10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

For Annual and Transition Reports Pursuant to

Section 13 or 15(d) of the Securities Exchange Act of 1934

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2006
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to          .

Commission File Number: 000-51820

Alexza Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)	77-0567768 (I.R.S. Employer Identification Number)

1020 East Meadow Circle

Palo Alto, California 94303

(Address of Principal Executive Offices including Zip Code)

Registrant’s telephone number, including area code:

(650) 687-3900

Securities registered pursuant to Section 12 (b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share	Nasdaq Global Market

Securities registered pursuant to Section 12 (g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendments to this Form 10-K.  þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer  o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was $116,066,000 based on the closing sale price of the Registrant’s common stock on The NASDAQ Global Market on June 30, 2006. Shares of the Registrant’s common stock beneficially owned by each executive officer and director of the Registrant and by each person known by the Registrant to beneficially own 10% or more of its outstanding common stock have been excluded, in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the Registrant’s common stock as of March 16, 2007 was 23,888,235.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS

PART I
	Item 1.	Business	3
	Item 1A.	Risk Factors	24
	Item 1B	Unresolved Staff Comments	40
	Item 2.	Properties	43
	Item 3.	Legal Proceedings	43
	Item 4.	Submission of Matters to a Vote of Security Holders	43
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
	Item 5B.	Use of Proceeds from the Sale of Registered Securities	45
	Item 5C.	Treasury Stock	45
	Item 6.	Selected Financial Data	46
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	57
	Item 8.	Financial Statements and Supplementary Data	58
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	91
	Item 9A.	Controls and Procedures	91
	Item 9B.	Other Information	91
PART III
	Item 10.	Directors and Executive Officers of the Registrant	91
	Item 11.	Executive Compensation	92
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	101
	Item 13.	Certain Relationships and Related Transactions and Director Independence	104
	Item 14.	Principal Accountant Fees and Services	105
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	105
Signatures			108
Exhibits Index			110
EXHIBIT 3.7
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 14.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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The name “Alexza,” “Alexza Pharmaceuticals” and “Staccato” are registered trademarks of Alexza Pharmaceuticals, Inc. All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners.

PART I.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this Annual Report constitute forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Examples of these statements include, but are not limited to, statements regarding the following: the implications of interim or final results of our clinical trials, the progress and timing of our research programs, including clinical testing, our anticipated timing for filing additional Investigational New Drug Applications with the United States Food and Drug Administration for the initiation or completion of Phase 1, Phase 2 or Phase 3 clinical testing for any of our product candidates, the extent to which our issued and pending patents may protect our products and technology, our ability to identify new product candidates using Staccato technology, the potential of such product candidates to lead to the development of safer or more effective therapies, our ability to enter into collaborations, our future operating expenses, our future losses, our future expenditures for research and development, the sufficiency of our cash resources and our use of proceeds from our initial public offering which was completed in March 2006. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. While we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.

In addition, you should refer to the “Risk Factors” section of this Annual Report for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Item 1.   Business

We are an emerging pharmaceutical company focused on the development and commercialization of novel, proprietary products for the treatment of acute and intermittent conditions. We currently have one product candidate that has completed a Phase IIb clinical trial, one product candidate that has completed a Phase IIa clinical trial, and two product candidates that have completed Phase I clinical trials. Our technology, the Staccato system, vaporizes unformulated drug to form a condensation aerosol that allows rapid systemic drug delivery through deep lung inhalation. The drug is quickly absorbed through the lungs into the bloodstream, providing speed of therapeutic onset that is comparable to intravenous, or IV, administration but with greater ease, patient comfort and convenience.

We have identified approximately 200 drug compounds that have demonstrated initial vaporization feasibility for delivery with our technology. We believe that a number of these drug compounds, when delivered by the Staccato system, will have a desirable therapeutic profile for the treatment of acute and intermittent conditions. We

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are initially focusing on developing proprietary products by combining our Staccato system with small molecule drugs that have been in use for many years and are well characterized to create aerosolized forms of these drugs. We believe that we will be able to reduce the development time and risks associated with our product candidates, compared to the development of new chemical entities.

Our clinical-stage product candidates are:

•  AZ-001 (Staccato prochlorperazine).  We are developing AZ-001 to treat patients suffering from acute migraine headaches. In December 2006, we completed enrollment of an at-home 400 patient, multi-center, double-blind, placebo-controlled Phase IIb clinical trial in patients suffering from moderate to severe acute migraine headaches. We announced the initial results of this trial in March 2007.

•  AZ-004 (Staccato loxapine).  We are developing AZ-004 for the treatment of acute agitation in patients with schizophrenia. In January 2007, we completed enrollment of an in-clinic 120 patient, multi-center, double-blind, placebo-controlled Phase IIa clinical trial in patients with schizophrenia suffering from agitation. We announced the initial results of this trial in March 2007.

•  AZ-002 (Staccato alprazolam).  We are developing AZ-002 for the acute treatment of panic attacks associated with panic disorder. In April 2006, we initiated an in-clinic, 36 patient, multi-center, double-blind, placebo-controlled, proof of concept Phase IIa clinical trial in patients with panic disorder.

•  AZ-003 (Staccato fentanyl).  We are developing AZ-003 for the treatment of patients with acute pain, including patients with breakthrough cancer pain and postoperative patients with acute pain episodes. In December 2006, we completed enrollment and announced initial results of a Phase I clinical trial of AZ-003 in opioid naïve healthy subjects.

In order for us to initiate a clinical development program, a drug compound must exhibit technical feasibility with our Staccato technology and also have the potential to serve an important unmet medical need in a large patient population. We believe that, with the current development status of our single dose device, the inherent advantages of our Staccato technology will enable us to move a compound from initial screening through filing of an Investigational New Drug application, or IND, in 12 to 18 months. We intend to file one IND in 2007, and one to two INDs per year thereafter, as our resources permit.

On December 1, 2006 we entered into a transaction involving a series of related agreements providing for the financing of additional clinical and nonclinical development of AZ-002, Staccato alprazolam, and AZ-004, Staccato loxapine. Pursuant to the agreements, Symphony Capital LLC, a wholly owned subsidiary of Symphony Holdings LLC, and its investors have invested $50 million to form Symphony Allegro, Inc., or Symphony Allegro, to fund additional clinical and nonclinical development of Staccato alprazolam and Staccato loxapine. We have exclusively licensed to Symphony Allegro certain intellectual property rights related to Staccato alprazolam and Staccato loxapine. We have retained manufacturing rights to these two product candidates. We continue to be primarily responsible for the development of these two product candidates in accordance with a development plan and related development budgets. Pursuant to the agreements, we have received an exclusive purchase option that gives us the right, but not the obligation, to acquire all, but not less than all, of the equity of Symphony Allegro, and reacquire the intellectual property rights that we licensed to Symphony Allegro. This purchase option is exercisable at predetermined prices between December 1, 2007 and December 1, 2010, subject to an earlier exercise right in limited circumstances. The purchase option exercise price may be paid for in cash or in a combination of cash and our common stock, in our sole discretion, provided that the common stock portion may not exceed 40% of the purchase option exercise price or 10% of our common stock issued and outstanding as of the purchase option closing date. If we pay a portion of the purchase option exercise price in shares of our common stock, then we will be required to register such shares for resale under a resale registration statement pursuant to the terms of a registration rights agreement. If we do not exercise our purchase option by December 1, 2010, then Symphony Allegro will retain its exclusive license to develop and commercialize Staccato alprazolam and Staccato loxapine for all indications, and we will manufacture and sell Staccato alprazolam and Staccato loxapine to Symphony Allegro or its sublicensee for those purposes. Pursuant to a warrant purchase agreement, we issued to Symphony Allegro Holdings, LLC a warrant with a five-year term to purchase 2,000,000 shares of our common stock at $9.91 per

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share, also paid a transaction structuring fee of $2.5 million, and reimbursed approximately $325,000 of Symphony Allegro transaction expenses.

We have retained all remaining other rights to our product candidates and the Staccato technology. We plan to build a United States based specialty sales force to commercialize product candidates intended for focused markets and enter into strategic partnerships with other companies to commercialize products that are intended for larger markets and geographic territories outside the United States.

Market Opportunity for Acute and Intermittent Conditions

Acute and intermittent medical conditions are characterized by a rapid onset of symptoms that are temporary and severe, and that occur at irregular intervals, unlike the symptoms of chronic medical conditions that continue at a relatively constant level over time. Approved drugs for the treatment of many acute and intermittent conditions, such as triptans to treat migraine headaches and benzodiazepines to treat anxiety, are typically delivered either in tablets or by injections. Traditional inhalation technologies are also being developed to treat these conditions. These delivery methods have the following advantages and disadvantages:

•  Oral Tablets.  Oral tablets or capsules are convenient and cost effective, but they generally do not provide rapid onset of action. Oral tablets may require at least one to four hours to achieve peak plasma levels. Also, some drugs, if administered as a tablet or capsule, do not achieve adequate or consistent bioavailability due to the degradation of the drug by the stomach or liver or inability to be absorbed into the bloodstream.

•  Injections.  IV injections provide a rapid onset of action and can sometimes be used to titrate potent drugs with very rapid changes in effect. Titration refers to the ability of a patient to self-administer an initial dose of medication and then determine if the medication is effective; if the medication is effective no further dosing is required. However, if the medication is not yet effective, the patient can administer another dose and repeat this process until the patient determines that the medication has had an adequate effect. However, IV injections generally are administered by trained medical personnel in a medical care setting. Other forms of injections result in an onset of action that is generally substantially slower than IV injection, although often faster than oral administration. All forms of injections are invasive, can be painful to some patients and are often expensive. In addition, many drugs are not water soluble and can be difficult to formulate in an injectable form.

•  Traditional Inhalation.  Traditional dry powder and aerosolized inhalation delivery systems have been designed and used primarily for delivery of drugs to the lung airways, not the deep lung for rapid systemic drug delivery. Certain recent variants of these systems, however, can provide systemic delivery of drugs, either for the purpose of rapid onset of action or to enable noninvasive delivery of drugs that are not orally bioavailable. Nevertheless, most of these systems have difficulty in generating appropriate drug particle sizes or consistent emitted doses for deep lung delivery. To achieve appropriate drug particle sizes and consistent emitted doses, most traditional inhalation systems require the use of excipients and additives such as detergents, stabilizers and solvents, which may potentially cause toxicity or allergic reactions. Many traditional inhalation devices require patient coordination to deliver the correct drug dose, leading to potentially wide variations in the drug delivered to a patient.

As a result of these limitations, we believe there is a significant unmet medical and patient need for products for the treatment of acute and intermittent conditions that can be delivered in precise amounts, provide rapid therapeutic onset, and are noninvasive and easy to use.

Our Solution: Staccato Technology

Our Staccato technology rapidly vaporizes unformulated drug compound to form a proprietary condensation aerosol that is inhaled and rapidly achieves systemic blood circulation via deep lung absorption. The Staccato system consistently creates aerosol particles averaging one to three and one-half microns in size, which is the proper size for deep lung inhalation and absorption into the bloodstream.

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We believe our Staccato technology matches delivery characteristics and product attributes to patient needs for acute and intermittent conditions, and has the following advantages:

•  Rapid Onset.  The aerosol produced with the Staccato system is designed to be rapidly absorbed through the deep lung with a speed of therapeutic onset comparable to IV administration, generally achieving peak plasma levels of drug in two to five minutes.

•  Ease of Use.  The Staccato system is breath actuated and a patient simply inhales to administer the drug dose. Unlike injections, the Staccato system is noninvasive and does not require caregiver assistance. The aerosol produced with the Staccato system is relatively insensitive to patient inhalation rates. Unlike many other inhalation technologies, the patient does not need to learn a special breathing pattern. In addition, the Staccato device is small and easily portable.

•  Consistent Particle Size and Dose.  The Staccato system uses rapid heating of the drug film to create consistent and appropriate particle sizes for deep lung inhalation and absorption into the bloodstream. The Staccato system also produces a consistent high emitted dose, regardless of the patient’s breathing pattern.

•  Broad Applicability.  We have screened over 400 drugs and approximately 200 have exhibited initial vaporization feasibility using our Staccato technology. The Staccato technology can deliver both water soluble and water insoluble drugs. Staccato technology eliminates the need for excipients and additives such as detergents, stabilizers and solvents, avoiding the side effects that may be associated with the excipients or additives.

•  Design Flexibility.  The Staccato technology can incorporate lockout and multiple dose features, potentially enhancing safety, convenience of patient titration and a variety of administration regimens.

Drug Candidates Based on the Staccato Technology

We combine small molecule drugs with our Staccato technology to create proprietary product candidates. We believe that the drugs we are currently using are no longer eligible for patent protection as chemical entities. These drugs have been widely used, and we believe their biological activity and safety are well understood and characterized. We have received composition of matter patent protection on the Staccato aerosolized forms of these drugs. We also intend to collaborate with pharmaceutical companies to develop new chemical entities, including compounds that might otherwise not be suitable for development because of limitations of traditional delivery methods.

Staccato Technology

Our product candidates employing Staccato technology consist of three core components: (1) a heat source that includes an inert metal substrate; (2) a thin film of an unformulated drug compound (also known as an active pharmaceutical ingredient, or API), coated on the substrate; and (3) an airway through which the patient inhales. The left panel of the illustration below depicts these core components prior to patient inhalation.

The right panel of the illustration below depicts the Staccato system during patient inhalation: (1) the heated substrate has reached peak temperature in less than one half second after the start of patient inhalation; (2) the thin drug film has been vaporized; and (3) the drug vapor has subsequently cooled and condensed into pure drug aerosol particles that are being drawn into the patient’s lungs. The entire Staccato system actuation occurs in less than one second.

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Three of our product candidates, AZ-001, AZ-002 and AZ-004, use the same disposable, single dose delivery device. The single dose device consists of a metal substrate that is chemically heated through a battery initiated reaction of energetic materials. In the current design, the heat package can be coated with up to 10 milligrams of API. The device is portable and easy to carry, with dimensions of approximately three inches in length, two inches in width, and three quarters of an inch in thickness. The device weighs approximately one ounce. A diagram of the single dose device is shown below:

AZ-003 uses a multiple dose device consisting of a reusable controller and a disposable dose cartridge. We have designed the multiple dose delivery device to meet the specific needs of our AZ-003 product candidate. The dose cartridge contains 25 separate metal substrates, each coated with the API, which rapidly heat upon application of electric current from the controller. In the current design, 25 micrograms of drug compound are coated on each metal substrate. The device is portable and easy to carry, with dimensions of approximately five inches in length, two and one-half inches in width and one inch in thickness. The controller weighs approximately four ounces and the dose cartridge weighs approximately one ounce. We plan no additional clinical development of AZ-003 during 2007, unless we are able to secure a corporate partner to support continued clinical and device development.

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Our Pipeline

As indicated below, we have one product candidate that has completed a Phase IIb clinical trial, one product candidate that has completed a Phase IIa clinical trial, and two product candidates that have each completed a Phase I clinical trial.

				Alexza
				Commercial
Product Candidate	API	Target Indication	Status	Rights
AZ-001	Prochlorperazine	Migraine headaches	Completed Phase IIb Clinical Trial	Worldwide
AZ-004	Loxapine	Acute agitation in schizophrenia patients	Completed Phase IIa Clinical Trial	Out-licensed with repurchase option*
AZ-002	Alprazolam	Panic attacks	Completed Phase I Clinical Trial; Currently in Phase IIa Clinical Trial	Out-licensed with repurchase option*
AZ-003	Fentanyl	Acute pain	Completed Phase I Clinical Trial	Worldwide

* Outlicensed to Symphony Allegro, Inc. and subject to an exclusive repurchase option.

AZ-001 (Staccato prochlorperazine)

We are developing AZ-001 for the treatment of acute migraine headaches. The active pharmaceutical ingredient, or API, of AZ-001 is prochlorperazine, a drug belonging to the class of drugs known as phenothiazines. Prochlorperazine is currently approved in oral, injectable and suppository formulations in the United States for the treatment of several indications, including nausea and vomiting. In several published clinical studies, 10 mg of prochlorperazine administered intravenously demonstrated effective relief of migraine pain. Prochlorperazine is often administered intravenously to patients with severe migraine headaches who come to emergency departments or migraine treatment clinics. We believe the combination of prochlorperazine with our Staccato system could potentially result in a speed of therapeutic onset advantage over oral tablets and a convenience and comfort advantage over injections. In addition, AZ-001 may be appropriate for patients who do not achieve effective relief with triptans or cannot take triptans due to the cardiovascular risk sometimes associated with the administration of triptans. For patients who do not obtain adequate relief from current migraine therapies, AZ-001 may offer a new anti-migraine mechanism of action.

Market Opportunity

Although there are numerous products available for the treatment of migraines, including simple analgesics such as aspirin and acetaminophen, and nonsteroidal anti-inflammatory drugs such as ibuprofen and naproxen, the prescription market is dominated by a class of orally administered medications known as triptans.

According to the National Headache Foundation, approximately 13 million people in the United States have been diagnosed with migraine headaches. Acute migraine headaches occur often, usually one to four times a month. Of the estimated 29.5 million migraine sufferers (including diagnosed and undiagnosed sufferers), there are at least two groups of potential patients for whom we believe AZ-001 could be effective and safe in comparison to triptans. Many migraine sufferers who do take triptans have an insufficient therapeutic response to these medications. In addition, according to the warning labels on triptans, patients with hypertension or high cholesterol, or who smoke cigarettes, are contraindicated for and should not take these medications due to potential cardiovascular health risks.

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Development Status

Clinical Trials

Clinical Trial Design.  We completed enrollment of a Phase IIb clinical trial in December 2006 and reported initial results of this trial in March 2007. The AZ-001 Phase IIb clinical trial was an outpatient, multi-center, randomized, double blind, placebo-controlled study. The study was designed to evaluate the treatment of a single migraine attack in each of 400 migraine patients, with and without aura. In the trial, three doses of AZ-001 (Staccato prochlorperazine in 5.0, 7.5 and 10.0 mg doses) and placebo (a Staccato device containing no drug) were tested, with 100 patients assigned to each treatment group. The primary efficacy endpoint for the trial was headache pain relief at 2-hours post-dose, as defined by the International Headache Society, or IHS, 4-point headache pain rating scale. Secondary efficacy endpoints for the trial included various additional measurements of pain relief, as well as effects on nausea, vomiting, phonophobia and photophobia. The clinical trial study period was 24 hours post dosing for each patient. All results were considered statistically significant at the p < 0.05 level, and all analyses were made on an intent-to-treat basis. Side effects were recorded throughout the clinical trial study period and a safety evaluation was made at each patient’s closeout visit.

Primary Efficacy Endpoint.  AZ-001 met the primary efficacy endpoint of the clinical trial, which was pain relief at 2-hours post-dose using the IHS 4-point headache pain rating scale, for all three doses of the drug compared to placebo. Statistically significant improvements in pain response were observed in 66.0% of patients at the 10.0 mg dose (p=0.0013), 63.7% of patients at the 7.5 mg dose (p=0.0046) and 60.2% of patients at the 5.0 mg dose (p=0.0076), compared to 40.8% of patients receiving placebo.

Additional Efficacy Endpoints.  Another measure of efficacy was the achievement of a pain-free response at 2 hours, where a patient has a pain score of 0, or “no”, headache pain at the 2-hours post-dose time point. In the trial, AZ-001 showed statistically significant differences from placebo in this measure with 35.0% of patients who received the 10.0 mg dose achieving pain-free status (p=0.0019) and 29.7% of patients who received the 7.5 mg dose achieving pain-free status (p=0.0226). Patients receiving the 5.0 mg dose (21.4%) did not achieve a statistically significant pain-free response, compared to placebo. The rate of pain-free response at 2 hours in patients receiving placebo was 15.3%.

We believe duration of efficacy is an important consideration in developing migraine therapeutics. A commonly used measure of duration of efficacy is the sustained pain-free response, whereby a patient reports a pain-free score at the 2-hour post-dose time point and remains pain-free for the remainder of the study period (up to 24 hours). The 10.0 mg and 7.5 mg doses of AZ-001 showed statistically significant differences in sustained pain-free response, compared to placebo. Sustained pain-free outcomes through 24 hours were observed in 30.1% and 23.1% of total patients in the 10.0 mg and 7.5 mg dose groups, respectively. The placebo dose exhibited a sustained pain-free response in 10.2% of total patients.

AZ-001 exhibited rapid onset of pain relief. The 7.5 mg dose showed statistically significant pain response, compared to placebo, at 15 minutes (p=0.016). At 30 minutes, all three doses of AZ-001 showed statistically significant pain response, compared to placebo; 10 mg (p=0.0056), 7.5 mg (p=0.0003) and 5 mg (p=0.0056).

In addition to the various pain response analyses, we believe migraine-related symptom management is an important consideration in the overall efficacy of a migraine therapy. Important symptoms to be managed in migraine patients are nausea, vomiting, photophobia (sensitivity to light) and phonophobia (sensitivity to sound). Survival analyses for nausea, photophobia and phonophobia over the 2 hour time period post-dose showed a statistically significant difference, compared to placebo. The total patients with vomiting (n=20 in all four dose groups) in the trial were too few to make conclusions about drug effect.

Safety Evaluations.  Side effects were recorded throughout the clinical trial study period and a safety evaluation was made at each patient’s closeout visit. There were no serious adverse events reported during the trial. The most common drug-related side effects reported across all three active dose groups in the clinical trial were taste (25 – 33%), throat irritation (18 – 30%), cough (16 – 30%), somnolence (6 – 10%), breathlessness (2 – 9%), and dizziness (0 – 9%). These side effects appeared to be dose related, with a lower incidence and severity of the side effects generally seen at the lower doses of AZ-001.

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Device Performance.  All efficacy and safety analyses were completed on an intent-to-treat basis. Staccato devices used in the clinical trial were returned for analysis of device performance. Preliminary analysis of the returned devices and all devices routinely analyzed during quality control and ongoing stability studies related to the clinical trial materials showed a device mechanical failure rate of less than 1%.

Preclinical Studies

We have completed several preclinical studies of AZ-001 including inhalation toxicology studies in two animal species, cardiovascular and respiratory safety studies in one species, and in vitro and in vivo studies to assess potential gene mutations. In animal toxicology studies of prochlorperazine aerosols involving prolonged daily dosing, we detected changes to, and increases in the number of, the cells in the upper airway of the test animals. The terms for these changes and increases are “squamous metaplasia” and “hyperplasia,” respectively. We also observed lung inflammation in some animals. Squamous metaplasia and hyperplasia occurred at doses that were substantially greater than those administered in our human clinical trials. In subsequent toxicology studies of AZ-001 involving intermittent dosing, we detected lower incidence and severity of squamous metaplasia and hyperplasia in the upper airway of the test animals compared to the daily dosing results. No lung inflammation was observed with intermittent dosing. We do not expect to observe these events when AZ-001 is delivered intermittently and at proportionately lower doses in future toxicology studies. We continue to conduct toxicology and other preclinical studies, including preliminary studies to prepare for potentially required longer term carcinogenicity studies, to generate the preclinical data that will be required to submit a New Drug Application, or NDA, for AZ-001.

AZ-004 (Staccato loxapine for acute agitation)

We are developing AZ-004 for the treatment of acute agitation in patients with schizophrenia. The API of AZ-004 is loxapine, a generic drug belonging to the class of drugs known as antipsychotics. Loxapine is currently approved in oral and injectable (intramuscular only) formulations in the United States for the management of the manifestations of schizophrenia.

Market Opportunity

Acute agitation is a complication of many major psychiatric disorders, including schizophrenia, bipolar disorder and dementia, characterized by an unpleasant degree of arousal, tension and irritability, frequently leading to confusion, hyperactivity and hostility. According to the National Institute of Mental Health, schizophrenia afflicts approximately three million people in the United States. Agitation is one of the most common and severe symptoms of schizophrenia. Patients may seek treatment in a psychiatric services setting or a private psychiatric hospital, and some do not receive treatment. Treated patients are generally given an intramuscular injection of an atypical antipsychotic drug. However, intramuscular injections are invasive, can take 30 to 60 minutes to work, are often disconcerting to patients, and can be dangerous to the medical personnel attempting to give the injection. We believe that many schizophrenic patients can make informed decisions regarding their treatment in an acute agitative state and would prefer a noninvasive treatment. We believe there is a significant unmet medical need for a faster, noninvasive treatment of agitation in schizophrenic patients.

Development Status

Clinical Trials

Clinical Trial Design.  We completed enrollment of a Phase IIa clinical trial in January 2007 and reported initial results of this trial in March 2007. The Phase IIa clinical trial was designed as a multi-center, randomized, double-blind, placebo-controlled study of 120 patients in an in-patient clinical setting. In the trial, two doses of AZ-004 (Staccato loxapine in 5.0 and 10.0 mg doses) and placebo (Staccato device containing no drug) were tested. The primary aim of the clinical trial was to assess the safety and efficacy of a single dose of AZ-004 in acutely treating agitation in schizophrenic patients. Assessments of a patient’s agitation state were conducted at serial time points using both standard agitation scales and objective measures of patient’s movement over a 4-hour period, with follow-up assessments for the next 20 hours. The change in the PANSS (Positive and Negative Symptom Scale) Excited Component (PEC) score at the 2-hour post-dose time point was the primary efficacy measure for the

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clinical study. All results were considered statistically significant at the p < 0.05 level and all analyses were made on an intent-to-treat basis. Side effects were recorded throughout the clinical trial study period.

