
misstatement of a material fact by the Indemnitee, or an omission of a material
fact necessary to make the Indemnitee's statement not materially misleading, in
connection with the request for indemnification or the furnishing of information
on (b) a prohibition of such indemnification under applicable law. The Company
shall be precluded from asserting in any such judicial proceeding or arbitration
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all provisions of this Agreement.

            8.5 Expenses of Adjudication. In the event that an Indemnitee seeks
an adjudication or an award to enforce his rights under, or to recover damages
for breach of, this Agreement, such Indemnitee shall be entitled to recover from
the Company, and shall be indemnified by the Company against, any and all
expenses (of the type described in the definition of Expenses) actually and
reasonably incurred by such Indemnitee in such adjudication or arbitration,

                                       4
<PAGE>
but only if the Indemnitee prevails therein. If it shall be determined in such
adjudication or arbitration that an Indemnitee is entitled to receive part but
not all of the indemnification or advancement of Expenses sought, such
Indemnitee shall be entitled to recover expenses from the Company on a pro rata
basis.

Section 9. Non-Exclusivity; Subrogation.

            9.1 Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which any Indemnitee may at any time be
entitled under applicable law, the certificate of incorporation or by-laws of
any corporation, any other agreement, a vote of stockholders, a resolution of
directors or otherwise.

            9.2 Subrogation. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee(s), who shall execute all papers required
and take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.

            9.3 No Duplicative Payment. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that an Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.

Section 10. Insurance. The Company hereby covenants and agrees that, for
            each Indemnitee, for so long as such Indemnitee shall continue to
            serve as a director or officer of the Company (or shall continue at
            the request of the Company to serve as a director, officer, employee
            or agent of another corporation, partnership, joint venture, trust
            or other enterprise) and thereafter for so long as such Indemnitee
            shall be subject to any possible claim or threatened, pending or
            completed action, suit or proceeding, whether civil, criminal or
            investigative by reason of the fact that the Indemnitee was a
            director or officer of the Company (or served in any of said other
            capacities), the Company shall obtain and maintain in full force and
            effect for the benefit of such Indemnitee one or more valid, binding
            and enforceable policy or policies of directors' and officers'
            liability insurance ("D&O Insurance") in reasonable amounts from
            established and reputable insurers. Each Indemnitee shall be named
            as an insured in such a manner as to provide him or her the same
            rights and benefits as are accorded to the most favorably insured of
            the Company's directors, if the Indemnitee is a director; or of the
            Company's officers, if the Indemnitee is an officer but not a
            director of the Company; or of the Company's key employees, if the
            Indemnitee is not a director or officer but is a key employee.
            Notwithstanding the provisions of this Section 10, the Company shall
            have no obligation to obtain or maintain D&O Insurance for any
            Indemnitee, if the Company determines in good faith (i) that such
            insurance is not reasonably available, (ii) that the premium costs
            for such insurance are disproportionate to the amount of coverage
            provided, (iii) that the coverage provided by such insurance is
            limited by exclusion so as to provide an insufficient benefit, or
            (iv) that such Indemnitee is covered by similar insurance maintained
            by an affiliate of the Company. In the event that the Company does
            not purchase and maintain in effect said policy or policies of D & O
            Insurance pursuant to the provisions of this Section 10, the Company
            agrees to hold harmless and indemnify the Indemnitees to the full
            extent of the coverage which would otherwise have been provided for
            the benefit of such Indemnities pursuant to insurance policies held
            by the Company as of the Effective Date. If, at the time of the
            receipt of the notice of the commencement of a Proceeding, the
            Company has D&O Insurance in effect, the Company shall give prompt
            notice of the commencement of such Proceeding to the insurers in
            accordance with the procedures set forth in the applicable policy.
            The Company shall thereafter take all necessary or desirable action
            to cause such insurers to pay on behalf of the Indemnitee(s) all
            amounts payable as a result of such Proceeding in accordance with
            the terms of such policy.

Section 11. Company May Assume Defense. In the event the Company shall be
            obligated to pay the Expenses of any Proceeding against an
            Indemnitee, the Company, if appropriate, shall be entitled to assume
            the defense of such Proceeding, with counsel reasonably acceptable
            to such Indemnitee, upon the delivery to the Indemnitee of written
            notice of its election to do so. After delivery of such notice, the
            Company shall not be liable to the Indemnitee under this Agreement
            for any fees of counsel subsequently incurred by the Indemnitee with
            respect to the same Proceeding; provided, however, that (a) the
            Indemnitee shall have the right to employ counsel in any such
            Proceeding at the Indemnitee's expense and (b) if (i) the employment
            of counsel by the Indemnitee has been previously authorized by the
            Company, (ii) the Indemnitee shall have reasonably concluded that
            there may be a conflict of interest between the Company and the
            Indemnitee in the conduct of any such defense, or (iii) the Company
            shall not, in fact, have employed counsel to assume the defense of
            such Proceeding, the fees and expenses of Indemnitee's counsel shall
            be at the expense of the Company.