Primary Efficacy Endpoint.  The 10.0 mg dose of AZ-004 met the primary endpoint of the clinical trial, showing a statistically significant improvement, compared to placebo. The 5.0 mg dose of AZ-004 did not achieve statistical significance, compared to placebo.

PEC Scores (Mean Values)

	Baseline		2-hour Post-
Study Arms	Mean		Dose Mean		Significance
10.0 mg AZ-004		17.3		8.8		p=0.0005
5.0 mg AZ-004		17.6		10.8		p=0.1067
Placebo		17.7		12.7		na

Note: na = not applicable

Additional Efficacy Variables.  The 10 mg dose of AZ-004 also exhibited a rapid onset of effect. At 20 minutes post-dose, the 10.0 mg dose showed statistically significant improvement in the PEC scores, compared to placebo. The effectiveness of the 10.0 mg dose was sustained throughout the 24-hour study period, compared to placebo.

Using the Behavioral Activity Rating Scale (BARS), the 10.0 mg dose of AZ-004 showed statistically significant improvement, compared to placebo, beginning at 30 minutes. This response was sustained throughout the 24-hour study period, compared to placebo.

Clinical Global Impression-Severity (CGI-S) scale ratings to measure agitation were completed at baseline, immediately prior to AZ-004 administration. At the 2-hour post-dose time point, a Clinical Global Impression-Improvement (CGI-I) evaluation was completed for each patient. Both the 10.0 mg and the 5.0 mg doses of AZ-004 showed statistically significant improvements in the CGI-I scale, compared to placebo.

Safety Evaluations.  Side effects were recorded throughout the clinical trial period. The administration of AZ-004 was generally safe and well tolerated. The most common side effects reported were unpleasant taste, sedation and dizziness. These side effects were generally mild to moderate in severity, and occurred in both drug and placebo dose groups. There were three serious adverse events reported associated with the trial and all occurred at least one week post dosing. None of these serious adverse events were deemed attributable to study medication.

Device Performance.  All efficacy and safety analyses were completed on an intent-to-treat basis. Staccato devices used in the clinical trial were returned for analysis of device performance. Preliminary analysis of the returned devices and all devices routinely analyzed during quality control and ongoing stability studies related to the clinical trial materials showed a device mechanical failure rate of less than 1%.

Preclinical Studies

Loxapine has been approved for marketing in oral and injectable forms. There are publicly available safety pharmacology, systemic toxicology, carcinogenicity and reproductive toxicology data we will be able to use for our regulatory filings. Therefore, our preclinical development testing is primarily focused on assessing the local tolerability of inhaled loxapine. Our two preclinical inhalation toxicology studies with loxapine have indicated that it was generally well tolerated. We continue to conduct toxicology, including extended duration exposure testing, and other preclinical studies to generate the data that will be required to submit an NDA for AZ-004.

AZ-002 (Staccato alprazolam)

We are developing AZ-002 for the acute treatment of panic attacks associated with panic disorder. Although there are several chronic treatments approved to treat panic disorder, there are currently no approved drugs to acutely treat associated panic attacks. The API of AZ-002 is alprazolam, a drug belonging to the class of drugs known as benzodiazepines. Alprazolam is currently approved in oral formulations in the United States for use in the

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management of anxiety disorder, for the short term relief of symptoms of anxiety, for anxiety associated with depression, and for the treatment of panic disorder with or without agoraphobia, or abnormal fear of being in public places. We believe alprazolam is one of the most frequently prescribed psychoactive drugs in the United States. Alprazolam oral tablet formulations are usually prescribed for a short-duration course of therapy of a few days to a few weeks with the goal of reducing the frequency of symptoms of anxiety or panic disorder, including panic attacks. However, the oral tablet formulations are not intended to acutely treat or reduce the severity of panic attacks when they occur. We believe alprazolam’s demonstrated ability to reduce the frequency of panic attacks, coupled with the noninvasive nature and pharmacokinetic, or PK, properties of the aerosolized form of alprazolam produced by our Staccato system, make AZ-002 a viable product candidate for the acute treatment of panic attacks. Pharmacokinetics is the analysis of absorption, distribution, metabolism and excretion of a drug by the body.

Market Opportunity

According to the National Institute of Mental Health and other sources, approximately 2.4 million people in the United States suffer from panic disorder, a condition characterized by the frequent, unpredictable occurrence of panic attacks. Approximately 60% of patients seek treatment for their panic attacks. The current leading treatments for panic disorder are selective serotonin reuptake inhibitors, or SSRIs, taken prophylactically on a daily basis. Clinical literature indicates that approximately 46% of patients suffering from anxiety disorders, including panic disorder, are also prescribed benzodiazepines to take on an “as-needed” basis, indicating a level of ineffective treatment with the SSRIs alone. In addition, patients initiating SSRI drug therapy often do not experience therapeutic effects for several weeks and during this time may experience breakthrough panic attacks.

We believe some physicians may generally prescribe benzodiazepines for patients to take as needed, when they feel a panic attack coming on, or during an attack. However, because the symptoms of a panic attack typically have a rapid onset and last less than 30 minutes, we believe oral benzodiazepines often do not work fast enough to provide patients with adequate relief.

Development Status

Clinical Trials

We completed a Phase I clinical trial of AZ-002 in healthy volunteers in September 2005. The purpose of this trial was to assess the safety, tolerability and PK properties of AZ-002. Using a dose escalation design, five doses (0.125 mg to 2.0 mg) of AZ-002 or placebo were studied in a total of 50 subjects. Results from the trial showed that AZ-002 was generally well tolerated at all doses. There were no serious adverse events and the side effects observed across all the dose groups were rated as mild or moderate in severity. These side effects included dizziness, sleepiness, fatigue and unpleasant taste. Across all doses, the PK analyses revealed dose proportional plasma concentration of alprazolam and peak plasma levels were generally reached within the first few minutes after dosing.

In April 2006, we initiated a Phase IIa proof-of-concept clinical trial with AZ-002 in patients with panic disorder. The primary aim of the clinical trial is to assess the safety and efficacy of a single dose of AZ-002 in treating a pharmacologically-induced panic attack. Changes in the intensity and the duration of the induced panic attack, using psychological and physiological measurements, are being evaluated at multiple time points during the study. Some of the first patients dosed in the study exhibited a higher level of sedation than had been observed at the same dose in healthy volunteers in the AZ-002 Phase I study. In consultation with the clinical investigator, we modified the protocol to reduce the dose of AZ-001 and to include an open label lead-in stage of the study in which patient sedation will be assessed. Once an acceptable dose of AZ-002 is determined from this lead-in stage, the randomized, double-blind proof-of-concept stage of the study will begin, as originally designed. To facilitate patient enrollment in the clinical trial, we recruited two additional clinical sites to conduct the study. In the manufacture of the new dosage strengths required for the amended protocol, a higher variability of the alprazolam emitted dose was observed. Further testing showed that alprazolam aerosols are electrically charged leading to variable deposition on the internal airway housing of the device. We believe this aerosol characteristic is unique to alprazolam and it has not been observed in our other development product candidates. Consequently, the manufacturing process for AZ-002 was modified to incorporate a conductive airway housing to reduce the effects

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of the electrically charged aerosol. We have manufactured AZ-002 using the new airway housing, and we believe this change has resolved the aerosol emitted dose variability.

Preclinical Studies

Alprazolam has been approved for marketing in oral tablet form. There are publicly available safety pharmacology, systemic toxicology, carcinogenicity and reproductive toxicology data that we will be able to use for our regulatory filings. Therefore, our preclinical development plan is primarily focused on assessing the local tolerability of inhaled alprazolam. To date, our two preclinical inhalation toxicology studies with inhaled alprazolam have indicated that it is generally well tolerated. We continue to conduct safety assessments, including extended duration exposure testing in toxicology studies to generate the preclinical data that will be required to submit an NDA for AZ-002.

AZ-003 (Staccato fentanyl)

We are developing our product candidate AZ-003 for the treatment of acute pain episodes in postoperative patients and in patients with breakthrough cancer pain. The API of AZ-003 is fentanyl, a drug belonging to the class of drugs known as opioid analgesics. Fentanyl is currently approved in three different formulations in the United States for the management of various types of pain: injectable, transmucosal, which deliver drugs through the mucous membranes of the mouth or nose, and transdermal, which deliver drug through the skin. Since the Staccato system technology can incorporate lockout and multiple dose features, we believe that AZ-003 will facilitate patient titration to the minimum effective drug dose in a safe, convenient, easy to use and simple delivery system. In addition, we believe the incorporation of patient lockout features may be a significant safety advantage and has the potential to prevent diversion, or use by individuals who have not been prescribed the drug. We plan no additional clinical development of AZ-003 during 2007 unless we are able to secure a corporate partner to support continued clinical and device development.

Market Opportunity

Based on our analysis of industry data and clinical literature, we believe over 25 million postoperative patients experience inadequate pain relief, despite receiving some form of pain management and, according to a three month study on cancer pain by Portenoy and Hagen (1990) and a cross-sectional study on cancer pain by Caraceni (2004), approximately 65% of patients diagnosed with cancer pain experience breakthrough cancer pain. A patient controlled analgesia, or PCA, IV pump is often used directly after surgery so the patient can achieve quick pain relief as needed. The PCA pump approach generally works well, but typically requires patients to remain in the hospital with an IV line in place. Physicians generally treat cancer pain using a combination of a chronic, long-acting drug and an acute or rapid acting drug for breakthrough pain. Treating a breakthrough pain episode with an oral medication is difficult due to the slow onset of therapeutic effect. However, patients usually also find more invasive, injectable treatments undesirable. Based on preclinical testing, we believe the PK of fentanyl delivered using a Staccato system will be similar to the PK of IV fentanyl administration. We believe many patients would benefit from a noninvasive but fast acting therapy that allows them to titrate the amount of pain medication to the amount of pain relief required.

Development Status

Clinical Studies

We have completed the initial analysis of the top-line results of our Phase I clinical trial with AZ-003 in December 2006. The primary aims of the Phase I clinical trial were to evaluate the arterial PK and absolute bioavailability for AZ-003 by comparing the AZ-003 profile to that of IV fentanyl, and to examine the pharmacodynamics, tolerability and safety of AZ-003 in opioid naive healthy subjects. The trial enrolled 50 subjects and was conducted at a single clinical center in two stages. Stage 1 of the protocol was an open-label, crossover comparison of a 25 g dose of AZ-003 by a single inhalation and the same dose of fentanyl administered intravenously over five seconds. Stage 2 of the protocol was a randomized double-blind, placebo-controlled, dose escalation of AZ-003 evaluating cumulative doses of 50, 100, 150 and 300 g of fentanyl. A 25 g individual dose

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of fentanyl was inhaled once in Stage 1, or 2, 4 or 6 times at 4 minute intervals for the first four different cohorts in Stage 2. A fifth cohort in Stage 2 received a 150 g dosing sequence starting at time zero and then a second 150 g dosing sequence starting at 60 minutes after the first dose, for a cumulative dose of 300 g. In addition to comprehensive PK sample collection, pharmacodynamic data were generated using pupilometry, a surrogate measure used to assess the functional activity of opioids.

The AZ-003 PK was substantially equivalent to the IV fentanyl PK, with similar peak plasma concentration (Cmax), time to maximum plasma concentration (Tmax) and area under the curve concentration (AUC). These data suggest complete bioavailability of the inhaled dose. Mean peak arterial plasma concentrations were observed within 30 seconds for both administration routes. In Stage 2 of the clinical trial, ascending doses of AZ-003 controlled by the Staccato device, exhibited dose-proportionality of fentanyl throughout the dosing range from 50g to 300 g, following an AUC analysis. There were no serious adverse events attributable to AZ-003, and the results from the clinical study showed that AZ-003 was generally safe and well tolerated at all doses.

During 2007, final study reports will be completed, and we plan to present data from this study in both scientific and medical forums. This is the first product candidate under development utilizing our Staccato Electric Multiple Dose (EMD) system.

Preclinical Studies

Fentanyl is approved for marketing in injectable, transdermal and transmucosal forms. We are able to use publicly available safety pharmacology, systemic toxicology and reproductive toxicology data for our regulatory filings. Therefore, our preclinical development testing is primarily focused on assessing the local tolerability of inhaled fentanyl. Our two preclinical inhalation toxicology tests in two animal species with fentanyl have indicated that it was generally well tolerated.

Product Candidate Selection

We believe our Staccato system is broadly applicable to a large number of medically important small molecule compounds that could be useful in the treatment of acute and intermittent conditions. Since our inception, we have undertaken technical feasibility screening of approximately 400 compounds, which has resulted in the identification of approximately 200 compounds that have demonstrated initial vaporization feasibility. We intend to continue to screen additional drug compounds for vaporization feasibility with our Staccato system.

Once we have established initial vaporization feasibility, we conduct experiments and activities designed to identify viable product candidates. These experiments and activities include calculation of emitted doses, analysis of whether or not the emitted dose would be therapeutic, particle size analyses, early product stability studies and comprehensive medical and market needs assessments. After completion of these experiments and activities, a formal Product Selection Advisory Board, or PSAB, composed of employees and outside experts, is convened to evaluate these data.

After a positive PSAB decision, we initiate preclinical pharmacology and toxicology studies, with the intent of filing an IND upon successful completion of our preclinical studies. During this preclinical period, we also manufacture toxicology study supplies and initiate the manufacturing scale-up to move the product candidate through manufacturing design verification testing and the production of clinical trial materials.

We believe that, with the current development status of our single dose device, we can move a compound from initial screening through filing of an IND in 12 to 18 months. In addition, we believe that the broad applicability of our Staccato technology will allow us to file one IND in 2007 and one to two INDs per year thereafter, as our resources permit.

Our Strategy

We intend to develop an extensive portfolio of products. Key elements of our strategy include:

•  Focus on Acute and Intermittent Conditions.  We focus our development and commercialization efforts on product candidates based on our Staccato technology that are intended to address important unmet medical

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and patient needs in the treatment of acute and intermittent conditions. To meet these needs, we believe that products that provide rapid onset, ease of use, noninvasive administration and, in some cases, patient titration of dose are required.

•  File One to Two INDs Per Year.  We have identified approximately 200 existing drugs that have shown initial vaporization feasibility using our Staccato system technology. We continue to screen and evaluate additional drugs as well as evaluate and develop screened drugs that have demonstrated initial vaporization feasibility. We plan to file one IND in 2007 and one to two INDs per year thereafter, as our resources permit.

•  Develop Commercialization Capabilities.  We intend to build our own U.S. based specialty sales force to market and sell any future products that address focused patient or prescriber markets, such as psychiatrists.

•  Establish Strategic Partnerships.  We intend to strategically partner with pharmaceutical companies to address markets that may require a larger sales force, greater marketing resources or specific expertise to maximize the value of some product candidates. For example, our arrangement with Symphony Allegro provided development capital. We also intend to seek international distribution partners for other product candidates. We may also enter into strategic partnerships with other pharmaceutical companies to combine our Staccato system with their proprietary compounds.

•  Retain and Control Product Manufacturing.  We own all manufacturing rights to our product candidates. We intend to internally complete the final manufacture and assembly of our product candidates and any future products, potentially enabling greater intellectual property protection and economic return from our future products. We also believe controlling the final manufacture and assembly reduces the risk of supply interruptions and allows more cost effective manufacturing.

Licensing Collaborations

Symphony Allegro, Inc.

On December 1, 2006 we entered into a transaction involving a series of related agreements providing for the financing of additional clinical and nonclinical development of AZ-002, Staccato alprazolam, and AZ-004, Staccato loxapine. Pursuant to the agreements, Symphony Capital LLC, a wholly owned subsidiary of Symphony Holdings LLC, and its investors have invested $50 million to form Symphony Allegro, Inc., or Symphony Allegro, to fund additional clinical and nonclinical development of Staccato alprazolam and Staccato loxapine. We have exclusively licensed to Symphony Allegro certain intellectual property rights related to Staccato alprazolam and Staccato loxapine. We have retained manufacturing rights to these two product candidates. We continue to be primarily responsible for the development of these two product candidates in accordance with a development plan and related development budgets. Pursuant to the agreements, we have received an exclusive purchase option that gives us the right, but not the obligation, to acquire all, but not less than all, of the equity of Symphony Allegro, and reacquire the intellectual property rights that we licensed to Symphony Allegro. This purchase option is exercisable at predetermined prices between December 1, 2007 and December 1, 2010, subject to an earlier exercise right in limited circumstances. The purchase option exercise price may be paid for in cash or in a combination of cash and our common stock, in our sole discretion, provided that the common stock portion may not exceed 40% of the purchase option exercise price or 10% of our common stock issued and outstanding as of the purchase option closing date. If we pay a portion of the purchase option exercise price in shares of our common stock, then we will be required to register such shares for resale under a resale registration statement pursuant to the terms of a registration rights agreement. If we do not exercise our purchase option by December 1, 2010, then Symphony Allegro will retain its exclusive license to develop and commercialize Staccato alprazolam and Staccato loxapine for all indications, and we will manufacture and sell Staccato alprazolam and Staccato loxapine to Symphony Allegro or its sublicensee for those purposes. Pursuant to a warrant purchase agreement, we issued to Symphony Allegro Holdings, LLC a warrant with a five-year term to purchase 2,000,000 shares of our common stock at $9.91 per share. We also paid a transaction structuring fee of $2.5 million, and reimbursed approximately $325,000 of Symphony Allegro transaction expenses to Symphony Allegro Holdings LLC.

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Manufacturing

We manufacture our product candidates with components supplied by vendors and with parts manufactured in-house. We believe that manufacturing our product candidates will potentially enable greater intellectual property protection and economies of scale and decrease the risk of supply interruptions.

We outsource the production of some components of our product candidates, including the printed circuit boards and the molded plastic airways. We currently use single source suppliers for these components, as well as for the API used in each of our product candidates. We may outsource the heat packages used in the single dose version of our Staccato system device in the future. We do not carry a significant inventory of these components, and establishing additional or replacement suppliers for any of these components may not be accomplished quickly, or at all, and could cause significant additional expense. Our suppliers have no contractual obligations to continue to supply us with any of the components necessary to manufacture our product candidates. Any supply interruption from our vendors would limit our ability to manufacture our product candidates and could delay clinical trials for, and regulatory approval of, our product candidates.

In October 2005, we entered into a joint development agreement with Autoliv ASP, Inc. under which we have agreed to share development costs for future versions of the heat packages for our single dose device for use in Phase III clinical trials and potential commercialization. Autoliv has agreed to exclusively collaborate with us to develop products intended for pulmonary drug delivery. Under the agreement, we are developing with Autoliv the specifications for the heat packages, delivery timetables and the manufacturing processes. If Autoliv is able to produce the heat packages according to specifications to be defined for the final product, Autoliv will have the option to negotiate with us a supply agreement to provide heat packages for our anticipated needs. Under the terms of the development agreement, we and Autoliv have each agreed to contribute $2,500,000 toward the development efforts. Our contribution is expected to include $1,750,000 for purchases of equipment and $750,000 for co-development efforts. The development agreement may be terminated by us upon 60 days written notice. If we terminate the agreement without any breach by Autoliv, we will be required to pay Autoliv $278,000 per calendar quarter or portion thereof elapsed after October 2005 and up to the date of termination. Upon such termination, Autoliv is obligated to grant us a license to their know how and patents necessary or useful for the manufacture, use or sale of the heat packages, if any, and we are required to pay Autoliv a royalty of $0.04 per unit we sell that uses their technology. We have not finalized the specifications or budget for the heat packages or timing for a supply agreement with Autoliv, and we may never reach agreement with Autoliv on the terms of a supply agreement.

The heat packages for our single dose device are manufactured by coating energetic materials on the inside surface of the metal substrate. After inspection and qualification, we assemble the components of our product candidates and coat the exterior of the metal substrate with a thin film of API. We then place the plastic airway around the assembly and package a completed device in a pharmaceutical-grade foil pouch. The controller for our multiple dose design includes the battery power source for heating the individual metal substrates, a microprocessor that directs the electric current to the appropriate metal substrate at the appropriate time, and an icon-based LCD that shows the number of doses remaining in the dose cartridge and the controller status. We may need to develop additional versions of our devices for future product candidates.

We believe we have developed quality assurance and quality control systems applicable to the design, manufacture, packaging, labeling and storage of our product candidates in compliance with applicable regulations. These systems include extensive requirements with respect to quality management and organization, product design, manufacturing facilities, equipment, purchase and handling of components, production and process controls, packaging and labeling controls, device evaluation, distribution and record keeping.

In August 2006, we executed a lease for a new facility in Mountain View, California. In 2007, we intend to build a current good manufacturing practices, or cGMP, compliant pilot manufacturing facility in this new location and plan to move our operations to the Mountain View facility by the end of 2007. We intend the pilot manufacturing facility to be capable of manufacturing materials for toxicology studies and clinical trial materials for future clinical trials.

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Marketing and Sales

We intend to establish a focused U.S. based specialty sales force to market and sell any future products, once approved, to specialty physicians for specific target indications. For any products that address larger U.S. therapeutic markets and for international markets, we intend to establish development and commercialization partnerships with pharmaceutical and biotechnology companies. We would enter into these partnerships to accelerate regulatory approval and product introduction, and to maximize the commercial opportunity.

Government Regulation

The testing, manufacturing, labeling, advertising, promotion, distribution, export and marketing of our product candidates are subject to extensive regulation by governmental authorities in the United States and other countries. Our product candidates include drug compounds incorporated into our delivery device and are considered “combination products” in the United States. We have agreed with the U.S. Food and Drug Administration, or FDA, that our product candidates will be reviewed by the FDA’s Center for Drug Evaluation and Research. The FDA, under the Federal Food, Drug and Cosmetic Act, or FDCA, regulates pharmaceutical products in the United States. The steps required before a drug may be approved for marketing in the United States generally include:

•  preclinical laboratory studies and animal tests;

•  the submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials commence;

•  adequate and well controlled human clinical trials to establish the safety and efficacy of the product;

•  the submission to the FDA of an NDA;

•  satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMP. In addition, the FDA may audit clinical trial sites that generated the data in support of the NDA; and

•  FDA review and approval of the NDA.

The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. Preclinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.

Clinical trials involve the administration of the product candidates to healthy volunteers or patients under the supervision of a qualified principal investigator. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.

Clinical trials typically are conducted in three sequential phases prior to approval, but the phases may overlap. A fourth, or post-approval, phase may include additional clinical studies. These phases generally include the following:

•  Phase I.  Phase I clinical trials involve the initial introduction of the drug into human subjects, frequently healthy volunteers. These studies are designed to determine the metabolism and pharmacologic actions of the drug in humans, the adverse effects associated with increasing doses and, if possible, to gain early evidence of effectiveness. In Phase I, the drug is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamics.

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•  Phase II.  Phase II clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the drug for specific, targeted indications; (2) determine dosage tolerance and optimal dosage; and (3) identify possible adverse effects and safety risks. Although there are no statutory or regulatory definitions for Phase IIa and Phase IIb, Phase IIa is commonly used to describe a Phase II clinical trial evaluating efficacy, adverse effects and safety risks and Phase IIb is commonly used to describe a subsequent Phase II clinical trial that also evaluates dosage tolerance and optimal dosage.

•  Phase III.  If a compound is found to be potentially effective and to have an acceptable safety profile in Phase II studies, the clinical trial program will be expanded to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. Phase III studies usually include several hundred to several thousand patients.

•  Phase IV.  Phase IV clinical trials are studies required of, or agreed to, by a sponsor that are conducted after the FDA has approved a product for marketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/IV post approval clinical trials. Failure to promptly conduct Phase IV clinical trials could result in withdrawal of approval for products approved under accelerated approval regulations.

In the case of products for the treatment of severe or life threatening diseases, the initial clinical trials are sometimes conducted in patients rather than in healthy volunteers. Since these patients are already afflicted with the target disease, it is possible that such clinical trials may provide evidence of efficacy traditionally obtained in Phase II clinical trials. These trials are referred to frequently as Phase I/II clinical trials. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The results of preclinical studies and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the FDA in the form of an NDA requesting approval to market the product. Generally, regulatory approval of a new drug by the FDA may follow one of three routes. The most traditional of these routes is the submission of a full NDA under Section 505(b)(1) of the FDCA. A second route, which is possible where an applicant chooses to rely in part on the FDA’s conclusion about the safety and effectiveness of previously approved drugs is to submit a more limited NDA described in Section 505(b)(2) of the FDCA. The final route is the submission of an Abbreviated New Drug Application for products that are shown to be therapeutically equivalent to previously approved drug products as permitted under Section 505(j) of the FDCA. We do not expect any of our product candidates to be submitted under Section 505(j). Both Section 505(b)(1) and Section 505(b)(2) applications are required by the FDA to contain full reports of investigations of safety and effectiveness. However, in contrast to a traditional NDA submitted pursuant to Section 505(b)(1) in which the applicant submits all of the data demonstrating safety and effectiveness, we believe an application submitted pursuant to Section 505(b)(2) can rely upon findings by the FDA that the parent drug is safe and effective in that indication. As a consequence, the preclinical and clinical development programs leading to the submission of an NDA under Section 505(b)(2) may be less expensive to carry out and can be concluded in a shorter period of time than programs required for a Section 505(b)(1) application. In its review of any NDA submissions, however, the FDA has broad discretion to require an applicant to generate additional data related to safety and efficacy and it is impossible to predict the number or nature of the studies that may be required before the FDA will grant approval. Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.

To the extent that a Section 505(b)(2) applicant is relying on the FDA’s findings for an already-approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication. A certification that the new product will not infringe the already approved products’ Orange Book-listed patents or that such patents are invalid is called a paragraph IV certification, and

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could be challenged in court by the patent owner or holder of the application of the already approved products. This could delay the approval of any Section 505(b)(2) application we submit. In addition, any period of marketing exclusivity applicable to the already approved product might delay approval of any Section 505(b)(2) application we submit. Any Section 505(b)(1) or Section 505(b)(2) application we submit for a drug product containing a previously approved API might be eligible for three years of marketing exclusivity, provided new clinical investigation that were conducted or sponsored by the applicant are essential to the FDA’s approval of the application. Five years of marketing exclusivity is granted if FDA approves an NDA for a new chemical entity. In addition, we can list in the FDA’s Orange Book publication any of our patents claiming the drug product, drug substance or that cover an approved method-of-use. In order for a generic applicant to rely on the FDA’s approval of any NDA we submit, such generic applicant must certify to any Orange Book listed patents and might be subject to any marketing exclusivity covering our approved drug product.

In the NDA submissions for our product candidates that are currently undergoing clinical trials, we intend to follow the development pathway permitted under the FDCA that we believe will maximize the commercial opportunities for these product candidates. We are currently pursuing the Section 505(b)(2) application route for our product candidates. As such, we intend to engage in discussions with the FDA to determine which, if any, portions of our development program can be modified, based on previous FDA findings of a drug’s safety and effectiveness.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured, whether ours or our third party manufacturers’, and will not approve the product unless the manufacturing facility complies with cGMP. The FDA reviews all NDA’s submitted before it accepts them for filing and may request additional information rather than accept an NDA for filing. Once the NDA submission has been accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has 10 months in which to complete its initial review of a standard NDA and respond to the applicant, and six months for a priority NDA. The FDA does not always meet the PDUFA goal dates for standard and priority NDA’s. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product. FDA approval of any NDA submitted by us will be at a time the FDA chooses. Also, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which such product may be marketed. Once approved, the FDA may withdraw the product approval if compliance with pre and post-marketing regulatory requirements and conditions of approvals are not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase IV studies, to monitor the effect of approved products and may limit further marketing of the product based on the results of these post-marketing studies.

If we obtain regulatory approval for a product, this clearance will be limited to those diseases and conditions for which the product is effective, as demonstrated through clinical trials. Even if this regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the FDA and, in our case, the State of California. Discovery of previously unknown problems with a medicine, device, manufacturer or facility may result in restrictions on the marketing or manufacturing of an approved product, including costly recalls or withdrawal of the product from the market. The FDA has broad post-market regulatory and enforcement powers, including the ability to suspend or delay issuance of approvals, seize or recall products, withdraw approvals, enjoin violations and institute criminal prosecution.

In addition to regulation by the FDA and certain state regulatory agencies, the United States Drug Enforcement Administration, or DEA, imposes various registration, recordkeeping and reporting requirements, procurement and manufacturing quotas, labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products under the Controlled Substances Act. A principal factor in determining the particular requirements, if any, applicable to a product is its actual or potential abuse profile. The DEA regulates drug substances as Schedule I, II, III, IV or V substances, with Schedule I and II substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. Our product candidates AZ-002 (alprazolam) and AZ-003 (fentanyl) are Schedule IV and II controlled substances, respectively, and are subject to DEA regulations relating to manufacturing, storage, distribution and physician prescription procedures, and the

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DEA regulates the amount of the scheduled substance that would be available for clinical trials and commercial distribution. As a Schedule II substance, fentanyl is subject to additional controls, including quotas on the amount of product that can be manufactured and limitations on prescription refills. We have received necessary registrations from the DEA for the manufacture of AZ-002 and AZ-003. The DEA periodically inspects facilities for compliance with its rules and regulations. Failure to comply with current and future regulations of the DEA could lead to a variety of sanctions, including revocation, or denial of renewal of DEA registrations, injunctions, or civil or criminal penalties, and could harm our business and financial condition.

The single dose design of our Staccato system uses what we refer to as “energetic materials” to generate the rapid heating necessary for vaporizing the drug while avoiding degradation. Manufacture of products containing these types of materials is controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, under 18 United States Code Chapter 40. Technically, the energetic materials used in our Staccato system are classified as “low explosives,” and we have been granted a license/permit by the ATF for the manufacture of such low explosives.

Additionally, due to inclusion of the energetic materials in our Staccato system, shipments of the single dose design of our Staccato system are regulated by the Department of Transportation, or DOT, under Section 173.56, Title 49 of the United States Code of Federal Regulations. The single dose version of our Staccato device has been granted “Not Regulated as an Explosive” status by the DOT.

We have received funding for one or more research projects from a funding agency of the United States government, and inventions conceived or first actually reduced to practice during the performance of the research project are subject to the rights and limitations of certain federal statutes and various implementing regulations known generally and collectively as the “Bayh-Dole Requirements.” As a funding recipient, we are subject to certain invention reporting requirements, and certain limitations are placed on assignment of the invention rights. In addition, the federal government retains a non-exclusive, irrevocable, paid-up license to practice the invention and, in exceptional cases, the federal government may seek to take title to the invention.

We also will be subject to a variety of foreign regulations governing clinical trials and the marketing of any future products. Outside the United States, our ability to market a product depends upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory authority is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The time needed to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversight process in other countries includes all of the risks associated with the FDA process described above.

Pharmaceutical Pricing and Reimbursement

In both domestic and foreign markets, our ability to commercialize successfully and attract strategic partners for our product candidates depends in significant part on the availability of adequate coverage and reimbursement from third-party payors, including, in the United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations, and private health insurers. Third-party payors are increasingly challenging prices charged for medical products and services and examining their cost effectiveness, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost effectiveness of any future products. Even with studies, our product candidates may be considered less safe, less effective or less cost effective than existing products, and third-party payors therefore may not provide coverage and reimbursement for our product candidates, in whole or in part.

Political, economic and regulatory influences are subjecting the healthcare industry in the United States to fundamental changes. There have been, and we expect there will continue to be, a number of legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business. We

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anticipate that Congress, state legislatures and the private sector will continue to consider and may adopt healthcare policies intended to curb rising healthcare costs. These cost containment measures include:

•  controls on government funded reimbursement for medical products and services;

•  controls on healthcare providers;

•  challenges to the pricing of medical products and services or limits or prohibitions on reimbursement for specific products and therapies through other means;

•  reform of drug importation laws; and

•  expansion of use of managed care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per person.

We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation, regulations or policies would have on our business. Any cost containment measures, including those listed above, or other healthcare system reforms that are adopted could have a material adverse effect on our ability to operate profitably.

Patents and Proprietary Rights

We actively seek to patent the technologies, inventions and improvements we consider important to the development of our business. In addition, we rely on trade secrets and contractual arrangements to protect our proprietary information. Some areas for which we seek patent protection include:

•  the Staccato system and its components;

•  methods of using the Staccato system;

•  the aerosolized form of drug compounds produced by the Staccato system; and

•  methods of making and using the drug containing aerosols, including methods of administering the aerosols to a patient.

As of March 15, 2007, we held over 75 issued and allowed U.S. and international patents. Most of our patents are directed to compositions for delivery of an aerosol comprising drugs other than our lead product candidates described below, and cover the process for producing these aerosols using the Staccato technology. As of that date, we held over 50 additional pending patent applications in the United States. We also hold approximately 150 pending corresponding foreign patent applications or Patent Cooperation Treaty applications that will permit us to pursue additional patents outside of the United States. The claims in these various patents and patent applications are directed to various aspects of our drug delivery devices and their components, methods of using our devices, drug containing aerosol compositions and methods of making and using such compositions.

AZ-001 (Staccato prochlorperazine)

One of our issued U.S. patents covers compositions for delivery of a condensation aerosol comprising prochlorperazine and covers the process for producing such condensation aerosol using the Staccato system technology. This patent will not expire until 2022. Counterparts to this patent are pending in a number of foreign jurisdictions, including Europe. We also have three other U.S. patents directed to condensation aerosol compositions for delivery of prochlorperazine, kits containing devices for forming such compositions, and methods of administering such compositions.

AZ-004 (Staccato loxapine)

One of our issued U.S. patents covers compositions for delivery of a condensation aerosol comprising loxapine and covers the process for producing such condensation aerosol using the Staccato system technology. This patent will not expire until 2022. Counterparts to this patent are pending in a number of foreign jurisdictions, including

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Europe. We also have three other U.S. patents directed to condensation aerosol compositions for delivery of loxapine, kits containing devices for forming such compositions and methods of administering such compositions.

AZ-002 (Staccato alprazolam)

One of our issued U.S. patents covers compositions for delivery of a condensation aerosol comprising alprazolam and covers the process for producing such condensation aerosol using the Staccato system technology. This patent will not expire until 2022. Counterparts to this patent are pending in a number of foreign jurisdictions, including Europe. We also have three other U.S. patents directed to condensation aerosol compositions for delivery of alprazolam, kits containing devices for forming such compositions, and methods of administering such compositions.

AZ-003 (Staccato fentanyl)

One of our issued U.S. patents covers compositions for delivery of a condensation aerosol comprising fentanyl and covers the process for producing such condensation aerosol using the Staccato system technology. This patent will not expire until 2022. Counterparts to this patent are pending in a number of foreign jurisdictions, including Europe. We also have three other U.S. patents directed to condensation aerosol compositions for delivery of fentanyl, kits containing devices for forming such compositions, and methods of administering such compositions.

Competition

The pharmaceutical and biotechnology industries are intensely competitive. Many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations are actively engaged in research and development of products targeting the same markets as our product candidates. Many of these organizations have substantially greater financial, research, drug development, manufacturing and marketing resources than we have. Large pharmaceutical companies in particular have extensive experience in clinical testing and obtaining regulatory approvals for drugs. Our ability to compete successfully will depend largely on our ability to:

•  develop products that are superior to other products in the market;

•  attract and retain qualified scientific, product development and commercial personnel;

•  obtain patent and/or other proprietary protection covering our future products and technologies;

•  obtain required regulatory approvals; and

•  successfully collaborate with pharmaceutical and biotechnology companies in the development and commercialization of new products.

We expect any future products we develop to compete on the basis of, among other things, product efficacy and safety, time to market, price, extent of adverse side effects experienced and convenience of treatment procedures. One or more of our competitors may develop products based upon the principles underlying our proprietary technologies earlier than we do, obtain approvals for such products from the FDA more rapidly than we do or develop alternative products or therapies that are safer, more effective and/or more cost effective than any future products developed by us. In addition, our ability to compete may be affected if insurers and other third-party payors encourage the use of generic products through other routes of administration, making our pulmonary delivery products less attractive from a cost perspective.

Any future products developed by us would compete with a number of alternative drugs and therapies, including the following:

•  AZ-001 would compete with available triptan drugs, such as Imitrex^®, Zomig^® and Maxalt^®, and IV prochlorperazine;

•  AZ-004 would compete with the injectable form of loxapine (Loxitane^®) and other antipsychotic drugs, such as Zyprexa^® and Geodon^®;

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•  AZ-002 would compete with the oral tablet form of alprazolam and other benzodiazepines and antidepressant drugs, such as Klonopin^®, Paxil^®, Prozac^® and Effexor^®; and

•  AZ-003 would compete with injectable and other forms of fentanyl and various generic oxycodone, hydrocodone and morphine products.

Many of these existing drugs have substantial current sales and long histories of effective and safe use. In addition to currently marketed drugs, we believe there are a number of drug candidates in clinical trials that, if approved in the future, would compete with any future products we may develop.

Employees

As of March 15, 2007, we had 141 full time employees, 30 of whom held Ph.D. or M.D. degrees and 98 of whom were engaged in full time research and development activities. We plan to continue to expand our product candidate development programs and hire additional staff to facilitate this growth. We continue to search for qualified individuals with interdisciplinary training to address the various aspects and applications of our development candidates and our technologies. None of our employees is represented by a labor union, and we consider our employee relations to be good.

Corporate Information

We were incorporated in the state of Delaware on December 19, 2000 as FaxMed, Inc. In June 2001, we changed our name to Alexza Corporation and in December 2001 we became Alexza Molecular Delivery Corporation. In July 2005, we changed our name to Alexza Pharmaceuticals, Inc.

Available Information

Our website address is www.alexza.com; however, information found on, or that can be accessed through our website is not incorporated by reference into this annual report. We file electronically with the SEC our annual report, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available free of charge on or through our website copies of these reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. You may also read and copy any of our materials filed with the SEC at the SEC’s Public References Room at 100 F Street, NW, Washington, DC 20549. Information regarding the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

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Item 1A.   Risk Factors

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Annual Report, before deciding whether to invest in shares of our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

We have a history of net losses. We expect to continue to incur substantial and increasing net losses for the foreseeable future, and we may never achieve or maintain profitability.

We are not profitable and have incurred significant net losses in each year since our inception, including net losses of $41.8 million, $32.4 million and $16.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. As of December 31, 2006, we had a deficit accumulated during development stage of $119.0 million. We expect our expenses to increase as we expand our product candidate and manufacturing development programs and add the necessary infrastructure to support operating as a public company. As a result, we expect to incur substantial and increasing net losses and negative cash flow for the foreseeable future. These losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity (deficit) and working capital.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Currently, we have no products approved for commercial sale, and to date we have not generated any product revenue. We have financed our operations primarily through the sale of equity securities, capital lease and equipment financing and government grants. The size of our future net losses will depend, in part, on the rate of growth of our expenses and the rate of growth, if any, of our revenues. Revenues from potential strategic partnerships are uncertain because we may not enter into any strategic partnerships, and we do not expect any government grant revenue in 2007. If we are unable to develop and commercialize one or more of our product candidates or if sales revenue from any product candidate that receives marketing approval is insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.

We are a development stage company. Our success depends substantially on our lead product candidates. If we do not develop commercially successful products, we may be forced to cease operations.

You must evaluate us in light of the uncertainties and complexities affecting a development stage pharmaceutical company. We have not yet commenced Phase III trials for any of our product candidates. Each of our product candidates is at an early stage of development and will be unsuccessful if it:

•  does not demonstrate acceptable safety and efficacy in preclinical studies and clinical trials or otherwise does not meet applicable regulatory standards for approval;

•  does not offer therapeutic or other improvements over existing or future drugs used to treat the same or similar conditions;

•  is not capable of being produced in commercial quantities at an acceptable cost, or at all; or

•  is not accepted by patients, the medical community or third party payors.

Our ability to generate product revenue in the future is dependent on the successful development and commercialization of our product candidates. We have not proven our ability to develop and commercialize products. Problems frequently encountered in connection with the development and utilization of new and unproven technologies and the competitive environment in which we operate might limit our ability to develop

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commercially successful products. We do not expect any of our current product candidates to be commercially available before 2011, if at all. If we are unable to make our product candidates commercially available, we will not generate product revenues, and we will not be successful.

We will need substantial additional capital in the future. If additional capital is not available, we will have to delay, reduce or cease operations.

We will need to raise additional capital to fund our operations, to develop our product candidates and to develop our manufacturing capabilities. Our future capital requirements will be substantial and will depend on many factors including:

•  the scope, rate of progress, results and costs of our preclinical studies, clinical trials and other research and development activities, and our manufacturing development and commercial manufacturing activities;

•  the amount and timing of payments from Symphony Allegro related to the development of Staccato alprazolam and Staccato loxapine;

•  the amount and timing of any payments to Symphony Allegro related to the repurchase of rights to Staccato alprazolam and Staccato loxapine;

•  the cost, timing and outcomes of regulatory proceedings;

•  the cost and timing of developing sales and marketing capabilities;

•  the cost and timing of developing manufacturing capacity;

•  revenues received from any future products;

•  payments received under any strategic partnerships;

•  the filing, prosecution and enforcement of patent claims;

•  the costs associated with moving to our new facility in 2007 and 2008; and

•  the costs associated with commercializing our product candidates, if they receive regulatory approval.

We anticipate that existing cash, cash equivalents and marketable securities, along with interest earned thereon, payments expected to be received from Symphony Allegro and proceeds from stock option exercises and purchases under our Employee Stock Purchase Plan, will enable us to maintain our currently planned operations through at least the end of the first quarter of 2008. Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We may be unable to raise sufficient additional capital on favorable terms to us, or at all. If we fail to raise sufficient funds, we will have to delay development programs or reduce or cease operations, or we may be required to enter into a strategic partnership at an earlier stage of development than currently anticipated. Our estimates of future capital use are uncertain, and changes in our development plans, payments received from Symphony Allegro, partnering activities, regulatory requirements and other developments may increase our rate of spending and decrease the amount of time our available resources will fund our operations.

We may never be able to generate a sufficient amount of product revenue to cover our expenses. Until we do, we expect to finance our future cash needs through public or private equity offerings, debt financings, strategic partnerships or licensing arrangements, as well as interest income earned on cash balances and proceeds from stock option exercises and purchases under our Employee Stock Purchase Plan. Any financing transaction may contain unfavorable terms. If we raise additional funds by issuing equity securities, our stockholders’ equity will be diluted. If we raise additional funds through strategic partnerships, we may be required to relinquish rights to our product candidates or technologies, or to grant licenses on terms that are not favorable to us.

Unless our preclinical studies demonstrate the safety of our product candidates, we will not be able to commercialize our product candidates.

To obtain regulatory approval to market and sell any of our product candidates, we must satisfy the FDA and other regulatory authorities abroad, through extensive preclinical studies, that our product candidates are safe. Our

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Staccato technology creates condensation aerosols from drug compounds, and there currently are no approved products that use a similar method of drug delivery. Companies developing other inhalation products have not defined or successfully completed the types of preclinical studies we believe will be required for submission to regulatory authorities as we seek approval to conduct our clinical trials. We may not conduct the types of preclinical testing eventually required by regulatory authorities, or the preclinical tests may indicate that our product candidates are not safe for use in humans. Preclinical testing is expensive, can take many years and have an uncertain outcome. In addition, success in initial preclinical testing does not ensure that later preclinical testing will be successful. We may experience numerous unforeseen events during, or as a result of, the preclinical testing process, which could delay or prevent our ability to develop or commercialize our product candidates, including:

•  our preclinical testing may produce inconclusive or negative safety results, which may require us to conduct additional preclinical testing or to abandon product candidates that we believed to be promising;

•  our product candidates may have unfavorable pharmacology, toxicology or carcinogenicity; and

•  our product candidates may cause undesirable side effects.

Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial condition and prospects.

Preclinical studies indicated possible adverse impact of pulmonary delivery of AZ-001.

In our daily dosing animal toxicology studies of prochlorperazine, the active pharmaceutical ingredient, or API, in AZ-001, we detected changes to, and increases of, the cells in the upper airway of the test animals. The terms for these changes and increases are “squamous metaplasia” and “hyperplasia,” respectively. We also observed lung inflammation in some animals. These findings occurred in daily dosing studies at doses that were proportionately substantially greater than any dose we expect to continue to develop or commercialize. In subsequent toxicology studies of AZ-001 involving intermittent dosing consistent with its intended use, we detected lower incidence and severity of the changes to, and increases of, the cells in the upper airway of the test animals compared to the daily dosing results. We did not observe any lung inflammation with intermittent dosing. These findings suggest that the delivery of the pure drug compound of AZ-001 at the proportionately higher doses used in daily dosing toxicology studies may cause adverse consequences if we were to administer prochlorperazine chronically for prolonged periods of time. If we observe these findings in our clinical trials of AZ-001, it could prevent further development or commercialization of AZ-001.

Failure or delay in commencing or completing clinical trials for our product candidates could harm our business.

To date, we have not completed all the clinical trials necessary to support an application with the FDA for approval to market any of our product candidates. Current and planned clinical trials may be delayed or terminated as a result of many factors, including:

•  delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective sites;

•  regulators or institutional review boards may not authorize us to commence a clinical trial;

•  regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or concerns about patient safety;

•  we may suspend or terminate our clinical trials if we believe that they expose the participating patients to unacceptable health risks;

•  we may experience slower than expected patient enrollment or lack of a sufficient number of patients that meet the enrollment criteria for our clinical trials;

•  patients may not complete clinical trials due to safety issues, side effects, dissatisfaction with the product candidate, or other reasons;

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•  we may have difficulty in maintaining contact with patients after treatment, preventing us from collecting the data required by our study protocol;

•  product candidates may demonstrate a lack of efficacy during clinical trials;

•  we may experience governmental or regulatory delays, failure to obtain regulatory approval or changes in regulatory requirements, policy and guidelines; and

•  we may experience delays in our ability to manufacture clinical trial materials in a timely manner as a result of ongoing process and design enhancements to our Staccato system and the planned move to a new facility in 2007.

Any delay in commencing or completing clinical trials for our product candidates would delay commercialization of our product candidates and harm our business, financial condition and prospects. It is possible that none of our product candidates will successfully complete clinical trials or receive regulatory approval, which would severely harm our business, financial condition and prospects.

If our product candidates do not meet safety and efficacy endpoints in clinical trials, they will not receive regulatory approval, and we will be unable to market them.

Our product candidates are in preclinical and clinical development and have not received regulatory approval from the FDA or any foreign regulatory authority. The clinical development and regulatory approval process is extremely expensive and takes many years. The timing of any approval cannot be accurately predicted. If we fail to obtain regulatory approval for our current or future product candidates, we will be unable to market and sell them and therefore may never be profitable.

As part of the regulatory process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy to the satisfaction of the FDA and other regulatory authorities abroad. The number and design of clinical trials that will be required varies depending on the product candidate, the condition being evaluated, the trial results and regulations applicable to any particular product candidate.

Prior clinical trial program designs and results are not necessarily predictive of future clinical trial designs or results. Initial results may not be confirmed upon full analysis of the detailed results of a trial. Product candidates in later stage clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials with acceptable endpoints. Prior clinical trial program designs and results are not necessarily predictive of future clinical trial designs or results.

If our product candidates fail to show a clinically significant benefit compared to placebo, they will not be approved for marketing.

Device failure rates higher than we anticipate may result in clinical trials that do not meet their specific efficacy endpoints. We experienced a 3% device failure rate in our Phase IIa clinical trial of AZ-001, which caused some of the results to be not statistically significant. We experienced a device failure rate in our Phase IIb clinical trial of AZ-001 of less than 1%. Device failures or improper device use by patients may impact the results of future trials. The design of our clinical trials is based on many assumptions about the expected effect of our product candidates, and if those assumptions prove incorrect, the clinical trials may not produce statistically significant results. In addition, because we are developing AZ-002 for a novel indication, and may develop future product candidates for other novel indications, and because our Staccato technology is not similar to other approved drug delivery methods, there is no clear precedent for the application of detailed regulatory requirements to our product candidates. We cannot assure you that the design of, or data collected from, the clinical trials of our product candidates will be sufficient to support the FDA and foreign regulatory approvals.

Regulatory authorities may not approve our product candidates even if they meet safety and efficacy endpoints in clinical trials.

The FDA and other foreign regulatory agencies can delay, limit or deny marketing approval for many reasons, including:

•  a product candidate may not be considered safe or effective;

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•  the manufacturing processes or facilities we have selected may not meet the applicable requirements; and

•  changes in their approval policies or adoption of new regulations may require additional work on our part.

Any delay in, or failure to receive or maintain, approval for any of our product candidates could prevent us from ever generating meaningful revenues or achieving profitability.

Our product candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors may disagree with our trial design and our interpretations of data from preclinical studies and clinical trials. Regulatory agencies may change requirements for approval even after a clinical trial design has been approved. Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

Our product candidates will remain subject to ongoing regulatory review even if they receive marketing approval. If we fail to comply with continuing regulations, we could lose these approvals, and the sale of any future products could be suspended.

Even if we receive regulatory approval to market a particular product candidate, the FDA or a foreign regulatory authority could condition approval on conducting additional costly post-approval studies or could limit the scope of our approved labeling. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us to withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, we will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing approval, the FDA imposes extensive regulatory requirements on the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the product.

If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with any future products, suppliers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including:

•  restrictions on the products, suppliers or manufacturing processes;

•  warning letters or untitled letters;

•  civil or criminal penalties or fines;

•  injunctions;

•  product seizures, detentions or import bans;

•  voluntary or mandatory product recalls and publicity requirements;

•  suspension or withdrawal of regulatory approvals;

•  total or partial suspension of production; and

•  refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications.

If we do not produce our devices cost effectively, we will never be profitable.