                                       5
<PAGE>

Section 12. Definitions.  For purposes of this Agreement:

                  (a) "Change in Control" means a change in control of the
         Company occurring after the Effective Date of a nature that would be
         required to be reported in response to Item 6(e) of Schedule 14A of
         Regulation 14A (or in response to any similar item on any similar
         schedule or form) promulgated under the Securities Exchange Act of 1934
         (the "act"), whether or not the Company is then subject to such
         reporting requirement; provided, however, that, without limitation,
         such a Change in Control shall be deemed to have occurred if after the
         Effective Date (i) any "person" (or as such term is used in Sections
         13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
         defined in Rule 13d-3 under the Act), directly or indirectly, of
         securities of the Company representing at least 20% or, in the case of
         Elan Corporation and its affiliates in the aggregate (collectively, the
         "Elan Group"), at least fifty (50%), of the combined voting power of
         the Company's then outstanding securities; (ii) approval by the
         stockholders of the Company of a merger or consolidation of the Company
         with any other company or plan of exchange involving the Company
         ("Merger"), other than (1) a Merger which would result in the voting
         securities of the Company outstanding immediately prior thereto
         continuing to represent (either by remaining outstanding or by being
         converted into voting securities of the surviving entity) more than
         fifty percent (50%) the combined voting power of the voting securities
         of the Company or such surviving entity outstanding immediately after
         the Merger, or (2) a Merger effected to implement a recapitalization of
         the Company (or similar transaction) in which no Person acquires twenty
         percent (20%) or more, or in the case of Elan Group in the aggregate,
         fifty percent (50%) or more, of the combined voting power of the
         Company's then outstanding securities; (iii) approval by the
         stockholders of the Company of a plan of complete liquidation of the
         Company or an agreement for the sale, lease, exchange or other transfer
         (in one transaction or a series of related transactions) or disposition
         by the Company of all or substantially all of the Company's assets (iv)
         at any time, during any period of two consecutive years, individuals
         who at the beginning of such period constituted the Board of Directors
         (including for this purpose any new director whose election or
         nomination for election by the Company's stockholders was approved by a
         vote of the directors then still in office who were directors at the
         beginning of such period) cease for any reason to constitute at least a
         majority of the Board of Directors.

                  (b) "Corporate Status" means the position of a person as a
         director, officer, employee, agent or fiduciary of the Company or of
         any other corporation, partnership, joint venture, trust, employee
         benefit plan or other enterprise held at the request of the Company and
         shall include any position which imposes duties on, or involves
         services by, such person with respect to an employee benefit plan, its
         participants or beneficiaries.

                  (c) "Disinterested Director" means a director of the Company
         who is not and was not a party to the Proceeding in respect of which
         indemnification is sought by an Indemnitee.

                  (d) "Effective Date" means the date of this Agreement.

                  (e) "Expenses" means all reasonable attorneys' fees,
         retainers, court costs, transcript costs, fees of experts, witness
         fees, travel expenses, duplicating costs, printing and binding costs,
         telephone charges, postage, delivery service fees, and all other
         disbursements or expenses of the types of customarily incurred in
         connection with the prosecuting, defending, preparing to prosecute or
         defend, investigating, or being or preparing to be a witness in a
         Proceeding.

                  (f) "Independent Counsel" means a law firm, or a member of a
         law firm, that is nationally recognized as experienced in matters of
         corporation law and neither presently is, not in the past five years
         has been, retained to represent either (i) the Company or Indemnitee in
         any matter material to either such party or (ii) any other party to the
         Proceeding giving rise to a claim for indemnification hereunder. The
         term "Independent Counsel" shall not include any person who, under the
         applicable standards of professional conduct then prevailing, would
         have a conflict of interest in representing either the Company or an
         Indemnitee in an action to determine an Indemnitee's rights under this
         Agreement.

                  (g) "Liabilities" means any judgments, fines, penalties, or
         similar payments or amounts paid or incurred by an Indemnitee in
         connection with any Proceeding, and amounts paid or incurred by an
         Indemnitee or on an Indemnitee's behalf in settlement of any Proceeding
         (including any excise taxes or penalties assessed upon, or claimed
         against, an Indemnitee with respect to any employee benefit plan) and
         all Expenses.

                                       6
<PAGE>

                  (h) "Proceeding" means any action, suit, arbitration,
         alternate dispute resolution mechanism, investigation, administrative
         hearing or any other proceeding, pending or threatened, whether civil,
         criminal, administrative or investigative, except one initiated by an
         Indemnitee, unless the Board of Directors consents thereto.