Our Staccato system based product candidates contain electronic and other components in addition to the active pharmaceutical ingredients. As a result of the cost of developing and producing these components, the cost to produce our product candidates, and any approved products, will likely be higher per dose than the cost to produce intravenous or oral tablet products. This increased cost of goods may prevent us from ever selling any products at a profit. In addition, we are developing single dose and multiple dose versions of our Staccato system. Developing multiple versions of our Staccato system may reduce or eliminate our ability to achieve manufacturing economies of scale. In addition, developing multiple versions of our Staccato system reduces our ability to focus development

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resources on each version, potentially reducing our ability to effectively develop any particular version. We expect to continue to modify each of our product candidates throughout their clinical development to improve their performance, dependability, manufacturability and quality. Some of these modifications may require additional regulatory review and approval, which may delay or prevent us from conducting clinical trials. The development and production of our technology entail a number of technical challenges, including achieving adequate dependability, that may be expensive or time consuming to solve. Any delay in or failure to develop and manufacture any future products in a cost effective way could prevent us from generating any meaningful revenues and prevent us from becoming profitable.

We rely on third parties to conduct our preclinical studies and our clinical trials. If these third parties do not perform as contractually required or expected, we may not be able to obtain regulatory approval for our product candidates, or we may be delayed in doing so.

We do not have the ability to conduct preclinical studies or clinical trials independently for our product candidates. We must rely on third parties, such as contract research organizations, medical institutions, academic institutions, clinical investigators and contract laboratories, to conduct our preclinical studies and clinical trials. We are responsible for confirming that our preclinical studies are conducted in accordance with applicable regulations and that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. The FDA requires us to comply with regulations and standards, commonly referred to as good laboratory practices, or GLP, for conducting and recording the results of our preclinical studies and good clinical practices for conducting, monitoring, recording and reporting the results of clinical trials, to assure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with the FDA’s good clinical practice regulations, do not adhere to our clinical trial protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Problems with the third parties that manufacture the active pharmaceutical ingredients in our product candidates may delay our clinical trials or subject us to liability.

We do not currently own or operate manufacturing facilities for clinical or commercial production of the API used in any of our product candidates. We have no experience in drug manufacturing, and we lack the resources and the capability to manufacture any of the APIs used in our product candidates, on either a clinical or commercial scale. As a result, we rely on third parties to supply the API used in each of our product candidates. We expect to continue to depend on third parties to supply the API for our lead product candidates and any additional product candidates we develop in the foreseeable future.

An API manufacturer must meet high precision and quality standards for that API to meet regulatory specifications and comply with regulatory requirements. A contract manufacturer is subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign authorities to ensure strict compliance with current good manufacturing practice, or cGMP, and other applicable government regulations and corresponding foreign standards. Additionally, a contract manufacturer must pass a pre-approval inspection by the FDA to ensure strict compliance with cGMP prior to the FDA’s approval of any product candidate for marketing. A contract manufacturer’s failure to conform with cGMP could result in the FDA’s refusal to approve or a delay in the FDA’s approval of a product candidate for marketing. We are ultimately responsible for confirming that the APIs used in our product candidates are manufactured in accordance with applicable regulations.

Our third party suppliers may not carry out their contractual obligations or meet our deadlines. In addition, the API they supply to us may not meet our specifications and quality policies and procedures. If we need to find alternative suppliers of the API used in any of our product candidates, we may not be able to contract for such supplies on acceptable terms, if at all. Any such failure to supply or delay caused by such contract manufacturers would have an adverse affect on our ability to continue clinical development of our product candidates or commercialize any future products.

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If our third party drug suppliers fail to achieve and maintain high manufacturing standards in compliance with cGMP regulations, we could be subject to certain product liability claims in the event such failure to comply resulted in defective products that caused injury or harm.

If we experience problems with the manufacturers of components of our product candidates, our development programs may be delayed or we may be subject to liability.

We outsource the manufacturing of some of the components of our Staccato system, including the printed circuit boards and the plastic airways. We have no experience in the manufacturing of these components, and we currently lack the resources and the capability to manufacture them, on either a clinical or commercial scale. As a result, we rely on third parties to supply these components. We expect to continue to depend on third parties to supply these components for our current product candidates and any devices based on the Staccato system we develop in the foreseeable future. In the future, we may outsource the manufacture of additional components, including the heat packages in our single dose design.

The third party suppliers of the components of our Staccato system must meet high precision and quality standards for those components to comply with regulatory requirements. A contract manufacturer is subject to ongoing periodic unannounced inspection by the FDA and corresponding state and foreign authorities to ensure strict compliance with the FDA’s Quality System Regulation, or QSR, which sets forth the FDA’s current good manufacturing practice requirements for medical devices and their components, and other applicable government regulations and corresponding foreign standards. We are ultimately responsible for confirming that the components used in the Staccato system are manufactured in accordance with the QSR or other applicable regulations.

Our third party suppliers may not comply with their contractual obligations or meet our deadlines, or the components they supply to us may not meet our specifications and quality policies and procedures. If we need to find alternative suppliers of the components used in the Staccato system, we may not be able to contract for such components on acceptable terms, if at all. Any such failure to supply or delay caused by such contract manufacturers would have an adverse affect on our ability to continue clinical development of our product candidates or commercialize any future products.

In addition, the heat packages used in the single dose version of our Staccato system are manufactured using certain energetic, or highly combustible, materials that are used to generate the rapid heating necessary for vaporizing the drug compound while avoiding degradation. Manufacture of products containing these types of materials is regulated by the U.S. government. We currently manufacture the heat packages that are being used in the devices used in our clinical trials. We have entered into a joint development agreement with Autoliv ASP, Inc. for the manufacture of the heat packages in the commercial design of our single dose version of our Staccato system. If we are unable to manufacture the heat packages used in our ongoing clinical trials or if in the future Autoliv is unable to manufacture the heat packages to our specifications, or does not carry out its contractual obligations to develop our heat packages or to supply them to us, our clinical trials may be delayed, suspended or terminated while we seek additional suitable manufacturers of our heat packages, which may prevent us from commercializing our product candidates that utilize the single dose version of the Staccato system.

If we do not establish additional strategic partnerships, we will have to undertake development and commercialization efforts on our own, which would be costly and delay our ability to commercialize any future products.

A key element of our business strategy is our intent to selectively partner with pharmaceutical and biotechnology companies to obtain assistance for the development and potential commercialization of our product candidates. On December 1, 2006, we entered into such a development relationship with Symphony Allegro. We intend to enter into additional strategic partnerships with third parties to develop and commercialize our product candidates that are intended for larger markets, and we may enter into strategic partnerships for product candidates that are targeted toward specialty markets. We believe the effective commercialization of AZ-001 and AZ-003 will require a large, sophisticated sales and marketing organization. We have completed a Phase I study of AZ-003, and we plan no additional development of AZ-003 in 2007 unless and until we secure a partner to support continued drug and device development. To date, other than Symphony Allegro, we have not entered into any partnerships

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with pharmaceutical or biotechnology companies for any of our product candidates. We face significant competition in seeking appropriate strategic partners, and these strategic partnerships can be intricate and time consuming to negotiate and document. We may not be able to negotiate strategic partnerships on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic partnerships because of the numerous risks and uncertainties associated with establishing strategic partnerships. If we are unable to negotiate additional strategic partnerships for our product candidates we may be forced to curtail the development of a particular candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization, reduce the scope of our sales or marketing activities or undertake development or commercialization activities at our own expense. In addition, we will bear all the risk related to the development of that product candidate. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenue.

If we enter into additional strategic partnerships with pharmaceutical or biotechnology companies, we may be required to relinquish important rights to and control over the development of our product candidates or otherwise be subject to terms unfavorable to us.

Due to our relationship with Symphony Allegro, and for any additional strategic partnerships with pharmaceutical or biotechnology companies, we are subject to a number of risks, including:

•  we may not be able to control the amount and timing of resources that our strategic partners devote to the development or commercialization of product candidates;

•  strategic partners may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing;

•  strategic partners may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to discontinue research and development programs;

•  strategic partners may not commit adequate resources to the marketing and distribution of any future products, limiting our potential revenues from these products;

•  disputes may arise between us and our strategic partners that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

•  strategic partners may experience financial difficulties;

•  strategic partners may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

•  business combinations or significant changes in a strategic partner’s business strategy may also adversely affect a strategic partner’s willingness or ability to complete its obligations under any arrangement;

•  strategic partners could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

•  strategic partners could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our product candidates.

If we fail to gain market acceptance among physicians, patients, third-party payors and the medical community, we will not become profitable.

The Staccato system is a fundamentally new method of drug delivery. Any future product based on our Staccato system may not gain market acceptance among physicians, patients, third-party payors and the medical community. If these products do not achieve an adequate level of acceptance, we will not generate sufficient product

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revenues to become profitable. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

•  demonstration of efficacy and safety in clinical trials;

•  the existence, prevalence and severity of any side effects;

•  potential or perceived advantages or disadvantages compared to alternative treatments;

•  perceptions about the relationship or similarity between our product candidates and the parent drug compound upon which each product candidate is based;

•  the timing of market entry relative to competitive treatments;

•  the ability to offer any future products for sale at competitive prices;

•  relative convenience, product dependability and ease of administration;

•  the strength of marketing and distribution support;

•  the sufficiency of coverage and reimbursement of our product candidates by governmental and other third-party payors; and

•  the product labeling or product insert required by the FDA or regulatory authorities in other countries.

Our pipeline may be limited by the number of drug compounds suitable for use with the Staccato system.

The current versions of the Staccato system cannot deliver large molecule drugs, such as peptides and proteins. In addition, the physical size of the metal substrates in the single dose and multiple dose versions of the Staccato system limits their use to drugs that require dose amounts less than 10 to 15 milligrams and 100 to 200 micrograms, respectively. Further, approximately 200 of the 400 small molecule compounds we have screened for initial vaporization feasibility did not form drug aerosols with the 97% purity we use as an internal standard for further development. There are also many drug compounds that are covered by composition of matter patents that prevent us from developing the compound in the Staccato system without a license from the patent owner, which may not be available on acceptable terms, if at all. If we are not able to identify additional drug compounds that can be developed with the Staccato system, we will not be able to implement our strategy of filing one IND in 2007 and one to two INDs per year thereafter, and we may not develop enough products to develop a sustainable business.

AZ-001 and other product candidates that we may develop may require expensive carcinogenicity tests.

The API in AZ-001, prochlorperazine, was approved by the FDA in 1956 for the treatment of severe nausea and vomiting. At that time, the FDA did not require the carcinogenicity testing that is now generally required for marketing approval. It is unclear whether we will be required to perform such testing prior to filing our application for marketing approval of AZ-001 or whether we will be allowed to perform such testing after we file an application. Such carcinogenicity testing will be expensive and require significant additional resources to complete and may delay approval to market AZ-001. We may encounter similar requirements with other product candidates incorporating drugs that have not undergone carcinogenicity testing. Any carcinogenicity testing we are required to complete will increase the costs to develop a particular product candidate and may delay or halt the development of such product candidate.

If some or all of our patents expire, are invalidated or are unenforceable, or if some or all of our patent applications do not yield issued patents or yield patents with narrow claims, competitors may develop competing products using our or similar intellectual property and our business will suffer.

Our success will depend in part on our ability to obtain and maintain patent and trade secret protection for our technologies and product candidates both in the United States and other countries. We do not know whether any patents will issue from any of our pending or future patent applications. In addition, a third party may successfully circumvent our patents. Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes.

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The degree of protection for our proprietary technologies and product candidates is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

•  we might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;

•  we might not have been the first to file patent applications for these inventions;

•  others may independently develop similar or alternative technologies or duplicate any of our technologies;

•  it is possible that none of our pending patent applications will result in issued patents;

•  the claims of our issued patents may be narrower than as filed and not sufficiently broad to prevent third parties from circumventing them;

•  we may not develop additional proprietary technologies or drug candidates that are patentable;

•  our patent applications or patents may be subject to interference, opposition or similar administrative proceedings;

•  any patents issued to us or our potential strategic partners may not provide a basis for commercially viable products or may be challenged by third parties in the course of litigation or administrative proceedings such as reexaminations or interferences; and

•  the patents of others may have an adverse effect on our ability to do business.

Even if valid and enforceable patents cover our product candidates and technologies, the patents will provide protection only for a limited amount of time.

Our and our potential strategic partners’ ability to obtain patents is uncertain because, to date, some legal principles remain unresolved, there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States, and the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues. Furthermore, the policies governing pharmaceutical and medical device patents outside the United States may be even more uncertain. Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

Even if patents are issued regarding our product candidates or methods of using them, those patents can be challenged by our competitors who can argue that our patents are invalid and/or unenforceable. Third parties may challenge our rights to, or the scope or validity of, our patents. Patents also may not protect our product candidates if competitors devise ways of making these or similar product candidates without legally infringing our patents. The Federal Food, Drug and Cosmetic Act and the FDA regulations and policies provide incentives to manufacturers to challenge patent validity or create modified, non-infringing versions of a drug or device in order to facilitate the approval of generic substitutes. These same types of incentives encourage manufacturers to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor.

We also rely on trade secrets to protect our technology, especially where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. The employees, consultants, contractors, outside scientific collaborators and other advisors of our company and our strategic partners, if any, may unintentionally or willfully disclose our confidential information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming and the outcome is unpredictable. Failure to protect or maintain trade secret protection could adversely affect our competitive business position.

Our research and development collaborators may have rights to publish data and other information in which we have rights. In addition, we sometimes engage individuals or entities to conduct research that may be relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These

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contractual provisions may be insufficient or inadequate to protect our trade secrets and may impair our patent rights. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our technology and other confidential information, then our ability to receive patent protection or protect our proprietary information may be jeopardized.

Litigation or other proceedings or third party claims of intellectual property infringement could require us to spend time and money and could shut down some of our operations.

Our commercial success depends in part on not infringing patents and proprietary rights of third parties. Others have filed, and in the future are likely to file, patent applications covering products that are similar to our product candidates, as well as methods of making or using similar or identical products. If these patent applications result in issued patents and we wish to use the claimed technology, we would need to obtain a license from the third party. We may not be able to obtain these licenses at a reasonable cost, if at all.

In particular, we are aware of at least one pending U.S. patent application and foreign counterparts filed by a biopharmaceutical company relating to the use of drugs, including alprazolam which is the API in AZ-002, for treating disorders of the central nervous system by pulmonary delivery. In addition, we are aware of another pending U.S. patent application and foreign counterparts, filed by another biopharmaceutical company, that claims a method of making a vapor medicament under specific manufacturing conditions. We do not currently have a license to these patent applications. If these patent applications were to result in issued patents as originally filed, the relevant patent holders at that time may assert that we require licenses.

If these patent applications issue as originally filed, we believe we have valid defenses against any assertions that our product candidates are infringing. We do not know whether a court would determine that our defenses are valid. If we decide to pursue a license to one or more of these patent applications, or patents issued therefrom, we do not know that we will be able to obtain such a license on commercially reasonable terms, or at all.

In addition, administrative proceedings, such as interferences and reexaminations before the U.S. Patent and Trademark Office, could limit the scope of our patent rights. We may incur substantial costs and diversion of management and technical personnel as a result of our involvement in such proceedings. In particular, our patents and patent applications may be subject to interferences in which the priority of invention may be awarded to a third party. We do not know whether our patents and patent applications will be entitled to priority over patents or patent applications held by such a third party. Our issued patents may also be subject to reexamination proceedings. We do not know whether our patents would survive reexamination in light of new questions of patentability that may be raised following their issuance.

Third parties may assert that we are employing their proprietary technology or their proprietary products without authorization. In addition, third parties may already have or may obtain patents in the future and claim that use of our technologies or our products infringes these patents. We could incur substantial costs and diversion of management and technical personnel in defending our self against any of these claims. Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief, which could effectively block our ability to further develop, commercialize and sell any future products and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products. In the event we cannot develop alternative methods or products, we may be effectively blocked from developing, commercializing or selling any future products. Defense of any lawsuit or failure to obtain any of these licenses would be expensive and could prevent us from commercializing any future products.

We review from time to time publicly available information concerning the technological development efforts of other companies in our industry. If we determine that these efforts violate our intellectual property or other rights, we intend to take appropriate action, which could include litigation. Any action we take could result in substantial costs and diversion of management and technical personnel in enforcing our patents or other intellectual property rights against others. Furthermore, the outcome of any action we take to protect our rights may not be resolved in our favor.

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Competition in the pharmaceutical industry is intense. If our competitors are able to develop and market products that are more effective, safer or less costly than any future products that we may develop, our commercial opportunity will be reduced or eliminated.

We face competition from established as well as emerging pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive than any future products that we may develop and commercialize. In addition, significant delays in the development of our product candidates could allow our competitors to bring products to market before us and impair our ability to commercialize our product candidates.

We anticipate that, if approved, AZ-001 would compete with currently marketed triptan drugs and with other migraine headache treatments, including intravenous, or IV, delivery of prochlorperazine, the API in AZ-001. In addition, we are aware of at least 14 product candidates for the treatment of migraines, including triptan products and a sumatriptan/naproxen combination product.

We anticipate that, if approved, AZ-004 would compete with the available intramuscular, or IM, injectable form and oral forms of loxapine for the treatment of agitation, and other forms of available antipsychotic drugs. In addition, we are aware of a post marketing study of Seroquel^® quetiapine for reducing agitation in elderly patients with Alzheimer’s disease.

We anticipate that, if approved, AZ-002 would compete with the oral tablet form of alprazolam and several other approved anti-depressant drugs. In addition, we are aware of two product candidates in early stage clinical development for the treatment of acute panic attacks.

We anticipate that, if approved, AZ-003 would compete with some of the available forms of fentanyl, including injectable fentanyl, oral transmucosal fentanyl formulations and ionophoretic transdermal delivery of fentanyl. We are also aware of at least 20 products in Phase II and Phase III development for acute pain, five of which are fentanyl products. Two of these fentanyl products are inhaled versions. In addition, if approved, AZ-003 would compete with various generic opioid drugs, such as oxycodone, hydrocodone and morphine, or combination products including one or more of such drugs.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Established pharmaceutical companies may invest heavily to discover quickly and develop novel compounds or drug delivery technology that could make our product candidates obsolete. Smaller or early stage companies may also prove to be significant competitors, particularly through strategic partnerships with large and established companies. In addition, these third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing products before we do. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition will suffer.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate significant product revenue.

We do not have a sales and marketing organization and have no experience in the sales, marketing and distribution of pharmaceutical products. There are risks involved with establishing our own sales and marketing capabilities, as well as entering into arrangements with third parties to perform these services. Developing an internal sales force is expensive and time consuming and could delay any product launch. On the other hand, if we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues are likely to be lower than if we market and sell any products that we develop ourselves.

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We may establish our own specialty sales force and/or engage pharmaceutical or other healthcare companies with existing sales and marketing organization and distribution systems to sell, market and distribute any future products. We may not be able to establish a specialty sales force or establish sales and distribution relationships on acceptable terms. Factors that may inhibit our efforts to commercialize any future products without strategic partners or licensees include:

•  our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

•  the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

•  the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

•  unforeseen costs and expenses associated with creating an independent sales and marketing organization.

Because the establishment of sales and marketing capabilities depends on the progress towards commercialization of our product candidates and because of the numerous risks and uncertainties involved with establishing our own sales and marketing capabilities, we are unable to predict when, if ever, we will establish our own sales and marketing capabilities. However, we do not anticipate establishing sales and marketing capabilities until at least 2010. If we are not able to partner with a third party and are unsuccessful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to develop or commercialize our product candidates.

We are highly dependent on our President and Chief Executive Officer, Thomas B. King, the loss of whose services might adversely impact the achievement of our objectives. In addition, recruiting and retaining qualified clinical, scientific and engineering personnel to manage clinical trials of our product candidates and to perform future research and development work will be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. Although we believe we will be successful in attracting and retaining qualified personnel, competition for experienced management and clinical, scientific and engineering personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. In addition, we do not have employment agreements with any of our employees, and they could leave our employment at will. We have change of control agreements with our executive officers and vice presidents that provide for certain benefits upon termination or a change in role or responsibility in connection with a change of control of our company. We do not maintain life insurance policies on any employees. Failure to attract and retain personnel would prevent us from developing and commercializing our product candidates.

We may encounter difficulties in managing our growth, which could increase our losses.

We expect to experience substantial growth in our business over the next few years. We expect to substantially increase our number of employees to service our internal programs and planned strategic partnering arrangements. This growth will place a strain on our human and capital resources. If we are unable to manage this growth effectively, our losses could increase. Our need to manage our operations and growth effectively requires us to continue to expend funds to improve our operational, financial and management controls, reporting systems and procedures, to attract and retain sufficient numbers of talented employees and to manage our facility requirements. If we are unable to implement improvements to our management information and control systems successfully in an efficient or timely manner, or if we encounter deficiencies in existing systems and controls, then management may receive inadequate information to manage our day to day operations.

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If plaintiffs bring product liability lawsuits against us, we may incur substantial liabilities and may be required to limit commercialization of the product candidates that we may develop.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates in clinical trials and will face an even greater risk if we commercialize any products. We may be held liable if any product we develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. Regardless of merit or eventual outcome, liability claims may result in decreased demand for any product candidates or products that we may develop, injury to our reputation, withdrawal of clinical trials, costs to defend litigation, substantial monetary awards to clinical trial participants or patients, loss of revenue and the inability to commercialize any products that we develop. We have product liability insurance that covers our clinical trials up to a $10 million aggregate annual limit. We intend to expand product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for any products that we may develop. However, this insurance may be prohibitively expensive, or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or delay the commercialization of our product candidates. If we are sued for any injury caused by any future products, our liability could exceed our total assets.

Our product candidates AZ-002 and AZ-003 contain drug substances which are regulated by the U.S. Drug Enforcement Administration. Failure to comply with applicable regulations could harm our business.

The Controlled Substances Act imposes various registration, recordkeeping and reporting requirements, procurement and manufacturing quotas, labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products. A principal factor in determining the particular requirements, if any, applicable to a product is its actual or potential abuse profile. The U.S. Drug Enforcement Administration, or DEA, regulates chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. Alprazolam, the API in AZ-002, is regulated as a Schedule IV substance, and fentanyl, the API in AZ-003, is regulated as a Schedule II substance. Each of these product candidates is subject to DEA regulations relating to manufacture, storage, distribution and physician prescription procedures, and the DEA regulates the amount of the scheduled substance that would be available for clinical trials and commercial distribution. As a Schedule II substance, fentanyl is subject to more stringent controls, including quotas on the amount of product that can be manufactured as well as a prohibition on the refilling of prescriptions without a new prescription from the physician. The DEA periodically inspects facilities for compliance with its rules and regulations. Failure to comply with current and future regulations of the DEA could lead to a variety of sanctions, including revocation, or denial of renewal, or of DEA registrations, injunctions, or civil or criminal penalties and could harm our business, financial condition and prospects.

The single dose version of our Staccato system contains materials that are regulated by the U.S. government, and failure to comply with applicable regulations could harm our business.

The single dose version of our Staccato system uses energetic materials to generate the rapid heating necessary for vaporizing the drug, while avoiding degradation. Manufacture of products containing energetic materials is controlled by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF. Technically, the energetic materials used in our Staccato system are classified as “low explosives,” and the ATF has granted us a license/permit for the manufacture of such low explosives. Additionally, due to inclusion of the energetic materials in our Staccato system, the Department of Transportation, or DOT, regulates shipments of the single dose version of our Staccato system. The DOT has granted the single dose version of our Staccato system “Not Regulated as an Explosive” status. Failure to comply with the current and future regulations of the ATF or DOT could subject us to future liabilities and could harm our business, financial condition and prospects. Furthermore, these regulations could restrict our ability to expand our facilities or construct new facilities or could require us to incur other significant expenses in order to maintain compliance.

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We use hazardous chemicals and highly combustible materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development processes involve the controlled use of hazardous materials, including chemicals. We also use energetic materials in the manufacture of the chemical heat packages that are used in our single dose devices. Our operations produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge or injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these materials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, claimants may sue us for injury or contamination that results from our use or the use by third parties of these materials and our liability may exceed our total assets. We maintain insurance for the use of hazardous materials in the aggregate amount of $1 million, which may not be adequate to cover any claims. Compliance with environmental and other laws and regulations may be expensive, and current or future regulations may impair our research, development or production efforts.

Certain of our suppliers are working with these types of hazardous and highly combustible materials in connection with our component manufacturing agreements. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous and highly combustible materials. Further, under certain circumstances, we have agreed to indemnify our suppliers against damages and other liabilities arising out of development activities or products produced in connection with these agreements.

We will need to implement additional finance and accounting systems, procedures and controls in the future as we grow and to satisfy new reporting requirements.

The laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and rules enacted and proposed by the U.S. Securities and Exchange Commission, or SEC, and by the Nasdaq Global Market, will result in increased costs to us as we undertake efforts to comply with rules and respond to the requirements applicable to public companies. The rules make it more difficult and costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage as compared to the polices previously available to public companies. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

As a public company, we need to comply with Sarbanes-Oxley and the related rules and regulations of the SEC, including expanded disclosure, accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 of Sarbanes-Oxley and other requirements will increase our costs and require additional management resources. We have been upgrading our finance and accounting systems, procedures and controls and will need to continue to implement additional finance and accounting systems, procedures and controls as we grow to satisfy new reporting requirements. We currently do not have an internal audit group. In addition, we may need to hire additional legal and accounting staff with appropriate experience and technical knowledge, and we cannot assure you that if additional staffing is necessary that we will be able to do so in a timely fashion. If we are unable to complete the required assessment as to the adequacy of our internal reporting or if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as of December 31, 2007, investors could lose confidence in the reliability of our internal controls over financial reporting, which could adversely affect our stock price.

Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could damage our facilities and equipment, which could cause us to curtail or cease operations.

Our facilities are located in the San Francisco Bay Area near known earthquake fault zones and, therefore, are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, floods and similar events. If any disaster were to occur, our ability to operate our business could be

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seriously impaired. We currently may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business, financial condition and prospects.

Risks Relating to Owning Our Common Stock

Our stock price may be extremely volatile, and you may not be able to resell your shares at or above the price you paid for the stock.

Our common stock price has experienced large fluctuations since our initial public offering in March 2006. In addition, the trading prices of life science and biotechnology company stocks in general have experienced extreme price fluctuations in recent years. The valuations of many life science companies without consistent product revenues and earnings are extraordinarily high based on conventional valuation standards, such as price to revenue ratios. These trading prices and valuations may not be sustained. Any negative change in the public’s perception of the prospects of life science or biotechnology companies could depress our stock price regardless of our results of operations. Other broad market and industry factors may decrease the trading price of our common stock, regardless of our performance. Market fluctuations, as well as general political and economic conditions such as terrorism, military conflict, recession or interest rate or currency rate fluctuations, also may decrease the trading price of our common stock. In addition, our stock price could be subject to wide fluctuations in response to various factors, including:

•  actual or anticipated results and timing of our clinical trials;

•  actual or anticipated regulatory approvals of our product candidates or competing products;

•  changes in laws or regulations applicable to our product candidates;

•  changes in the expected or actual timing of our development programs, including delays or cancellations of clinical trials for our product candidates;

•  period to period fluctuations in our operating results;

•  announcements of new technological innovations or new products by us or our competitors;

•  costs or delays related to our planned facility relocation in 2007;

•  changes in financial estimates or recommendations by securities analysts;

•  conditions or trends in the life science and biotechnology industries;

•  changes in the market valuations of other life science or biotechnology companies;

•  developments in domestic and international governmental policy or regulations;

•  announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

•  additions or departures of key personnel;

•  disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

•  sales of our common stock by us; and

•  sales and distributions of our common stock by our stockholders.

In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a company’s securities. If a stockholder files a securities class action suit against us, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.

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Item 1B.   Unresolved Staff Comments

None.

Directors, Executive Officers and Key Employees

Our directors, executive officers and key employees as of March 15, 2007, are as follows:

Name	Age		Position
Thomas B. King		52	President, Chief Executive Officer and Director
James V. Cassella, Ph.D.		52	Senior Vice President, Research and Development
August J. Moretti		56	Senior Vice President, Chief Financial Officer and Secretary
Anthony G. Tebbutt		59	Senior Vice President, Corporate Strategy & Business Development
Jeffrey S. Williams		42	Senior Vice President, Operations and Manufacturing
Joseph L. Baker		52	Vice President, Commercial Manufacturing and Global Supply Chain
William C. Houghton, M.D.		64	Vice President, Clinical and Regulatory Affairs
Emily Lee Kelley		49	Vice President, Human Resources
William L. Leschensky, M.D.		46	Vice President, Intellectual Property
Michael J. Taylor, Ph.D., D.A.B.T		53	Vice President, Preclinical Development
Samuel D. Colella(2)(3)		67	Director
Alan D. Frazier(1)		55	Director
Ernest Mario, Ph.D.(2)		68	Director
Deepika R. Pakianathan, Ph.D.(2)		42	Director
J. Leighton Read, M.D.(1)		56	Director
Gordon Ringold, Ph.D.(2)		56	Director
Isaac Stein(1)(3)(4)		60	Director
Alejandro A. Zaffaroni, M.D.(3)		56	Director

(1)	Member of the audit and ethics committee
(2)	Member of the compensation committee
(3)	Member of the nominating and corporate governance committee
(4)	Lead Director

Thomas B. King has served as our President, Chief Executive Officer and a member of our board of directors since June 2003. From September 2002 to April 2003, Mr. King served as President, Chief Executive Officer and a member of the board of directors of Cognetix, Inc., a biopharmaceutical development company. From January 1994 to February 2001, Mr. King held various senior executive positions, including President and Chief Executive Officer from January 1997 to October 2000, and was a member of the board of directors at Anesta Corporation, a publicly traded pharmaceutical company, until it was acquired by Cephalon, Inc., a publicly traded biopharmaceutical company. Mr. King received an M.B.A. from the University of Kansas and a B.A. in chemistry from McPherson College.

James V. Cassella, Ph.D. has served as our Senior Vice President, Research and Development since June 2004. From April 1989 to April 2004, Dr. Cassella held various management positions at Neurogen Corporation, a publicly traded biotechnology company, including Senior Vice President of Clinical Research and Development from January 2003 to June 2004. Prior to Neurogen, Dr. Cassella was Assistant Professor of Neuroscience at Oberlin College. Dr. Cassella received a Ph.D. in physiological psychology from Dartmouth College, completed a

40

postdoctoral fellowship in the Department of Psychiatry at the Yale University School of Medicine and received a B.A. in psychology from the University of New Haven.

August J. Moretti has served as our Senior Vice President and Chief Financial Officer since February 2005 and as our Secretary since December 2005. From August 2004 to February 2005, Mr. Moretti was our part time Chief Financial Officer. From January 2001 to January 2005, Mr. Moretti served as Chief Financial Officer and General Counsel at Alavita, Inc. (formerly known as SurroMed, Inc.), a biotechnology company. From January 1982 to December 2000, Mr. Moretti was a member of Heller Ehrman White & McAuliffe LLP, an international law firm. Mr. Moretti received a J.D. from Harvard Law School and a B.A. in economics from Princeton University.

Anthony G. Tebbutt has served as our Senior Vice President, Corporate Strategy and Business Development since March 2007. From September 1996 to October 2006, Mr. Tebbutt served as Senior Vice President and President at UCB Pharma and from 1983 to 1995 Mr. Tebbut served in various VP positions in New Product Planning and Marketing for Syntex Laboratories. Prior to Syntex, Mr. Tebbutt was also Marketing Manager for Eli Lilly Canada, Inc. from 1974 to 1983. Mr. Tebbutt is on the Board of Directors of the Biotechnology Industry Organization. Mr. Tebbutt holds an M.B.A. from Stanford Graduate School of Business and a B.S. from Santa Clara University.

Jeffrey S. Williams has served as our Senior Vice President, Operations and Manufacturing since March 2007 and as our Senior Vice President, Corporate and Business Development from March 2004 to March 2007. From September 2001 to February 2004, Mr. Williams served as Vice President, Corporate Development at Scion Pharmaceuticals, Inc., a biopharmaceutical company. From March 2001 to August 2001, Mr. Williams served as Vice President, Corporate Development and Strategy at EmerGen, Inc., a biopharmaceutical company. From December 1996 to February 2001, Mr. Williams held various executive positions at Anesta Corporation. Mr. Williams received an M.S. in management from the M.I.T. Sloan School of Management and a B.A. in economics from Brigham Young University.

Joseph L. Baker has served as our Vice President, Commercial Manufacturing and Global Supply Chain since November 2006. From 1999 to 2006, Mr. Baker was General Manager for Watson Laboratories, Inc., where he was responsible for all activities for the Salt Lake City manufacturing facility. He was previously Director, Oral Product R&D and Director, Operations Technical Services for Theratech, Inc. from 1995 to 1999. Prior to Watson Laboratories and Theratech, Mr. Baker held various management and technical positions with Lohmann Therapy Systems from 1993 to 1995 and Lederle Laboratories from 1974 to 1993. Mr. Baker holds an undergraduate degree in Natural Sciences, with a concentration in chemistry, from Thomas A. Edison College.

William C. Houghton, M.D. has served as our Vice President, Clinical and Regulatory Affairs since November 2005. From June 2005 to November 2005, Dr. Houghton served as Vice President of Clinical Development at Jazz Pharmaceuticals, Inc., a pharmaceutical company. From August 1998 to June 2005, Dr. Houghton held various management positions, including Chief Operating Officer from August 1998 to May 2002, at Orphan Medical, Inc., a publicly traded pharmaceutical company, until it was acquired by Jazz Pharmaceuticals, Inc. From 1995 to 1998, Dr. Houghton was Chief Scientific Officer of Iotek, Inc., a biomedical company. Dr. Houghton received an M.D. from Sydney University. Dr. Houghton completed a fellowship at Sydney University in anesthesia in 1971 and practiced full time in clinical critical care medicine and anesthesiology until joining the pharmaceutical industry in 1984.

Emily Lee Kelley has served as our Vice President, Human Resources since October 2002. From October 2001 to October 2002, Ms. Kelley provided human resources consulting services to us and Versicor, Inc., a majority owned subsidiary of Sepracor Inc., a publicly traded pharmaceutical company. From 1995 to 2001, Ms. Kelley served as Vice President of Human Resources, Finance and Operations at Affymax Research Institute, a pharmaceutical company, and oversaw human resource matters for Maxygen, Inc., a publicly traded biotechnology company. Ms. Kelley received a B.S. in organizational behavior and industrial relations from the University of California, Berkeley.

William L. Leschensky, M.D. has served as our Vice President, Intellectual Property since November 2005. From December 2004 to October 2005, he was our Senior Director, Intellectual Property. From May 2000 to December 2004, Dr. Leschensky was in-house intellectual property counsel at Alavita, Inc., and from September

41

1992 to May 2000, Dr. Leschensky was an intellectual property attorney at the law firms of Fish & Neave LLP and Morrison & Foerster LLP. Dr. Leschensky received an M.D. from the University of Illinois, a J.D. from Harvard Law School and a B.S. in biochemistry from Iowa State University.

Michael J. Taylor, Ph.D.,DABT has served as our Vice President, Preclinical Development since August 2006. From January 2005 to August 2006, Dr. Taylor was Sr. Director, Preclinical and Clinical Development Sciences for Protein Design Labs, Inc. From April 2000 to January 2005, Dr. Taylor was Vice President, Non-Clinical Research and Development and Executive Director, Drug Safety and Evaluation for DURECT Corporation. From 1996 to 2000, Dr. Taylor was Toxicology Department Head for the Urology and CNS Division of Roche Biosciences. Dr. Taylor is a board certified toxicologist and holds Ph.D. and M.S. degrees in toxicology from Utah State University.

Samuel D. Colella has served as a member of our board of directors since September 2002. In 1999, Mr. Colella co-founded Versant Ventures, a venture capital firm, and has served as a managing member since its formation. Prior to founding Versant Ventures, Mr. Colella has served as general partner of Institutional Venture Partners, a venture capital firm, since 1984. Mr. Colella is a member of the board of directors of Symyx Technologies, Inc., a publicly traded research technology company, Genomic Health, Inc., a publicly traded molecular diagnostics company, Thermage, Inc., a publicly traded aesthetic medicine company, and various private companies. Mr. Colella received an M.B.A. from Stanford University and a B.S. in business and engineering from the University of Pittsburgh.

Alan D. Frazier has served as a member of our board of directors since September 2002. In 1991, Mr. Frazier founded Frazier Healthcare Ventures, a venture capital firm, and has served as the managing principal since its inception. From 1983 to 1991, Mr. Frazier served as Executive Vice President, Chief Financial Officer and Treasurer of Immunex Corporation, a publicly traded biopharmaceutical company. From 1980 to 1983, Mr. Frazier was a principal in the Audit Department of Arthur Young & Company, which is now Ernst & Young LLP. Mr. Frazier is a member of the board of directors of Cadence Pharmaceuticals, a publicly traded pharmaceutical company, and various private companies. Mr. Frazier received a B.A. in economics from the University of Washington.

Ernest Mario, Ph.D. has served as a member of our board of directors since September 2001. Since April 2003, Dr. Mario has served as Chairman of the Board at Reliant Pharmaceuticals, Inc., a privately held pharmaceutical company. From April 2003 to January 2007, Dr. Mario also served as Reliant’s Chief Executive Officer. Prior to joining Reliant, Dr. Mario was Chairman and Chief Executive Officer of IntraBiotics Pharmaceuticals, Inc., a biopharmaceutical company, and its predecessor Apothogen, Inc., from January 2002 until April 2003. Dr. Mario was the Chairman and Chief Executive Officer at ALZA Corporation from 1997 to 2001 and was Co-Chairman and Chief Executive Officer of ALZA from 1993 to 1997. Dr. Mario is a director of Maxygen, Inc., Boston Scientific Corporation, a publicly traded medical device company, and the Chairman of the Board of Pharmaceutical Product Development, Inc., a publicly traded drug development and drug discovery services company. Dr. Mario received a Ph.D. and an M.S. in physical sciences from the University of Rhode Island and a B.S. in pharmacy from Rutgers University.

Deepika R. Pakianathan, Ph.D. has served as a member of our board of directors since November 2004. Since 2001, Dr. Pakianathan has served as a general partner at Delphi Ventures, a venture capital firm focusing on healthcare investments. From 1998 to 2001, Dr. Pakianathan was a senior biotechnology banker at JP Morgan. Prior to joining JP Morgan, Dr. Pakianathan was a research analyst at Genesis Merchant Group, a private investment partnership, from 1997 to 1998 and a post-doctoral scientist at Genentech, Inc., a publicly traded biotechnology company, from 1993 to 1997. Dr. Pakianathan is a director of various private healthcare companies. Dr. Pakianathan received a Ph.D. in immunology and an M.S. in biology from Wake Forest University, and an M.Sc. in biophysics and a B.Sc from the University of Bombay.

J. Leighton Read, M.D. has served as a member of our board of directors since November 2004. Since 2001, Dr. Read has served as a general partner of Alloy Ventures, a venture capital firm. Dr. Read founded Aviron, a biopharmaceutical company, and served as its Chief Executive Officer until 1999. In 1989, Dr. Read co-founded Affymax NV, a biopharmaceutical company. Dr. Read is a member of the board of directors of various private companies. Dr. Read has received several awards for co-inventing the technology underlying the Affymetrix

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GeneChip. Dr. Read received an M.D. from the University of Texas Health Science Center at San Antonio and a B.S. in psychology and biology from Rice University.

Gordon Ringold, Ph.D. has served as a member of our board of directors since June 2001. Since March 2000, Dr. Ringold has served as Chairman and Chief Executive Officer of Alavita, Inc. From March 1995 to February 2000, Dr. Ringold served as Chief Executive Officer and Scientific Director of Affymax Research Institute where he managed the development of novel technologies to accelerate the pace of drug discovery. Dr. Ringold is also a member of the board of directors of Maxygen, Inc. and Oxonica plc, a publicly traded nanotechnology company. Dr. Ringold received a Ph.D. in microbiology from University of California, San Francisco in the laboratory of Dr. Harold Varmus before joining the Stanford University School of Medicine, Department of Pharmacology. Dr. Ringold also received a B.S. in biology from the University of California, Santa Cruz.

Isaac Stein has served as a member of our board of directors since June 2001. Since November 1982, Mr. Stein has been President of Waverley Associates, Inc., a private investment firm. He is also the emeritus Chairman of the Board of Trustees of Stanford University and is the Chairman of the board of directors of Maxygen, Inc. Mr. Stein is also a director of American Balanced Fund, Inc. and The Income Fund of America, Inc., each a publicly traded investment company. Mr. Stein received an M.B.A. and J.D. from Stanford University and a B.A. in mathematical economics from Colgate University.

Alejandro A. Zaffaroni, M.D. has served as a member of our board of directors since December 2001. Since June 1984, Dr. Zaffaroni has been a practicing ophthalmologist. Dr. Zaffaroni is a Fellow of the American College of Surgeons and American Academy of Ophthalmology and is an Associate Clinical Professor at the University of California, San Francisco Medical School. Dr. Zaffaroni received an M.D. from the University of California, Davis and completed his residency in ophthalmology at the University of California, San Francisco. Dr. Zaffaroni also received a B.A. in Spanish literature from the University of California, Berkeley.

Our officers are appointed by and serve at the discretion of our board of directors. There are no family relationships between our directors and officers.

Item 2.   Properties

We lease two buildings with an aggregate of 65,143 square feet of office and laboratory facilities in Palo Alto, California. The leases expire in March 2008. In August 2006, we entered into an agreement to lease 65,604 square feet for office, manufacturing and laboratory facilities in Mountain View, California. We intend to move our operations to the Mountain View facility by the end of 2007. The agreement has an initial term of 11 years, and we have two options to extend the lease for five years each. Lease payments will begin in April 2007. We believe that the Mountain View facility is sufficient for our manufacturing and laboratory needs through approximately the end of 2009. We anticipate the need for additional office space in 2008 and that future growth thereafter can be accommodated by leasing additional space to accommodate our growth near the Mountain View facility.

Item 3.   Legal Proceedings

None

Item 4.   Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

On March 8, 2006, our common stock began to trade on the NASDAQ Global Market under the symbol “ALXA.” The following table sets forth, for the periods indicated, the high and low sales prices of our common stock.

	High		Low
March 8, 2006-March 31, 2006	$	10.59	$	8.00
Second Quarter		10.00		6.51
Third Quarter		8.35		6.12
Fourth Quarter		12.09		7.29

As of December 31, 2006, there were 306 holders of record of our common stock. We have not paid cash dividends on our common stock since our inception, and we do not anticipate paying any in the foreseeable future.

The graph below matches our cumulative 10-month total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Biotechnology index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from March 8, 2006 to December 31, 2006.

COMPARISON OF 10 MONTH CUMULATIVE TOTAL RETURN*
Among Alexza Pharmaceuticals, Inc, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index

* $100 invested on March 8, 2006 in stock or on February 8, 2006 in index-including reinvestment of dividends.

Fiscal year ending December 31, 2006.

	3/8/06		3/06		4/06		5/06		6/06		7/06		8/06		9/06		10/06		11/06		12/06
Alexza Pharmaceuticals, Inc		100		115		106		96		86		86		82		94		96		98		134
NASDAQ Composite		100		103		103		96		96		93		97		100		104		107		107
NASDAQ Biotechnology		100		98		92		89		87		88		89		91		97		96		93

The stock price performance included in this graph is not necessarily indicative of future stock price performance

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Item 5B.  Use of Proceeds from the Sale of Registered Securities

Our initial public offering of common stock was effected through a Registration Statement on Form S-1 (File No. 333-130644), that was declared effective by the SEC on March 8, 2006. We registered 6,325,000 shares of our common stock, including the full underwriters’ over-allocation, with a proposed maximum aggregate offering price of $50.6 million, of which we sold 6,325,000 shares at $8.00 per share and an aggregate offering price of $50.6 million. The offering was completed after the sale of 6,325,000 shares. Piper Jaffray & Co. and Pacific Growth Equities, LLC were the joint book-running managing underwriters of our initial public offering and RBC Capital Markets and JMP Securities, acted as co-managers.

Of this amount, $3.5 million was paid in underwriting discounts and commissions, and an additional $2.2 million of expenses were incurred, of which $1.1 million and $1.1 million were incurred during the fiscal years ended December 31, 2006 and 2005, respectively. None of the expenses were paid, directly or indirectly, to directors, officers or persons owning 10% or more of our common stock, or to our affiliates. As of March 15, 2007, we had applied the aggregate net proceeds of $44.9 million from our initial public offering as follows:

•  approximately $2.3 million was used for working capital; and

•  the remainder of the net proceeds from the offering, approximately $42.6 million, remain invested in cash, cash equivalents and marketable securities.

The foregoing amounts represent our best estimate of our use of proceeds for the period indicated. No such payments were made to our directors or officers or their associates, holders of 10% or more of any class of our equity securities or to our affiliates other than payments to officers for salaries and bonuses in the ordinary course of business.

Item 5C.  Treasury Stock

None

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Item 6.   Selected Financial Data

The data set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included elsewhere herein.

																Period from
																December 19,
																2000
																(Inception) to
	Year Ended December 31,															December 31,
	2006			2005			2004			2003			2002			2006
	(In thousands, except per share data)
Consolidated Statement of Operations Data:
Revenue	$	1,028		$	2,230		$	2,436		$	1,002		$	249		$	6,945
Operating expenses:
Research and development(1)		36,494			26,235			15,147			11,487			7,040			97,473
General and administrative(1)		9,969			9,654			4,155			4,213			1,546			30,175
Acquired in-process research and development		—			—			—			—			—			3,916
Total operating expenses(1)		46,463			35,889			19,302			15,700			8,586			131,564
Loss from operations		(45,435	)		(33,659	)		(16,866	)		(14,698	)		(8,337	)		(124,619	)
Interest and other income and interest expense, net		1,909			1,257			241			370			174			3,923
Loss before noncontrolling interest in Symphony Allegro, Inc.		(43,526	)		(32,402	)		(16,625	)		(14,328	)		(8,163	)		(120,696	)
Loss attributed to noncontrolling interest in Symphony Allegro, Inc.		1,720			—			—			—			—			1,720
Net loss	$	(41,806	)	$	(32,402	)	$	(16,625	)	$	(14,328	)	$	(8,163	)	$	118,976
Basic and diluted net loss per common share	$	(2.13	)	$	(18.98	)	$	(11.41	)	$	(10.81	)	$	(6.67	)
Shares used to compute basic and diluted net loss per common share		19,584			1,707			1,457			1,325			1,223

(1) Includes stock-based compensation as follows:

											Period from
											December 19,
											2000
											(Inception) to
	Year Ended December 31,										December 31,
	2006		2005		2004		2003		2002		2006
	(In thousands)
Research and development	$	1,770	$	167	$	59	$	32	$	10	$	2,041
General and administrative		447		874		—		—		—		1,321
Total	$	2,217	$	1,041	$	59	$	32	$	10	$	3,362

During the year ended December 31, 2005, we recorded compensation expense in relation to the extinguishment of officer notes receivable, representing $875,000 of research and development expense and $3.1 million of general and administrative expense.

46

	December 31,
	2006			2005			2004			2003			2002
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	42,623		$	38,369		$	62,294		$	28,387		$	37,492
Investments held by Symphony Allegro, Inc.		49,956			—			—			—			—
Working capital		79,649			30,760			60,027			27,144			37,190
Total assets		105,766			47,405			69,280			34,477			46,535
Noncurrent portion of equipment financing obligations		5,865			5,155			1,840			1,551			693
Convertible preferred stock		—			107,194			107,194			57,414			57,352
Deficit accumulated during development stage		(118,976	)		(77,170	)		(44,768	)		(28,143	)		(13,815	)
Total stockholders’ equity (deficit)		49,774			(74,385	)		(43,396	)		(26,982	)		(12,673	)

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based upon current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

We are developing novel, proprietary products for the treatment of acute and intermittent conditions. Our technology, the Staccato system, enables the precise delivery and rapid onset of therapeutic effect of many small molecule drugs. Our lead product candidates consist of the following:

•  AZ-001 for acute migraine headaches is prochlorperazine incorporated in a chemically heated, single dose Staccato device. We completed enrollment of a Phase IIb clinical trial for treatment of migraine headaches in December 2006. We announced the initial results of this trail in March 2007.

•  AZ-004 for treatment of acute agitation in patients with schizophrenia is loxapine incorporated in a chemically heated, single dose Staccato device. We completed enrollment of a Phase IIa clinical trial of AZ-004 for treatment of acute agitation in patients with schizophrenia in January 2007. We announced initial results of this trail in March 2007.

•  AZ-002 for acute treatment of panic attacks associated with panic disorder is alprazolam incorporated in a chemically heated, single dose Staccato device. We initiated a Phase IIa clinical trial of AZ-002 for acute treatment of panic attacks in April 2006.

•  AZ-003 for acute pain is fentanyl incorporated in an electrically heated, multiple dose Staccato device. We completed a Phase I clinical trial of AZ-003 in December 2006.

We were incorporated December 19, 2000. We have funded our operations primarily through the sale of equity securities, capital lease and equipment financings and government grants. We have generated $6.9 million in revenue from inception through December 31, 2006, substantially all of which was earned through United States Small Business Innovation Research grants. We do not expect any grant revenues in 2007 or material product revenue until at least 2011.

From inception through 2003, we focused on the development of our technology, the selection and preclinical testing of product candidates and the manufacture of clinical trial supplies. In 2004, we expanded our activities to include the clinical development of our product candidates. The continued development of our product candidates

47

will require significant additional expenditures, including expenses for preclinical studies, clinical trials, research and development, manufacturing development and seeking regulatory approvals. We rely on third parties to conduct a portion of our preclinical studies and all of our clinical trials, and we expect these expenditures to increase in future years as we continue development of our product candidates. In 2007, we intend to continue our on-going clinical trials for AZ-002, initiate new clinical trials for AZ-001 and AZ-004, and file at least one IND and initiate a Phase I trial for a new product candidate. These clinical trails will result in higher expenditures than in previous years. If these product candidates continue to progress, expenses for future Phase III clinical trials will be significantly higher than those incurred in Phase II clinical trials. We plan no additional clinical development of AZ-003 during 2007, unless we are able to secure a corporate partner to support continued clinical and device development.