Section 13. Notices. All notices, requests, demands and other communications
            hereunder shall be in writing and shall be deemed to have been duly
            given if (a) delivered by hand and receipted for by the party to
            whom such notice or other communication shall have been directed or
            (b) mailed by certified or registered mail with postage prepaid, on
            the third business day after the date on which it is so mailed:

                  (a) If to an Indemnitee, to the address set forth for such
         Indemnitee upon Schedule I hereto.

                  (b) If to the Company, to:

                                    Sheffield Pharmaceuticals, Inc.
                                    14528 South Outer Forty Road
                                    Suite 205
                                    St. Louis, MO  63017
                                    Attention:  Secretary

or to such other address as may have been furnished to the other party. Promptly
after receipt by an Indemnitee of notice of the commencement of or the threat of
commencement of any Proceeding, such Indemnitee shall notify the Company of the
commencement or the threat of commencement thereof.

Section 14. General Provisions.

            14.1 Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of the
Indemnitees and their heirs, executors and administrators. The Company shall
require and cause any successor to substantially all of the business or assets
of the Company, by written agreement in form and substance satisfactory to a
majority of the Indemnitees, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.

            14.2 No Adequate Remedy. The parties acknowledge that it is
impossible to measure in money the damages which will accrue to either party by
reason of a failure to perform any of the obligations under this Agreement.
Therefore, if either party shall institute any action or proceeding to enforce
the provisions hereof, the party against whom such action or proceeding is
brought hereby waives the claim or defense that the party bringing such action
has an adequate remedy at law, and the party against whom the action is brought
shall not urge in any action or proceeding the claim or defense that the other
party has an adequate remedy at law.

            14.3 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.

            14.4 Severability. If any provision or provisions of this Agreement
shall be held to be invalid or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid or unenforceable) shall not in any way
be affected or impaired thereby; and 9b) to the fullest extent possible, the
remaining provisions of this Amendment (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid or unenforceable.

            14.5 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by the
Company and a majority of the Indemnitees. No amendment, alteration, rescission
or replacement of this Agreement or any provision hereof shall be effective as
to any Indemnitee with respect to any action taken or omitted by such Indemnitee
in any such Indemnitee's Corporate Status before such amendment, alteration,
rescission or replacement. No waiver or any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
No party shall be deemed to have waived a right or remedy provided in or
relating to this Agreement, unless the waiver is in writing and duly executed by
such party.

                                       7
<PAGE>

            14.6 Entire Agreement. This Agreement as to its subject matter,
exclusively and completely states the rights and duties of the parties, sets
forth their entire understanding and merges all prior and contemporaneous
representations, promises, proposes, discussions and understandings by or
between the parties.

                            [Signature Page Follows]

                                       8
<PAGE>

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

<Table>
<S>                                            <C>
SHEFFIELD PHARMACEUTICALS, INC.                INDEMNITEES

By:  /s/ Loren G. Peterson                     /s/ Thomas M. Fitzgerald
     -------------------------------------     -------------------------------------
     Loren G. Peterson                         Thomas M. Fitzgerald
     President and Chief Executive Officer
                                               /s/ Loren G. Peterson
                                               --------------------------------------
                                               Loren G. Peterson

                                               /s/ John M. Bailey
                                               --------------------------------------
                                               John M. Bailey

                                               /s/ Digby W. Barrios
                                               --------------------------------------
                                               Digby W. Barrios

                                               /s/ Todd C. Davis
                                               --------------------------------------
                                               Todd C. Davis

                                               /s/ David A. Byron
                                               --------------------------------------
                                               David A. Byron

                                               /s/ Carl F. Siekmann
                                               --------------------------------------
                                               Carl F. Siekmann

                                               /s/ Scott A. Hoffmann
                                               -------------------------------------
                                               Scott A. Hoffmann

                                               /s/ Thomas A. Armer
                                               -------------------------------------
                                               Thomas A. Armer
</Table>

                                       9
<PAGE>

                                   SCHEDULE I
                             LISTING OF INDEMNITEES

<Table>
<Caption>
                INDEMNITEE                                      NOTICE ADDRESS
                ----------                                      --------------
<S>                                                <C>
Thomas M. Fitzgerald                               4 St. Andrews Hill, Pittsford, NY 14534

Loren G. Peterson                                  1776 Stifel Lane Drive, Town & Country, MO 63017

John M. Bailey                                     The Coach House, East Lane, Dedham Essex, UK, C07 6BL

Digby W. Barrios                                   44 St. John's Road, Ridgefield, CT  06877

Todd C. Davis                                      445 Park Avenue, 11th Floor, New York, NY 10022

David A. Byron                                     17674 Lasiandra Dr., Chesterfield, MO 63301

Carl F. Siekmann                                   15915 Wetherburn Road Park, Chesterfield, MO 63017

Scott A. Hoffmann                                  17664 Wildridge Dr., Chesterfield, MO 63005

Thomas A. Armer                                    19000 Tilson Avenue, Cupertino, CA  95014
</Table>

                                       10

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