In August 2006 we executed a lease for a new facility in Mountain View, California. In 2007, we intend to build a current good manufacturing practice pilot manufacturing facility in this new location and plan to move our operations to the Mountain View facility by the end of 2007. We intend the pilot manufacturing facility to be capable of manufacturing materials for toxicology studies and clinical trial materials for future clinical trials. Facility lease expenses will increase substantially in 2007 and the first quarter of 2008, as we incur rent expense on the Mountain View facility while it is under construction in 2007 and our current facilities in Palo Alto, California during 2007 and decommissioning in the first quarter of 2008. In addition, we will incur significant expense in moving our operations, including our laboratories and manufacturing operations, from our existing premises to the new facility.

On December 1, 2006 we entered into a transaction involving a series of related agreements providing for the financing of additional clinical and nonclinical development of AZ-002, Staccato alprazolam, and AZ-004, Staccato loxapine. Pursuant to the agreements, Symphony Capital LLC, a wholly owned subsidiary of Symphony Holdings LLC, and its investors have invested $50 million to form Symphony Allegro, Inc., or Symphony Allegro, to fund additional clinical and nonclinical development of Staccato alprazolam and Staccato loxapine. We have exclusively licensed to Symphony Allegro certain intellectual property rights related to Staccato alprazolam and Staccato loxapine. We have retained manufacturing rights to these two product candidates. We continue to be primarily responsible for the development of these two product candidates in accordance with a development plan and related development budgets. Pursuant to the agreements, we have received an exclusive purchase option that gives us the right, but not the obligation, to acquire all, but not less than all, of the equity of Symphony Allegro, and reacquire the intellectual property rights that we licensed to Symphony Allegro. This purchase option is exercisable at predetermined prices between December 1, 2007 and December 1, 2010, subject to an earlier exercise right in limited circumstances. The purchase option exercise price may be paid for in cash or in a combination of cash and our common stock, in our sole discretion, provided that the common stock portion may not exceed 40% of the purchase option exercise price or 10% of our common stock issued and outstanding as of the purchase option closing date. If we pay a portion of the purchase option exercise price in shares of our common stock, then we will be required to register such shares for resale under a resale registration statement pursuant to the terms of a registration rights agreement. If we do not exercise our purchase option by December 1, 2010, then Symphony Allegro will retain its exclusive license to develop and commercialize Staccato alprazolam and Staccato loxapine for all indications, and we will manufacture and sell Staccato alprazolam and Staccato loxapine to Symphony Allegro or its sublicensee for those purposes.

As our activities have expanded, we have consistently increased the number of our employees. We expect that we will add a significant number of employees during the remainder of 2007 to support our expanded operations.

We have incurred significant losses since our inception. As of December 31, 2006, our deficit accumulated during development stage was $119.0 million and total stockholders’ equity was $49.8 million. We recognized net losses of $41.8 million, $32.4 million, and $16.6 million in 2006, 2005 and 2004, respectively. We expect our net losses to increase as we continue our existing and planned preclinical studies and clinical trials, expand our research and development efforts and our manufacturing development, move to our new facility, and continue to add the necessary infrastructure to support operating as a public company.

The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval is costly and time consuming. We consider the development of our product candidates to be crucial to our long term success. If

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we do not complete development of our product candidates and obtain regulatory approval to market one or more of these product candidates, we may be forced to cease operations. The probability of success for each product candidate may be impacted by numerous factors, including preclinical data, clinical data, competition, device development, manufacturing capability, regulatory approval and commercial viability. Our strategy includes entering into strategic partnerships with third parties to participate in the development and commercialization of some of our product candidates, such as our Symphony Allegro relationship. If third parties have control over preclinical development or clinical trials for some of our product candidates, the progress of such product candidate will not be under our control. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to any future partnerships or how such arrangements would affect our development plans or capital requirements.

As a result of the uncertainties discussed above, the uncertainty associated with clinical trial enrollments, and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. While we are currently focused on developing AZ-001, AZ-004 and AZ-002, we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment as to the product candidate’s commercial potential. We anticipate developing additional product candidates, which will also increase our research and development expenses in future periods. We do not expect any of our current product candidates to be commercially available before 2011, if at all. We expect the existing cash, cash equivalents and marketable securities along with the interest earned thereon, funding available from Symphony Allegro and funds received from option exercises and purchases of common stock pursuant to our Employee Stock Purchase Plan, will enable us to maintain our currently planned operations through at least the end of the first quarter of 2008. We will need to raise additional capital to support continued development of our product candidates thereafter.

Critical Accounting Estimates and Judgments

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to development costs. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 of the notes to consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are critical to the process of making significant estimates and judgments in preparation of our financial statements.

Preclinical Study and Clinical Trial Accruals

We estimate our preclinical study and clinical trial expenses based on our estimates of the services received pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Preclinical study and clinical trial expenses include the following:

•  fees paid to contract research organizations in connection with preclinical studies;

•  fees paid to contract research organizations and other clinical sites in connection with clinical trials; and

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•  fees paid to contract manufacturers in connection with the production of components and drug materials for preclinical studies and clinical trials.

We record accruals for these preclinical study and clinical trial costs based upon the estimated amount of work completed. All such costs are charged to research and development expenses based on these estimates. Costs related to patient enrollment in clinical trials are accrued as patients are entered in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and discussions with research institutions and organizations. However, if we have incomplete or inaccurate information, we may underestimate or overestimate activity levels associated with various preclinical studies and clinical trials at a given point in time. In this event, we could record significant research and development expenses in future periods when the actual activity level becomes known. To date, we have not made any material adjustments to our estimates of preclinical study and clinical trial costs. We make good faith estimates which we believe to be accurate, but the actual costs and timing of clinical trials are highly uncertain, subject to risk and may change depending upon a number of factors, including our clinical development plan. If any of our product candidates enter Phase III clinical trials, the process of estimating clinical trial costs will become more difficult because the trials will involve larger numbers of patients and clinical sites.

Stock-Based Compensation

Employee Equity Incentive Awards Issued on or Subsequent to January 1, 2006

On January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, or SFAS 123R. As required, we adopted SFAS 123R using the prospective transition method. Under this transition method, beginning January 1, 2006, compensation cost recognized includes: (a) compensation cost for share-based payments granted prior to, but not yet vested as of December 31, 2005 related to (i) employees, based on the intrinsic value in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and (ii) non-employees based on the options fair value in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted or modified subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and purchase rights issued under the employee stock purchase plan. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and expected dividends.

The estimated fair value of restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. Our current estimate assumes no dividends will be paid prior to the vesting of the restricted stock unit.

We estimate the expected term of options using the “simplified” method, as illustrated in SAB 107. As we have been operating as a public company for a period of time that is significantly shorter than our estimated expected option term, we are unable to use actual price volatility data. Therefore, we estimate the volatility of our common stock based on volatility of similar entities. We base the risk-free interest rate that we use in the option pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.

We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. All share based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

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If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we decide to use a different valuation model, the expenses in future periods may differ significantly from what we have recorded in the current period and could materially affect our operating loss, net loss and net loss per share.

See Note 2 to the consolidated financial statements for further information regarding the SFAS 123R disclosures.

Employee Equity Incentive Awards Issued Prior to January 1, 2006

Prior to January 1, 2006, we used the intrinsic value recognition method for equity incentive awards issued to employees in accordance with APB 25. During the year ended December 31, 2005, we granted options to employees to purchase a total of 777,492 shares of common stock at exercise prices ranging from $1.10 to $6.88 per share. We did not obtain contemporaneous valuations from an unrelated valuation specialist during this period. Instead, we relied on our board of directors, the members of which have extensive experience in the life sciences industry and all but one of whom are non-employee directors, to determine a reasonable estimate of the then current value of our common stock. Given the absence of an active market for our common stock during 2005, our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors. Our board of directors estimated fair value of our common stock as follows:

•  in April 2005 at $1.38 per share primarily based on the continuing clinical development of our product candidates. At this time we had completed our Phase I clinical trial and had initiated our Phase IIa clinical trial of AZ-001, our preclinical studies of AZ-002 and AZ-004 had progressed; and we had a pre-IND meeting with the FDA with respect to AZ-003;

•  in October 2005 at $3.30 per share upon receipt of the results of our Phase IIa clinical trial of AZ-001 and Phase I clinical trial of AZ-002, which are described in the section entitled “Business” in this prospectus. These results were sufficiently encouraging for us to consider undertaking the steps necessary to initiate our initial public offering; and

•  in December 2005 at $6.88 per share in light of the results of our Phase I clinical trial of AZ-004 and the anticipated filing of a registration statement in connection with our initial public offering, which occurred on December 22, 2005.

In connection with the preparation of our financial statements in connection with our initial public offering in March 2006, we reassessed the estimated fair value of our common stock in light of the expected completion of the offering. In reassessing the fair value of our common stock during 2005 for purposes of computing the stock-based compensation expense, we reassessed the fair value of the common stock assuming the successful completion of our initial public offering and then determined the reassessed fair value at previous points in time. In determining the reassessed fair value of our common stock during 2005, we established $9.90 as the reassessed fair value at December 31, 2005 (90% of the midpoint of the estimated price range of the initial public offering) and applied it over the prior 12 month period using a straight line basis. We also considered other material factors in reassessing fair value for financial reporting purposes as of the respective option grant dates, including the completion of our Phase I clinical trial of AZ-002 in September 2005, the completion of our Phase I clinical trial of AZ-004 in November 2005, the results of our Phase IIa clinical trial of AZ-001, valuations of existing comparable publicly traded companies, the state of the public offering market for development stage life sciences companies and our decision to pursue an initial public offering. We believe this approach was consistent with valuation methodologies applied by other life science companies pursuing an initial public offering. The reassessed fair value used to compute the stock-based compensation expense may not be reflective of the fair market value that would result from the application of other valuation methods, including accepted valuation methods for tax purposes.

Based upon the reassessment discussed above, we determined that the reassessed fair value of the options to purchase 777,492 shares of common stock ranged from $2.04 to $9.90 per share during the year ended December 31, 2005. We took into account the factors identified above in determining the reassessed fair value of the common stock as of each grant date. Share-based compensation resulting from this reassessment equals the difference

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between the reassessed fair value per share of our common stock on the date of grant and the exercise price per share and is being amortized over the vesting period of the underlying options, generally four years.

As a result of the reassessed fair value of options granted, we recorded deferred stock-based compensation relative to these options of approximately $3.3 million during the year ended December 31, 2005, which is being amortized over the vesting period of the applicable options on a straight-line basis. During the years ended December 31, 2006 and 2005, we amortized $727,000 and $404,000, respectively, of deferred stock-based compensation. At December 31, 2006 we have $1.7 million of deferred stock compensation to be amortized in future periods as follows: $651,000 in 2007, $651,000 in 2008 and $401,000 in 2009.

In addition, we had three officer stock option grants that were subject to variable accounting treatment. See Note 2 to the consolidated financial statements. With the variable options, we measured the additional compensation each period based on the incremental difference between the reassessed fair value of the shares and the exercise price of the stock options and recorded compensation expense on a graded vesting basis in accordance with FIN 28, Accounting for Stock Appreciation Rights and other Variable Stock Option or Award Plans. As a result of the reassessed fair value, we recorded $442,000 of stock-based compensation expense during the year ended December 31, 2005. As a result of changes in the our stock price, we recorded a $442,000 reduction in compensation expense during the first quarter of 2006. As the exercise price was fixed in March 2006, the contingency was resolved and variable accounting for these options ceased.

In December 2005, we extinguished the housing loans that were made to the three officers having a total principal value of $2.3 million and we agreed to pay $1.7 million of taxes related to the extinguishment on the officers’ behalf. We recognized compensation expense of $4.0 million in the quarter ended December 31, 2005 as a result of the extinguishments of the officers’ notes and related taxes. In connection with the loan extinguishment agreements, we settled the loan extinguishment by reducing the aggregate intrinsic value of their stock options as described below. As a result, variable stock-based compensation expense was reduced by an amount equal to the $4.0 million loan extinguishment and related taxes in the quarter ended December 31, 2005.

In settlement for the extinguishment of the officer notes receivable, we increased the exercise price of certain options to purchase common stock held by these officers such that the aggregate intrinsic value of their stock option awards was reduced by an amount equal to the amounts of the loans extinguished and related taxes paid on their behalf. We settled this transaction based on the initial public offering price of $8.00 per share.

Non-employee Equity Incentive Awards

We account for stock compensation arrangements with non-employees in accordance, with SFAS No. 123, as amended by SFAS No. 148, and Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. For stock options granted to non-employees, the fair value of the stock options is estimated using the Black-Scholes valuation model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we make assumptions with respect to the expected life of the option, the volatility of the fair value of our common stock, risk free interest rates and expected dividend yields of our common stock. We have to date assumed that non-employee stock options have an expected life of six to ten years, representing their full contractual life, and assumed common stock volatility of 100%. Different estimates of volatility and expected life of the option could materially change the value of an option and the resulting expense.

Share-based compensation expense is recognized over the period of expected service by the non-employee. As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments may result in additional or less stock-based compensation expense than originally estimated or recorded, with a corresponding increase or decrease in compensation expense in the statement of operations. Ultimately, the final compensation charge for each option grant to non-employees is unknown until those options have vested or services have been completed or the performance of services is completed. Stock-based compensation expense associated with these non-employee options was $145,000, $195,000 and $40,000 for 2006, 2005 and 2004, respectively.

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Results of Operations

Comparison of Years Ended December 31, 2006 and 2005

Revenue.  Our revenue for 2006 and 2005 was $1.0 million and $2.2 million, respectively. In 2006, we recognized approximately $1.0 million of government grant revenue and $30,000 of revenue from drug compound feasibility screening. In 2005, we recognized approximately $2.0 million of government grant revenue and $155,000 of revenue from drug compound feasibility screening. The decrease of $1.0 million of government grant revenue was due to the expiration of existing government grants. We do not expect additional grant revenue in 2007, as we place greater emphasis on strategic partnerships and allocate fewer resources to obtaining grants. We do not expect to generate significant, if any, revenues from drug compound feasibility screening in future periods.

Operating Expenses

Share-based compensation expenses had varying degrees of impact on our comparative operating expenses for the years ended December 31, 2006, 2005 and 2004. Our operating expenses for the years ended December 31, 2006, 2005 and 2004 are as follows (in thousands):

	Year Ended December 31,
	2006		2005		2004
Non share-based compensation expenses:
Research and development	$	34,724	$	26,067	$	15,088
General and administrative		9,522		8,781		4,155
Total non share-based compensation expenses		44,246		34,848		19,243
Share-based compensation expenses:
Research and development		1,770		167		59
General and administrative		447		874		—
Total share-based compensation expenses		2,217		1,041		59
Total operating expenses	$	46,463	$	35,889	$	19,302

Research and Development Expenses.  Research and development expenses consist of costs associated with research activities, as well as costs associated with our product development efforts, conducting preclinical studies and clinical trials and manufacturing development efforts. All research and development costs, including those funded by third parties, are expensed as incurred. Research and development expenses include:

•  external research and development expenses incurred under agreements with third party contract research organizations and investigational sites where a substantial portion of our preclinical studies and all of our clinical trials are conducted;

•  third party supplier, consultant and employee related expenses, which include salary and benefits;

•  facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies; and

•  in 2006 and 2005, certain incremental charges related to officer loan extinguishments and non-cash stock-based compensation expense.

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The table below sets forth our research and development expenses since January 1, 2003 for each of our lead product candidates based on our internal records and estimated allocations of employee time and related expenses:

	Year Ended December 31,
	2006		2005			2004		2003		Total
	(In thousands)
Preclinical and clinical development:
AZ-001	$	9,535	$	6,369		$	8,640	$	5,514	$	30,058
AZ-002		3,094		3,803			1,930		490		9,317
AZ-004		6,073		3,187			119		—		9,379
AZ-003		3,687		5,021			1,706		936		11,350
Other preclinical programs		5,627		—			—		—		5,627
Total preclinical and clinical development		28,016		18,380			12,395		6,940		65,731
Research		8,478		7,855	(1)		2,752		4,547		23,632
Total research and development	$	36,494	$	26,235		$	15,147	$	11,487	$	89,363

(1) Research expenses in 2005 included $875,000 related to the extinguishment of officer notes receivable.

Research and development expenses increased 39% to $36.5 million in 2006 from $26.2 million in 2005. The increase was due primarily to increased spending on clinical trials for AZ-001 and AZ-004 product candidates, additional spending on new preclinical programs, increased staffing and other personnel related costs to support our preclinical studies and clinical trials and additional internal research efforts and increased share-based compensation expense. Based on our internal records and estimated allocation of employee time and related expenses, our research and development expenses for preclinical studies and clinical trials increased to $28.0 million in 2006 from $18.4 million in 2005.

Research and development expenses represented 79% of total operating expenses for 2006 and 73% of total operating expenses for 2005. We expect to continue to devote substantial resources to research and development to support the continued development of our product candidates and core technology, expand our research and development efforts and expand our manufacturing development. In 2007, we intend to initiate clinical trials for AZ-001 in patients with compromised lung function, continue a Phase IIa clinical trial for AZ-002 and initiate a Phase IIb clinical trial for AZ-004. In addition, we expect to file an IND for a new product candidate. We expect that research and development expenses for clinical trials will continue to increase in absolute dollar amounts as we conduct additional and later stage clinical trials for our product candidates. In addition, we expect to incur additional non-cash stock-based compensation expense in 2007 due to the adoption of SFAS 123R in 2006.

General and Administrative Expenses.  General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, accounting, business development, legal and human resources functions. Other general and administrative expenses include facility and information technology costs not otherwise included in research and development expenses, patent related costs and professional fees for legal, consulting and accounting services. In 2005, we also incurred certain incremental charges resulting from the extinguishment of officer notes.

General and administrative expenses increased 3% to $10.0 million in 2006 from $9.7 million in 2005. Expenses in 2005 include $3.1 million related to the extinguishment of the officer notes and related taxes paid on behalf of the officers. Excluding this expense, general and administrative expenses increased $3.4 million (35%) which was primarily due to expanding legal and accounting staff, adding infrastructure and incurring additional costs related to operating as a public company, including directors’ and officers’ insurance, investor relations programs, increased director fees, increased professional fees and non-cash stock-based compensation expense.

We expect that our general and administrative expenses will increase in absolute dollar amounts as we continue to add infrastructure to support the expected increase in operations and our obligations as a public company.

Interest and Other Income and Interest Expense, Net.  Interest and other income and interest expense, primarily represents income earned on our cash, cash equivalents and marketable securities balances net of interest

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expense on our equipment loans. Interest and other income and interest expense, net was $1.9 million for 2006 and $1.3 million for 2005. This increase was primarily due to substantially increased average cash balances in 2006 due to the closing of our initial public offering in March 2006, to a lesser extent the additional interest income from Symphony Allegro cash and investment balances in December 2006, and higher interest rates earned on such balances.

Loss Attributed to Noncontrolling Interest in Symphony Allegro.  Pursuant to the agreements that we entered into with Symphony Allegro, Inc. in December 2006, we consolidate Symphony Allegro’s financial condition and results of operations in accordance with FASB Interpretation No. 46R, Consolidation of Variable Interest Entities an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46R”). Accordingly, we have deducted the losses attributable to the noncontrolling interest from our net loss in the consolidated statement of operations, and we have also reduced the noncontrolling interest holders’ ownership interest in Symphony Allegro, Inc. in the consolidated balance sheet by the loss attributed to the noncontrolling interests in Symphony Allegro, Inc. For the year ended December 31, 2006, the losses attributed to the noncontrolling interest holders was $1.7 million. There were no such losses in 2005. We expect the losses attributed to the noncontrolling interest holders will be at a lower rate than the $1.7 million attributed for the one month the agreement was in place in 2006.

Comparison of Years Ended December 31, 2005 and 2004

Revenue.  Our revenue for 2005 and 2004 was $2.2 million and $2.4 million, respectively. In 2005, we recognized approximately $2.0 million of government grant revenue and $155,000 of revenue from drug compound feasibility screening. In 2004, all of our revenue resulted from government grants. The decrease of $400,000 of government grant revenue was due to the expiration of existing government grants.

Research and Development Expenses.  Research and development expenses increased 73% to $26.2 million in 2005 from approximately $15.1 million in 2004. The increases were primarily due to increases in spending on our AZ-001 product candidate as we prepared for and initiated a Phase IIb clinical trial in 2006, our AZ-004 product candidate as we prepared for the initiation of a Phase IIa clinical trial in the third quarter of 2006, and preclinical efforts on additional potential product candidates. Spending on our AZ-002 product candidate decreased in 2006 as compared to 2005 as we incurred higher expenses in 2005 for the preparation and initiation of the Phase I clinical trial completed in September 2005. Also, spending on our AZ-003 product candidate decreased in 2006 as compared to 2005 as we incurred higher costs in 2005 as a result of our efforts to file an IND with the FDA which occurred in February 2006 and our manufacture of clinical trial material. Research and development expenses represented 73% of total operating expenses for 2005 and 78% of total operating expenses for 2004.

General and Administrative Expenses.  General and administrative expenses increased 132% to $9.7 million from $4.2 million in 2004. This increase was primarily due to approximately $874,000 in non-cash stock-based compensation and $3.1 million related to the extinguishment of the officer notes and related taxes paid on behalf of the officers in 2005, as well as increased staffing necessary to manage and support our growth.

Interest and Other Income and Interest Expense, Net.  Interest and other income and interest expense, primarily represents income earned on our cash and cash equivalents and marketable securities net of interest expense on our equipment loans. Interest and other income and interest expense, net was $1.3 million and $241,000 for 2005 and 2004, respectively. This increase was primarily due to substantially increased average cash balances in 2005 due to the closing of our Series D preferred stock financing in late 2004.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private placements and a public offering of equity securities, receiving aggregate net proceeds from such sales totaling $151.2 million, revenues primarily from government grants totaling $6.9 million and funding from Symphony Allegro. We have received additional funding from equipment financing obligations, interest earned on investments, as described below, and funds received upon exercises of stock options and exercises of purchase rights under our Employee Stock Purchase Plan. As of December 31, 2006, we had $42.6 million in cash, cash equivalents and marketable securities, $50.0 million of marketable securities held by Symphony Allegro, and $2.8 million available under an equipment financing line of credit. Our cash and investment balances are held in a variety of interest bearing instruments, including obligations

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of United States government agencies, high credit rating corporate borrowers and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation.

Net cash used in operating activities was $33.3 million, $22.0 million and $15.5 million in 2006, 2005 and 2004, respectively. The net cash used in each of these periods primarily reflects net loss for these periods, offset in part by depreciation, non-cash stock-based compensation, extinguishment of officer notes receivable and non-cash changes in operating assets and liabilities.

Net cash provided by (used in) investing activities was $(61.4) million, $15.9 million and $(23.7) million in 2006, 2005 and 2004, respectively. Investing activities consist primarily of purchases and sales of marketable securities and capital purchases. During 2006 and 2004 we purchased $2.9 million and $21.5 million of marketable securities, net of sales, respectively with 2006 also including net purchases of $50.0 million of investments by Symphony Allegro. In 2005 we sold $21.6 million of marketable securities, net of purchases. Purchases of property and equipment were $8.1 million, $5.6 million and $2.2 million in 2006, 2005 and 2004, respectively. A significant portion of the increased purchase of property and equipment in 2006 related to the purchase of production equipment for our pilot manufacturing facility which we expect to complete in 2007 and to the build out of our leased facility in Mountain View, California. A significant portion of the increased purchase of property and equipment in 2005 related to our expansion into a second leased facility in Palo Alto, California. We expect to continue to make significant investments in the purchase of property and equipment to support our expanding operations.

Net cash provided by financing activities was $94.9 million, $4.1 million, and $50.6 million in 2006, 2005 and 2004, respectively. Financing activities consist primarily of proceeds from the sale of our common and preferred stock, issuance of a noncontrolling interest, and equipment financing arrangements. During 2006, we received net proceeds from the issuance of common stock of $44.9, and during 2004 we received net proceeds from the issuance of preferred stock of $49.9 million. In 2006, we received net proceeds of $47.2 from purchase of noncontrolling interests by preferred shareholders in Symphony Allegro, net of fees. Proceeds from equipment financing arrangements, net of payments, were $1.8 million, $3.7 million and $666,000 during 2006, 2005 and 2004, respectively.

We believe that our current cash, cash equivalents and marketable securities along with interest earned thereon, the funding available from Symphony Allegro, Inc., the funds available under our equipment financing agreement and the proceeds from option exercises and purchases of common stock pursuant to our Employee Stock Purchase Plan, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures through at least the end of the first quarter of 2008. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available financial resources sooner than we currently expect. The key assumptions underlying this estimate include:

•  expenditures related to continued preclinical and clinical development of our lead product candidates during this period within budgeted levels;

•  the timing and amount of payments from Symphony Allegro;

•  no unexpected costs related to the development of our manufacturing capability;

•  the hiring of a number of new employees at salary levels consistent with our estimates to support our continued growth during this period; and

•  satisfaction of the condition to release additional funds under our equipment financing agreement in 2007.

Our future contractual obligations, including financing costs, at December 31, 2006 were as follows:

	Payments Due by Period
			Less Than
Contractual Obligations	Total		1 Year		1-3 Years		3-5 Years		Thereafter
	(In thousands)
Equipment financing obligations	$	9,929	$	3,466	$	5,956	$	507	$	—
Autoliv co-development payments		416		333		83		—		—
Operating lease obligations		28,425		1,756		3,928		5,017		17,724
Total	$	38,770	$	5,555	$	9,967	$	5,524	$	17,724

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Related Party Transactions

We had various notes receivable from officers that were extinguished in December 2005. Additionally, we have one note receivable outstanding as of December 31, 2006 from an employee. For a description, see Note 9 of “Notes to Consolidated Financial Statements.”

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109 (FIN 48). FIN 48 provides measurement and recognition guidance related to accounting for uncertainty in income taxes by prescribing a recognition threshold for tax positions. FIN 48 also requires extensive disclosures about uncertainties in the income tax positions taken. We will adopt FIN 48, as required on January 1, 2007. We have not performed the calculations related to this implementation and therefore the impact of FIN 48 on its financial statements is unknown at this time.

On June 1, 2005 the FASB issued SFAS 154, Accounting Changes and Error Correction, which replaces APB 20, “Accounting Changes,” and SFAS 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes made in fiscal years beginning after June 1, 2005. We adopted SFAS 154 on January 1, 2006. The adoption of this new standard did not have a material impact on our financial position, results of operations or cash flows.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for us beginning in the first quarter of fiscal year 2009. We are currently evaluating the impact of the provisions of SFAS 157 on our financial position, results of operations and cash flows and do not believe the impact of the adoption will be material.

Off-Balance Sheet Arrangements

None

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is confined to our cash, cash equivalents, which have maturities of less than three months, and marketable securities. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and marketable securities in a variety of securities of high credit quality. As of December 31, 2006, we had cash, cash equivalents and marketable securities of $42.6 million and investments held by Symphony Allegro of $50.0 million. The securities in our investment portfolio are not leveraged, are classified as available for sale and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a material negative impact on the realized value of our investment portfolio. We actively monitor changes in interest rates.

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Item 8.   Financial Statements and Supplementary Data

ALEXZA PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	59
Consolidated Balance Sheets as of December 31, 2006 and 2005	60
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 and for the period from December 19, 2000 (inception) to December 31, 2006	61
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the period from December 19, 2000 (inception) to December 31, 2006	62
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 and for the period from December 19, 2000 (inception) to December 31, 2006	68
Notes to Consolidated Financial Statements	69

58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Alexza Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Alexza Pharmaceuticals, Inc. (a development stage company) (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006 and for the period from December 19, 2000 (inception) to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alexza Pharmaceuticals, Inc. (a development stage company) at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 and for the period from December 19, 2000 (inception) to December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, on January 1, 2006, the Company changed its method of accounting for share-based payments made to employees and directors.

/s/  Ernst & Young LLP

Palo Alto, California

March 27, 2007

59

ALEXZA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	(In thousands, except
	share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	17,032		$	16,787
Marketable securities		25,591			21,582
Investments held by Symphony Allegro, Inc.		49,956			—
Grant receivable		—			35
Prepaid expenses and other current assets		1,263			1,797
Total current assets		93,842			40,201
Property and equipment, net		11,136			6,774
Restricted cash		604			204
Officer and employee notes receivable, net of unamortized discount		83			78
Other assets		101			148
Total assets	$	105,766		$	47,405
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	5,933		$	2,924
Accrued clinical trial expense		1,641			361
Other accrued expenses		3,849			4,438
Current portion of equipment financing obligations		2,770			1,718
Total current liabilities		14,193			9,441
Other liabilities		1,191			—
Noncurrent portion of equipment financing obligations		5,865			5,155
Noncontrolling interest in Symphony Allegro, Inc.		34,743			—
Commitments
Convertible preferred stock, $0.0001 par value, no shares authorized at December 31, 2006 and 82,000,221 shares authorized at December 31, 2005; no shares issued and outstanding at December 31, 2006 and 79,856,703 shares issued and outstanding at December 31, 2005; aggregate liquidation preference of $109,513 at December 31, 2005		—			107,194
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value, 5,000,000 shares authorized at December 31, 2006 and no shares authorized at December 31, 2005; no shares issued and outstanding at December 31, 2006 or 2005		—			—
Common stock, $0.0001 par value; 100,000,000 shares authorized at December 31, 2006 and 112,500,000 shares authorized at December 31, 2005; 23,819,313 shares issued and outstanding at December 31, 2006, 1,920,114 shares issued and outstanding at December 31, 2005		2			—
Additional paid-in capital		170,442			5,740
Deferred stock compensation		(1,703	)		(2,925	)
Other comprehensive income (loss)		9			(30	)
Deficit accumulated during development stage		(118,976	)		(77,170	)
Total stockholders’ equity (deficit)		49,774			(74,385	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	105,766		$	47,405

See accompanying notes.

60

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

										Period from
										December 19,
										2000 (Inception)
	Year Ended December 31,									to December 31,
	2006			2005			2004			2006
	(In thousands, except per share amounts)
Revenue	$	1,028		$	2,230		$	2,436		$	6,945
Operating expenses:
Research and development		36,494			26,235			15,147			97,473
General and administrative		9,969			9,654			4,155			30,175
Acquired in-process research and development		—			—			—			3,916
Total operating expenses		46,463			35,889			19,302			131,564
Loss from operations		(45,435	)		(33,659	)		(16,866	)		(124,619	)
Interest and other income, net		2,687			1,615			467			5,566
Interest expense		(778	)		(358	)		(226	)		(1,643	)
Loss before noncontrolling interest in Symphony Allegro, Inc.		(43,526	)		(32,402	)		(16,625	)		(120,696	)
Loss attributed to noncontrolling interest in Symphony Allegro, Inc.		1,720			—			—			1,720
Net loss	$	(41,806	)	$	(32,402	)	$	(16,625	)	$	(118,976	)
Basic and diluted net loss per common share	$	(2.13	)	$	(18.98	)	$	(11.41	)
Shares used to compute basic and diluted net loss per common share		19,584			1,707			1,457

See accompanying notes.

61

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

																					Deficit
																					Accumulated			Total
													Additional		Stockholder		Deferred		Other		During the			Stockholders’
	Convertible Preferred Stock				Preferred Stock				Common Stock				Paid-In		Note		Stock		Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Receivable		Compensation		(Loss) Income		Stage			(Deficit)
	(In thousands, except share and per share amounts)
Issuance of common stock to founders at $0.22 per share in December 2000 in exchange for technology and cash of $8		—	$	—		—	$	—		454,536	$	—	$	100	$	—	$	—	$	—	$	—		$	100
Issuance of Series A preferred stock for cash at $0.40 per share in July 2001, net of issuance costs of $9		2,500,000		991		—		—		—		—		—		—		—		—		—			—
Issuance of Series A1 preferred stock at $1.55 per share in December 2001, in connection with merger		1,610,250		2,496		—		—		—		—		—		—		—		—		—			—
Issuance of Series B preferred stock for cash at $1.40 per share in December 2001, net of issuance costs of $71		6,441,000		8,946		—		—		—		—		—		—		—		—		—			—
Issuance of common stock in connection with merger at $1.10 per share in December 2001		—		—		—		—		868,922		—		956		—		—		—		—			956
Warrants assumed in merger transaction		—		—		—		—		—		—		10		—		—		—		—			10
Issuance of common stock for cash at $0.22 per share upon exercise of options in December 2001		—		—		—		—		9,090		—		2		—		—		—		—			2
Compensation expense related to consultant stock options		—		—		—		—		—		—		3		—		—		—		—			3
Net loss and comprehensive loss		—		—		—		—		—		—		—		—		—		—		(5,652	)		(5,652	)
Balance at December 31, 2001 (carried forward)		10,551,250	$	12,433		—	$	—		1,332,548	$	—	$	1,071	$	—	$	—	$	—	$	(5,652	)	$	(4,581	)

See accompanying notes.

62

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

																								Deficit
																								Accumulated			Total
														Additional			Stockholder			Deferred		Other		During the			Stockholders’
	Convertible Preferred Stock				Preferred Stock				Common Stock					Paid-In			Note			Stock		Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares			Amount		Capital			Receivable			Compensation		(Loss) Income		Stage			(Deficit)
	(In thousands, except share and per share amounts)
Balance at December 31, 2001 (brought forward)		10,551,250	$	12,433		—	$	—		1,332,548		$	—	$	1,071		$	—		$	—	$	—	$	(5,652	)	$	(4,581	)
Issuance of common stock for cash at $0.22 per share upon exercise of options in February 2002		—		—		—		—		10,606			—		3			—			—		—		—			3
Issuance of warrants to purchase Series B preferred stock in March 2002, in connection with equipment financing loan		—		27		—		—		—			—		—			—			—		—		—			—
Issuance of common stock for cash at $0.22 per share upon exercise of options in July 2002		—		—		—		—		2,180			—		—			—			—		—		—			—
Issuance of common stock to stockholder at $0.99 per share in exchange for promissory note in July 2002		—		—		—		—		53,156			—		53			(53	)		—		—		—			—
Issuance of Series C preferred stock for cash at $1.56 per share in September 2002, net of issuance costs of $108		28,870,005		44,892		—		—		—			—		—			—			—		—		—			—
Repurchase of common stock for cash at $1.05 per share in October 2002		—		—		—		—		(2,634	)		—		(3	)		—			—		—		—			(3	)
Issuance of common stock for cash at $1.05 per share for services upon exercise of warrants in December 2002		—		—		—		—		9,368			—		10			—			—		—		—			10
Compensation expense related to consultant stock options		—		—		—		—		—			—		10			—			—		—		—			10
Unrealized gain on investments		—		—		—		—		—			—		—			—			—		51		—			51
Net loss		—		—		—		—		—			—		—			—			—		—		(8,163	)		(8,163	)
Comprehensive loss		—		—		—		—		—			—		—			—			—		—		—			(8,112	)
Balance at December 31, 2002 (carried forward)		39,421,255	$	57,352		—	$	—		1,405,224		$	—	$	1,144		$	(53	)	$	—	$	51	$	(13,815	)	$	(12,673	)

See accompanying notes.

63

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

																										Deficit
																										Accumulated			Total
														Additional			Stockholder			Deferred			Other			During the			Stockholders’
	Convertible Preferred Stock				Preferred Stock				Common Stock					Paid-In			Note			Stock			Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares			Amount		Capital			Receivable			Compensation			(Loss) Income			Stage			(Deficit)
	(In thousands, except share and per share amounts)
Balance at December 31, 2002 (brought forward)		39,421,255	$	57,352		—	$	—		1,405,224		$	—	$	1,144		$	(53	)	$	—		$	51		$	(13,815	)	$	(12,673	)
Issuance of common stock for cash at $0.22, $0.99 and $1.10 per share upon exercise of options		—		—		—		—		74,903			—		47			—			—			—			—			47
Issuance of warrants to purchase Series C preferred stock in connection with equipment financing loan in January 2003		—		35		—		—		—			—		—			—			—			—			—			—
Issuance of warrants to purchase Series C preferred stock in connection with equipment financing loan in September 2003		—		27		—		—		—			—		—			—			—			—			—			—
Repurchase of common stock for cash at $1.05 per share in January 2003		—		—		—		—		(1,172	)		—		(1	)		—			—			—			—			(1	)
Repurchase of common stock for cash at $0.22 per share in November 2003		—		—		—		—		(14,772	)		—		(3	)		—			—			—			—			(3	)
Compensation expense related to consultant stock options		—		—		—		—		—			—		31			—			—			—			—			31
Deferred stock compensation expense related to modification of consultant stock option		—		—		—		—		—			—		1			—			(1	)		—			—			—
Unrealized loss on investments		—		—		—		—		—			—		—			—			—			(55	)		—			(55	)
Net loss		—		—		—		—		—			—		—			—			—			—			(14,328	)		(14,328	)
Comprehensive loss		—		—		—		—		—			—		—			—			—			—			—			(14,383	)
Balance at December 31, 2003 (carried forward)		39,421,255	$	57,414		—	$	—		1,464,183		$	—	$	1,219		$	(53	)	$	(1	)	$	(4	)	$	(28,143	)	$	(26,982	)

See accompanying notes.

64

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

																										Deficit
																										Accumulated			Total
														Additional			Stockholder			Deferred			Other			During the			Stockholders’
	Convertible Preferred Stock				Preferred Stock				Common Stock					Paid-In			Note			Stock			Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares			Amount		Capital			Receivable			Compensation			(Loss) Income			Stage			(Deficit)
	(In thousands, except share and per share amounts)
Balance at December 31, 2003 (brought forward)		39,421,255	$	57,414		—	$	—		1,464,183		$	—	$	1,219		$	(53	)	$	(1	)	$	(4	)	$	(28,143	)	$	(26,982	)
Cancellation of unvested common stock at $0.99 per share in March 2004		—		—		—		—		(24,365	)		—		(24	)		24			—			—			—			—
Repayment of vested portion of stockholder note receivable for cash		—		—		—		—		—			—		—			29			—			—			—			29
Issuance of warrants to purchase Series C preferred stock in connection with equipment financing loan in April 2004		—		20		—		—		—			—		—			—			—			—			—			—
Issuance of common stock for cash at $0.22, $0.99 and $1.10 per share upon exercise of options		—		—		—		—		100,192			—		72			—			—			—			—			72
Repurchase of common stock for cash at $1.05 per share in September 2004		—		—		—		—		(404	)		—		—			—			—			—			—			—
Issuance of Series D preferred stock at $1.29 per share in November and December 2004, net of issuance costs of $2,239		40,435,448		49,760		—		—		—			—		—			—			—			—			—			—
Issuance of warrants to purchase common stock in connection with Series D financing in November 2004		—		—		—		—		—			—		91			—			—			—			—			91
Compensation expense related to consultant stock options		—		—		—		—		—			—		40			—			—			—			—			40
Compensation expense related to employee stock option modifications		—		—		—		—		—			—		19			—			—			—			—			19
Amortization of deferred stock compensation		—		—		—		—		—			—		—			—			1			—			—			1
Unrealized loss on investments		—		—		—		—		—			—		—			—			—			(41	)		—			(41	)
Net loss		—		—		—		—		—			—		—			—			—			—			(16,625	)		(16,625	)
Comprehensive loss		—		—		—		—		—			—		—			—			—			—			—			(16,666	)
Balance at December 31, 2004 (carried forward)		79,856,703	$	107,194		—	$	—		1,539,606		$	—	$	1,417		$	—		$	—		$	(45	)	$	(44,768	)	$	(43,396	)

See accompanying notes.

65

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

																							Deficit
																							Accumulated			Total
													Additional		Stockholder		Deferred			Other			During the			Stockholders’
	Convertible Preferred Stock				Preferred Stock				Common Stock				Paid-In		Note		Stock			Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Receivable		Compensation			(Loss) Income			Stage			(Deficit)
	(In thousands, except share and per share amounts)
Balance at December 31, 2004 (brought forward)		79,856,703	$	107,194		—	$	—		1,539,606	$	—	$	1,417	$	—	$	—		$	(45	)	$	(44,768	)	$	(43,396	)
Issuance of common stock upon exercise of options $0.22, $0.99, $1.10, per share		—		—		—		—		380,508		—		357		—		—			—			—			357
Compensation expense related to consultant stock options		—		—		—		—		—		—		195		—		—			—			—			195
Deferred stock compensation, net of $4 reversal in connection with employee terminations		—		—		—		—		—		—		3,329		—		(3,329	)		—			—			—
Amortization of deferred stock compensation,		—		—		—		—		—		—		—		—		404			—			—			404
Variable compensation expense		—		—		—		—		—		—		442		—		—			—			—			442
Unrealized gain on investments		—		—		—		—		—		—		—		—		—			15			—			15
Net loss		—		—		—		—		—		—		—		—		—			—			(32,402	)		(32,402	)
Comprehensive loss		—		—		—		—		—		—		—		—		—			—			—			(32,387	)
Balance at December 31, 2005		79,856,703	$	107,194		—	$	—		1,920,114	$	—	$	5,740	$	—	$	(2,925	)	$	(30	)	$	(77,170	)	$	(74,385	)

See accompanying notes.

66

ALEXZA PHARMACEUTICALS, INC.
(a development stage company)

CONSOLIDATED STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

																										Deficit
																										Accumulated			Total
															Additional			Stockholder		Deferred			Other			During the			Stockholders’
	Convertible Preferred Stock						Preferred Stock				Common Stock				Paid-In			Note		Stock			Comprehensive			Development			Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital			Receivable		Compensation			(Loss) Income			Stage			(Deficit)
	(In thousands, except share and per share amounts)
Balance at December 31, 2005 (brought forward)		79,856,703		$	107,194			—	$	—		1,920,114	$	—	$	5,740		$	—	$	(2,925	)	$	(30	)	$	(77,170	)	$	(74,385	)
Issuance of common stock for cash and shares upon exercise of options at a weighted average price of $1.28 per share		—			—			—		—		159,446		—		195			—		—			—			—			195
Issuance of common stock for cash under the Company’s Employee Stock Purchase Plan		—			—			—		—		131,682		—		896			—		—			—			—			896
Issuance of common stock for shares upon exercise of warrant		—			—			—		—		85,359		—		—			—		—			—			—			—
Issuance of common stock for cash, net of offering costs of $2,156		—			—			—		—		6,325,000		1		44,901			—		—			—			—			44,902
Conversion of convertible preferred stock into common stock		(79,856,703	)		(107,194	)		—		—		15,197,712		1		107,193			—		—			—			—			107,194
Compensation expense related to consultant stock options		—			—			—		—		—		—		145			—		—			—			—			145
Compensation expense related to fair value of employee share based awards issued after January 1, 2006		—			—			—		—		—		—		1,601			—		—			—			—			1,601
Amortization of deferred stock compensation		—			—			—		—		—		—		—			—		727			—			—			727
Reversal of deferred stock compensation in connection with employee terminations		—			—			—		—		—		—		(495	)		—		495			—			—			—
Variable compensation expense		—			—			—		—		—		—		(442	)		—		—			—			—			(442	)
Issuance of warrant to Symphony Allegro Holdings LLC		—			—			—		—		—		—		10,708			—					—			—			10,708
Unrealized gain on investments		—			—			—		—		—		—		—			—		—			39			—			39
Net loss		—			—			—		—		—		—		—			—		—			—			(41,806	)		(41,806	)
Comprehensive loss		—			—			—		—		—		—		—			—		—			—			—			(41,767	)
Balance at December 31, 2006		—		$	—			—	$	—		23,819,313	$	2	$	170,442		$	—	$	(1,703	)	$	9		$	(118,976	)	$	49,774

See accompanying notes.

67

ALEXZA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

										Period From
										December 19,
										2000
										(inception) to
	Year Ended December 31,									December 31,
	2006			2005			2004			2006
				(In thousands)
Cash flows from operating activities:
Net loss	$	(41,806	)	$	(32,402	)	$	(16,625	)	$	(118,976	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss attributed to noncontrolling interests		(1,720	)		—			—			(1,720	)
Stock compensation expense — consultants		145			195			40			425
Stock compensation expense — employees		1,345			442			19			1,806
Extinguishment of officer notes receivable		—			2,300			—			2,300
Amortization of deferred stock compensation		727			404			—			1,131
Issuance of common stock for intellectual property		—			—			—			92
Charge for acquired in-process research and development		—			—			—			3,916
Amortization of assembled workforce		—			—			—			222
Amortization of debt discount and deferred interest		35			47			86			275
Amortization of premium/discount on available-for-sale securities		(1,035	)		444			560			999
Depreciation and amortization		3,677			2,082			972			7,449
Loss on disposal of property and equipment		28			6			—			43
Changes in operating assets and liabilities:
Grant receivable		35			292			(14	)		—
Prepaid expenses and other current assets		534			(1,001	)		(143	)		(1,257	)
Other assets		7			(148	)		(1,134	)		(2,643	)
Accounts payable		3,009			1,994			268			5,804
Accrued clinical trial expense and other accrued expenses		505			251			518			1,790
Other liabilities		1,191			3,138			(33	)		4,581
Net cash used in operating activities		(33,323	)		(21,956	)		(15,486	)		(93,763	)
Cash flows from investing activities:
Purchase of available-for-sale securities		(72,129	)		(39,074	)		(47,588	)		(215,336	)
Maturities of available-for-sale securities		69,194			60,639			26,080			188,756
Purchase of available-for-sale securities held by Symphony Allegro, Inc.		(49,975	)		—			—			(49,975	)
Maturities of available-for-sale securities held by Symphony Allegro, Inc.		19			—			—			19
Decrease (increase) in restricted cash		(400	)		(19	)		—			(604	)
Purchases of property and equipment		(8,067	)		(5,609	)		(2,168	)		(18,366	)
Proceeds from disposal of property and equipment		—			—			—			3
Cash paid for merger		—			—			—			(250	)
Net cash provided by (used in) investing activities		(61,358	)		15,937			(23,676	)		(95,753	)
Cash flows from financing activities:
Proceeds from issuance of common stock and exercise of stock options and stock purchase rights		45,993			357			74			46,493
Repurchase of common stock		—			—			—			(8	)
Proceeds from issuance of convertible preferred stock		—			—			49,852			104,681
Proceeds from repayment of stockholder note receivable		—			—			29			29
Proceeds from equipment term loans		3,997			4,923			1,468			13,118
Payments of equipment term loans and leases		(2,235	)		(1,192	)		(802	)		(4,936	)
Proceeds from purchase of noncontrolling interest by preferred shareholders in Symphony Allegro, Inc., net of fees		47,171			—			—			47,171
Net cash provided by financing activities		94,926			4,088			50,621			206,548
Net increase (decrease) in cash and cash equivalents		245			(1,931	)		11,459			17,032
Cash and cash equivalents at beginning of period		16,787			18,718			7,259			—
Cash and cash equivalents at end of period	$	17,032		$	16,787		$	18,718		$	17,032
Supplemental disclosures of cash flow information
Cash paid for interest	$	728		$	285		$	140		$	1,327
Non cash investing and financing activities:
Conversion of convertible preferred stock to common stock	$	107,194		$	—		$	—		$	107,194
Warrant issued in conjunction with Symphony Allegro transaction	$	10,708		$	—		$	—		$	10,708

See accompanying notes.

68

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The Company and Basis of Presentation

Business

Alexza Pharmaceuticals, Inc. (“Alexza” or the “Company”), was incorporated in the state of Delaware on December 19, 2000 as FaxMed, Inc. In June 2001, the Company changed its name to Alexza Corporation and in December 2001 became Alexza Molecular Delivery Corporation. In July 2005, the Company changed its name to Alexza Pharmaceuticals, Inc.

The Company is an emerging pharmaceutical company focused on the development and commercialization of novel, proprietary products for the treatment of acute and intermittent conditions. The Company’s primary activities since incorporation have been establishing its offices, recruiting personnel, conducting research and development, conducting preclinical studies and clinical trials, performing business and financial planning, and raising capital. Accordingly, the Company is considered to be in the development stage and operates in one business segment.

Basis of Consolidation

The consolidated financial statements include the accounts of Alexza and its one variable interest entity, Symphony Allegro, Inc., for which Alexza is the primary beneficiary as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised 2003), Consolidation of Variable Interest Entities (“FIN 46R”). All significant intercompany balances and transactions have been eliminated.

Reverse Stock Split

In February 2006, the Company’s Board of Directors and stockholders approved a one-for-five and one-half reverse stock split. A Certificate of Amendment to the Company’s Restated Certificate of Incorporation was filed on February 27, 2006 effecting the one-for-five and one-half reverse stock split. All common share and per share amounts retroactively reflect the one-for-five and one-half reverse stock split.

Initial Public Offering

In March 2006, the Company completed its initial public offering of 6,325,000 shares of its common stock, including the full underwriters’ over-allotment option, at a public offering price of $8.00 per share. Net cash proceeds from the initial public offering were approximately $44.9 million, after deducting underwriting discounts and commissions and other offering expenses. In connection with the closing of the initial public offering, all of the Company’s shares of convertible preferred stock outstanding at the time of the offering were automatically converted into 15,197,712 shares of common stock.

2.   Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company carries cash, cash equivalents and marketable securities available for sale at fair value. The Company’s other financial instruments, including accounts payable and accrued liabilities, are carried at cost, which management believes approximates fair value given their short-term nature.

69

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and marketable securities and restricted cash to the extent of the amounts recorded on the balance sheets. The Company’s cash, cash equivalents, marketable securities and restricted cash are placed with high credit-quality financial institutions and issuers. All cash, cash equivalents, marketable securities and investments held by Symphony Allegro, Inc. are maintained with financial institutions that the Company’s management believes are high credit-quality. Marketable securities held by Symphony Allegro, Inc. consist of investments in a mutual fund that invests primarily in domestic commercial paper, securities issued or guaranteed by the U.S. government or its agencies, U.S. and Yankee bank obligations and fully collateralized repurchase agreements. The Company believes that its established guidelines for investment of its excess cash maintain safety and liquidity through its policies on diversification and investment maturity.

Cash Equivalents and Marketable Securities

Management determines the appropriate classification of its investments at the time of purchase. These securities are recorded as either cash equivalents or marketable securities.

The Company considers all highly liquid investments with original maturities of three months or less from date of purchase to be cash equivalents. Cash equivalents consist of interest-bearing instruments including obligations of U.S. government agencies, high credit rating corporate borrowers and money market funds, which are carried at market value.

All other investments are classified as available for sale marketable securities. The Company views its available for sale investments as available for use in current operations. Accordingly, the Company has classified all investments as short-term marketable securities, even though the stated maturity date may be one year or more beyond the current balance sheet date. Marketable securities are carried at estimated fair value with unrealized gains or losses included in accumulated other comprehensive income (loss) in stockholders’ equity (deficit). The fair value of marketable securities is based on quoted market prices when available, or pricing models using current market rates.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest and other income (expense), net. Realized gains and losses are also included in interest and other income (expense), net. The cost of all securities sold is based on the specific-identification method. Interest and dividends are included in interest income.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Property and equipment are depreciated using the straight-line method over the estimated life of the asset, generally three to five years. Lab equipment purchased through government grant agreements is depreciated over the estimated useful life of the asset or the remaining term of the grant, whichever is shorter. Leasehold improvements are amortized over the estimated useful life or the remaining lease term, whichever is shorter.

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair market value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.

70

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Cash

Under the Company’s facility lease agreements and an agreement with its utilities provider, the Company must maintain letters of credits as security for performance under these agreements. The letters of credit are secured by certificates of deposits in amounts equal to the letter of credits, which are classified as restricted cash, a non-current asset. At December 31, 2006 and 2005 the Company maintained the following letters of credits and restricted cash balances (in thousands):

	December 31,
	2006		2005
Mt. View facility	$	400	$	—
Palo Alto facilities		163		163
Palo Alto utility account		41		41
	$	604	$	204

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value. Impairment, if any, is assessed using discounted cash flows.

Revenue Recognition

Revenue consists primarily of amounts earned under research grants with the National Institute of Health. The Company’s federal government research grants provide for the reimbursement of qualified expenses for research and development as defined under the terms of each grant. Equipment purchased specifically for grant programs is recorded at cost and depreciated over the grant period. Revenue under grants is recognized when the related qualified research and development expenses are incurred up to the limit of the approval funding amounts. Grant receivables reflect amounts of qualified research and development expenses incurred under research grants, which have not yet been reimbursed to the Company.

Research and Development

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as incurred.

Clinical development costs are a significant component of research and development expenses. The Company has a history of contracting with third parties that perform various clinical trial activities on its behalf in the ongoing development of its product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with contract research organizations and clinical trial sites. The Company determines its estimates through discussions with internal clinical personnel and outside service providers to the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services.

71

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

The Company uses the liability method for income taxes, whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when the expected realization for the tax assets does not meet more likely than not criteria.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net loss and unrealized gains (losses) on marketable securities. Total comprehensive income (loss) for all periods presented has been disclosed in the Company’s Consolidated Statements of Convertible Preferred stock and Stockholders’ Equity (Deficit).

Stock-Based Compensation

The components of the share-based compensation recognized in the Company’s Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 are as follows (in thousands):

	Year Ended December 31, 2006
	General &			Research &
	Administrative			Development		Total
Employee stock options granted prior to January 1, 2006	$	253		$	474	$	727
Employee share-based awards granted on or subsequent to January 1, 2006		415			335		750
Employee Stock Purchase Plan		212			825		1,037
Non-employee stock option awards		9			136		145
Variable share-based compensation		(442	)		—		(442	)
	$	447		$	1,770	$	2,217

	Year Ended December 31, 2005
	General &		Research &
	Administrative		Development			Total
Employee stock options granted prior to January 1, 2006	$	169	$	235		$	404
Non-employee stock option awards		10		185			195
Variable share-based compensation		694		(252	)		442
	$	873	$	168		$	1,041

	Year Ended December 31, 2004
	General &		Research &
	Administrative		Development		Total
Employee stock options granted prior to January 1, 2006	$	—	$	19	$	19
Non-employee stock option awards		—		40		40
	$	—	$	59	$	59

In December 2004, the FASB issued Statement of Financial Accounting Standards 123R (“SFAS 123R”), Share-Based Payment — An Amendment of FASB Statements No. 123 and 95. This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for

72

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies are no longer able to account for share-based compensation transactions using the intrinsic-value method, the Company’s previous accounting method, in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Instead, companies are required to account for such transactions using a fair-value method and recognize the expense in the statement of operations.

On January 1, 2006, the Company adopted SFAS 123R using the prospective transition method, as required by the statement. Under this transition method, beginning January 1, 2006, employee share-based compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested, as of December 31, 2005 for (i) employees using the intrinsic value in accordance with the provisions of APB 25 and (ii) non-employees using the fair value in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted or modified subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

The effect of adopting SFAS 123R for the year ended December 31, 2006 was to increase net loss by $1,787,000 and to increase basic and diluted net loss per share by $0.09.

Employee Share-Based Awards Granted Prior to January 1, 2006

Compensation cost for employee stock options granted prior to January 1, 2006, the date the Company adopted SFAS 123R, are accounted for using the option’s intrinsic value. The Company recorded the total valuation of these options as a component of stockholders’ equity (deficit), which will be amortized over the vesting period of the applicable option on a straight line basis. During the year ended December 31, 2006, the Company reversed $495,000 of deferred stock-based compensation related to unvested options cancelled as a result of employee terminations. The Company had no such reversals in the years ended December 31, 2005 and 2004. At December 31, 2006, the expected future amortization expense related to employee options granted prior to January 1, 2006 is as follows (in thousands):

2007	$	651
2008		651
2009		401
	$	1,703

Employee Share-Based Awards Granted On or Subsequent to January 1, 2006

Compensation cost for employee share-based awards granted on or after January 1, 2006, the date the Company adopted SFAS 123R, is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R and will be recognized over the vesting period of the applicable award on a straight-line basis. During the year ended December 31, 2006 the Company issued employee share-based awards in the form of stock options and restricted stock units under the Company’s equity incentive plans and stock purchase rights under the Company’s employee stock purchase plan.

Stock Options, Stock Purchase Rights and Restricted Stock Units

During the year ended December 31, 2006, the weighted average fair value of the employee stock options granted was $5.50, the weighted average fair value of stock purchase rights granted was $3.23 and the weighted average fair value of restricted stock units granted was $7.00.

The estimated fair value of restricted stock units awards is calculated based on the market price of Alexza’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on Alexza

73

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

common stock prior to vesting of the restricted stock unit. The Company’s estimate assumes no dividends will be paid prior to the vesting of the restricted stock unit.

The estimated grant date fair values of the stock options and stock purchase rights were calculated using the Black-Scholes valuation model, and the following assumptions:

	Year Ended
	December 31,
	2006
Stock Option Plans
Weighted-average expected term	6.1 years
Expected volatility	80%
Risk-free interest rate	4.71%
Dividend yield	0%
Employee Stock Purchase Plan
Weighted-average expected term	1.4 years
Expected volatility	53%
Risk-free interest rate	4.77%
Dividend yield	0%

Weighted-Average Expected Life.  Under the stock option plans, the expected term of options granted is determined using the “shortcut” method, as illustrated in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (“SAB 107”). Under this approach, the expected term is presumed to be the average of the vesting term and the contractual term of the option. The shortcut approach is not permitted for options granted, modified or settled after December 31, 2007.

Under the Employee Stock Purchase Plan, the expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period at the time of an employee’s enrollment.

Volatility.  Since the Company is a newly public entity with no historical data on volatility of its stock, the expected volatility used for fiscal 2006 is based on volatility of similar entities (referred to as “guideline” companies). In evaluating similarity, the Company considered factors such as industry, stage of life cycle, size, and financial leverage.

Risk-Free Interest Rate.  The risk-free rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options or purchase rights on the date of grant.

Dividend Yield.  The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

Forfeiture Rate.  SFAS 123R also requires the Company to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. All share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods. The Company’s estimated forfeiture rate is approximately 5.9%.

As of December 31, 2006, there was $3,555,000, $192,000 and $706,000 of total unrecognized compensation costs related to non-vested stock option awards issued after January 1, 2006, non-vested restricted stock units and stock purchase rights, respectively, which are expected to be recognized over a weighted average period of 3.5 years, 3.5 years and 1.0 years, respectively.

74

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Nonemployee Stock Option Awards

The Company has granted options to purchase shares of common stock to nonemployees with exercise prices ranging from $0.22 to $9.01. The Company used the Black-Scholes valuation model, using a volatility rate of 80%, an expected life representing the remaining contractual life, which ranged from 0.5 to 10 years, an expected dividend yield of 0% and a weighted average risk-free interest rate of 5.08% to value the newly issued stock options and the nonemployee stock options outstanding as of December 31, 2005. As of December 31, 2006, stock options to acquire 2,606 shares are subject to remeasurement of fair value. The stock compensation costs of these options granted to nonemployees are remeasured over the vesting terms as earned, and the resulting value is recognized as an expense over the period of service received.

Settlement and Modification of Stock Option Awards

In December 2005, the Company extinguished housing loans that were made to three executive officers, the Chief Executive Officer, Senior Vice President of Corporate and Business Development, and Senior Vice President of Research and Development, having an aggregate principal value of $2.3 million and agreed to pay $1.7 million of taxes related to the extinguishment on the officers’ behalf. In connection with the loan extinguishment agreements, the Company entered into a commitment with the officers to settle the loan extinguishment, prior to the closing of the Company’s initial public offering, by reducing the aggregate intrinsic value of certain stock option awards to acquire up to 490,908 common shares.

On March 7, 2006 (“the Settlement Date”), in settlement for the extinguishment of the officer housing loans, the Company increased the exercise price on the above mentioned stock option awards held by these officers from $1.10 per share to $8.00 per share, the initial public offering price, which reduced the aggregate intrinsic value of these options by $3.4 million. These options were accounted for as variable awards. As a result of changes in the Company’s stock price, the Company recorded a $442,000 reduction in compensation expense in 2006. In 2005, the Company recorded share-based compensation expense of $442,000 related to these options and did not incur such an expense in 2004. As the exercise price was fixed in March 2006, the contingency was resolved and variable accounting for these options ceased.

Also on the Settlement Date, the Company entered into amended loan extinguishment agreements with the above mentioned officers, whereby the Company was given the right to increase the exercise price of selected options to $8.00 per share, resulting in an additional reduction in aggregate intrinsic value of $0.6 million. This modification was accounted for under SFAS 123R, and resulted in no additional share-based compensation expense.

There was no share-based compensation capitalized as of December 31, 2006.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109 (FIN 48). FIN 48 provides measurement and recognition guidance related to accounting for uncertainty in income taxes by prescribing a recognition threshold for tax positions. FIN 48 also requires extensive disclosures about uncertainties in the income tax positions taken. The Company will adopt FIN 48, as required on January 1, 2007. The Company has not performed the calculations related to this implementation and therefore the impact of FIN 48 on its financial statements is unknown at this time.

On June 1, 2005 the FASB issued SFAS 154, Accounting Changes and Error Corrections, which replaces APB 20, “Accounting Changes,” and SFAS 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. SFAS 154 requires retrospective application to prior periods’

75

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

financial statements of a voluntary change in accounting principle unless it is impracticable. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes made in fiscal years beginning after June 1, 2005. The Company adopted SFAS 154 on January 1, 2006. The adoption of this new standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the Company beginning in the first quarter of fiscal year 2009. The Company is currently evaluating the impact of the provisions of SFAS 157 on its financial position, results of operations and cash flows and does not believe the impact of the adoption will be material.

3.   Net Loss per Share

Basic and diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period less weighted average shares subject to repurchase. Stock options, warrants, unvested restricted stock units, common stock subject to repurchase by the Company, and shares to be issued upon conversion of the convertible preferred stock were not included in the net loss per share calculation for the years ended December 31, 2006, 2005 and 2004 because the inclusion of such shares would have had an anti-dilutive effect. The following outlines the Company’s computation of its basic and diluted net loss per share (in thousands, except per share data)

	Year Ended December 31,
	2006			2005			2004
Historical
Numerator:
Net loss	$	(41,806	)	$	(32,402	)	$	(16,625	)
Denominator:
Weighted-average common shares outstanding		19,584			1,707			1,471
Less: Weighted-average unvested common shares subject to repurchase		—			—			(14	)
Denominator for basic and diluted net loss per share		19,584			1,707			1,457
Basic and diluted net loss per share	$	(2.13	)	$	(18.98	)	$	(11.41	)

Potentially dilutive securities include the following (in thousands):

	Year Ended December 31,
	2006		2005		2004
Outstanding stock options		2,611		2,008		1,663
Unvested restricted stock units		34		—		—
Warrants to purchase common stock		2,015		178		178
Convertible preferred stock		—		79,857		79,857

76

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.   Cash, Cash Equivalents, Marketable Securities and Restricted Cash

Cash, cash equivalents, marketable securities and restricted cash consisted of:

	December 31,
	2006		2005
	(In thousands)
Cash	$	401	$	1,749
Money market accounts		16,631		13,298
Certificates of deposit		604		204
Commercial paper		—		1,740
Government securities		—		7,948
Corporate debt securities		25,591		3,662
Asset-backed securities		—		9,972
	$	43,227	$	38,573
Reported as:
Cash and cash equivalents	$	17,032	$	16,787
Marketable securities		25,591		21,582
Restricted cash		604		204
	$	43,227	$	38,573

At December 31, 2006, all of the Company’s marketable securities have a maturity date of less than one year.

Fair values of cash equivalents and marketable securities approximate cost primarily due to the short-term maturities of the investments and the low incidence of changes in security credit ratings. Unrealized gains and losses on available-for-sale securities were reported as a component of stockholders’ equity (deficit).

Investments held by Symphony Allegro, Inc. consist of investments in a mutual fund that invests primarily in domestic commercial paper, securities issued or guaranteed by the U.S. government or its agencies, U.S. and Yankee bank obligations and fully collateralized repurchase agreements.

5.   Property and Equipment

Property and equipment consisted of the following:

	December 31,
	2006			2005
	(In thousands)
Lab equipment	$	9,490		$	5,838
Computer equipment and software		4,175			2,630
Furniture		609			522
Leasehold improvements		4,231			1,544
		18,505			10,534
Less: accumulated depreciation		(7,369	)		(3,760	)
	$	11,136		$	6,774

Property and equipment includes lab equipment acquired under capital leases of $195,000 at December 31, 2006 and 2005. Accumulated amortization of the lab equipment under capital leases was $195,000 and $190,000 at

77

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2006 and 2005, respectively. Amortization of property and equipment under capital leases is included in depreciation and amortization expense in the statement of cash flows.

Property and equipment also includes equipment that secures the Company’s equipment financing agreements of $13,653,000 and $8,766,000 at December 31, 2006 and 2005, respectively. Accumulated depreciation related to assets under the equipment financing loans was $6,090,000 and $3,022,000 at December 31, 2006 and 2005, respectively. Amortization of property and equipment under equipment financing agreements is included in depreciation and amortization expense in the statement of cash flows.

6.   Other Accrued Expenses

Accrued expenses consisted of the following:

	December 31,
	2006		2005
	(In thousands)
Accrued compensation	$	2,856	$	3,447
Accrued professional fees		349		774
Accrued lease liability		—		38
Other		644		179
	$	3,849	$	4,438

7.   Commitments

Equipment Financing Obligations

The Company finances a portion of its fixed asset acquisitions through equipment financing agreements. Loans drawn from the equipment financing agreement are secured by certain fixed assets of the Company. Fixed asset purchases used to secure draws on the equipment financing agreement are recorded on the Company’s balance sheet at cost. A liability is recorded upon the Company making a draw on the agreements.

In March 2002, the Company entered into an equipment financing agreement for up to $1,000,000. The Company modified the agreement in January 2003, September 2003 and March 2004, to increase the available credit to $3,200,000. The Company issued warrants to purchase Series B and Series C preferred stock in connection with these modifications of the equipment financing agreement (see Note 12). In May 2005, the Company further modified this equipment financing agreement by consolidating its loans under the agreement into one term loan with 48 equal installments and a fixed interest rate of 7.25%.

In May 2005, the Company entered into an equipment financing agreement with a second lender for up to $8,100,000. The agreement was amended in 2006 to increase the available credit to $8,700,000. Advances are to be repaid in 48 installments of principal and interest. The interest rate, which is fixed for each draw, is based on the U.S. Treasuries of comparable maturities and has ranged from 9.2% to 9.98%. The equipment purchased under the equipment financing agreement is pledged as security. No additional borrowings are available under this agreement as of December 31, 2006.

In December 2006, the Company entered into an equipment financing agreement with two lenders for up to $12,000,000. Advances are to be repaid in 36 — 48 monthly installments of principal and interest. The interest rate, which is fixed for each draw, is based on the U.S. Treasuries of comparable maturities. The equipment purchased under the equipment financing agreement is pledged as security. Initially, the agreement allows the Company to borrow up to $3,000,000 against the agreement. Upon the Company closing corporate collaborations and equity financings with an aggregate of at least $65 million of funding, the remaining $9,000,000 will be available for

78

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

additional borrowings. As of December 31, 2006, the Company has obtained $50 million of funding against this requirement. As of December 31, 2006, the Company had borrowed $220,000 against this agreement.

Future principal payments under the equipment financing agreements as of December 31, 2006 are as follows (in thousands):

2007	$	2,770
2008		3,037
2009		2,337
2010		491
Total	$	8,635

Operating Leases

The Company leases two buildings with an aggregate of 65,143 square feet of office and laboratory facilities in Palo Alto, California. The leases expire in December 2007 and the Company has an option to extend the lease on one facility to March 31, 2008. In August 2006, the Company entered into an agreement to lease 65,604 square feet for office, laboratory and manufacturing facilities in Mountain View, California. The agreement has an initial term of 11 years with two options to extend the lease for five years each. Lease payments for the new facility will begin in April 2007. The agreement includes a provision for the landlord to reimburse the Company up to $8,332,000 for tenant improvements made to the building, as of December 31, 2006, the Company has received $396,000 in reimbursements.

The Company also leased (but did not occupy) premises in Pleasanton, California. This lease was initiated by MDC prior to its merger with the Company. This lease expired in July 2005. The Company sublet this facility to a third party under a non-cancelable sublease through July 2005, the end of the Company’s lease.

Future minimum lease payments under non-cancelable operating leases at December 31, 2006 were as follows (in thousands):

2007	$	1,756
2008		1,665
2009		2,263
2010		2,471
2011		2,545
Thereafter		17,725
Total minimum payments	$	28,425

Rental expense was $2,514,000, $1,194,000, $777,000, and $5,741,000 for the years ended December 31, 2006, 2005 and 2004, and for the period from December 19, 2000 (inception) to December 31, 2006, respectively. Rental income from the sublease agreement was $0, $53,000, $72,000, and $125,000 for the years ended December 31, 2006, 2005 and 2004 and for the period from December 19, 2000 (inception) to December 31, 2006, respectively.

8.   Symphony Allegro, Inc.

On December 1, 2006 (the “Closing Date”), the Company entered into a series of related agreements with Symphony Allegro, Inc. providing for the financing of the clinical development of its AZ-002, Staccato alprazolam, and AZ-004, Staccato loxapine, product candidates (the “Programs”). Pursuant to the agreements, Symphony Allegro, Inc. (“Allegro”) has agreed to invest up to $50.0 million to fund the clinical development of these

79

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Programs, and the Company licensed to Allegro its intellectual property rights related to these Programs. Allegro is a wholly owned subsidiary of Symphony Allegro Holdings LLC (“Holdings”), which provided $50.0 million in funding to Allegro on December 18, 2006. The Company continues to be primarily responsible for the development of these Programs.

In accordance with FIN 46R, the Company determined that Allegro is a variable interest entity for which it is the primary beneficiary. As a result, the Company will include the financial condition and results of operations of Allegro in its consolidated financial statements. Accordingly, the Company has deducted the losses attributable to the noncontrolling interest in Allegro from the Company’s net loss in the consolidated statement of operations and the Company also reduced the noncontrolling interest holders’ ownership interest in Allegro in the consolidated balance sheet by Allegro’s losses. For the year ended December 31, 2006, the losses attributed to the noncontrolling interest holders were $1.7 million. The Company also reduced the noncontrolling interest holders’ ownership interest in Allegro in the consolidated balance sheet by $2.85 million related to a structuring fee and related expenses that the Company incurred in connection with the closing of the Allegro transaction.

Pursuant to the agreements, the Company received an exclusive purchase option (the “Purchase Option”) that gives the Company the right, but not the obligation, to acquire all, but not less than all, of the equity of Allegro, thereby allowing the Company to reacquire all of the Programs. This Purchase Option is exercisable at any time, beginning on the one-year anniversary of the Closing Date and ending on the four-year anniversary of the Closing Date (subject to an earlier exercise right in limited circumstances), at predetermined prices. The Purchase Option exercise price may be paid for in cash or in a combination of cash and the Company’s common stock, at the Company’s sole discretion, provided that the common stock portion may not exceed 40% of the Purchase Option exercise price, or 10% of our common stock issued and outstanding as of the purchase option closing date.

Pursuant to the agreements, the Company issued to Holdings a five-year warrant to purchase 2,000,000 shares of the Company’s common stock at $9.91 per share. The warrants issued upon closing were assigned a value of $10.7 million in accordance with the Black-Scholes option valuation methodology, which has also been recorded as a reduction to the noncontrolling interest in Allegro. Pursuant to the agreements, the Company has no further obligation beyond the items described above and the Company has no obligation to the creditors of Allegro as a result of our involvement with Allegro.

9.   Related Party Transactions

Chief Executive Officer Note Receivable

In June 2003, in connection with a new home purchase associated with relocation to the San Francisco Bay Area, the Company loaned its chief executive officer (“CEO”) $1,200,000 pursuant to a secured, non-interest bearing promissory note. The note was due and payable upon certain conditions, including the filing of a registration statement in connection with an initial public offering.

Since there was no established exchange price or ready market for the CEO note, the Company estimated the note’s present value using a 5.19% interest rate, resulting in a total note receivable discount and a deferred charge of $115,000 for the year ended December 31, 2003. The discount on the note receivable and the deferred charge were amortized as interest income and compensation expense over a two-year period, the estimated term of the promissory note.

In 2004, the Company’s estimated term of the CEO note was extended for an additional year. As a result, the Company re-valued the note’s present value using 5.19% interest rate and recorded an additional discount and deferred charge of $60,000, which was added to the unamortized discount and deferred charge from the original valuation and was amortized as interest income and compensation expense over an eighteen month period, the new estimated term of the promissory note. The Company recorded $58,000 of interest income and compensation expense during each of the years ended December 31, 2005 and 2004.

80

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In January 2005, the Company amended the loan agreement, CEO note and stock option agreement. The amendment provided that, prior to the filing of a registration statement in connection with an initial public offering, the Company had the right to repurchase a portion of the stock option or shares underlying the stock option having a value determined by the board of directors up to $1,200,000 plus applicable taxes incurred by the CEO. The vesting of the stock option may be accelerated to the extent necessary for the Company to repurchase the portion of the stock option or shares underlying the stock option it elects to repurchase. The amendment also provided that in the event the stock option shares or shares underlying the stock option are repurchased, the Company would grant the CEO a new stock option for the number of shares repurchased at the then fair market value of common stock.

Senior Vice President of Corporate and Business Development Notes Receivable

In April 2004, in connection with a new home purchase associated with relocation to the San Francisco Bay Area, the Company loaned its senior vice president of corporate and business development (“Senior VP”) $1,000,000 in the form of two secured promissory notes in the amount of $500,000 each. The first promissory note was temporary, carried interest at a rate of 5.00% per annum, and was due and payable to the Company no later than December 31, 2004. The second note was non-interest bearing and was due and payable upon certain conditions, including the filing of a registration in connection with an initial public offering.

Since there was no established exchange price or ready market for the second Senior VP note, the Company estimated the second note’s present value using a 5.78% interest rate, resulting in a total note receivable discount and deferred charge of $61,000. The discount on the second note receivable and the deferred charge are being amortized as interest income and compensation expense over twenty-seven months, the estimated term of the second promissory note.

In October 2004, the Senior VP made a $455,000 principal payment on the first, temporary promissory note. As of December 31, 2004, the Senior VP owed the Company $58,000, including $13,000 of accrued interest related to the first note.

In April 2005, the Company amended the second Senior VP note and stock option agreement and loaned the Senior VP an additional $100,000 pursuant to a third secured promissory note. The third note was non-interest bearing. The officer used $58,000 of the proceeds to pay the remaining principal and interest on the first promissory note. The third note was due and payable upon certain conditions, including the filing of a registration statement in connection with an initial public offering.

The amendment provided that prior to the filing of a registration statement in connection with an initial public offering, the Company had the right to repurchase a portion of the stock option having a value determined by the board of directors up to $600,000 plus applicable taxes incurred by the Senior VP. The vesting of the stock option may be accelerated to the extent necessary for the Company to repurchase the portion of the stock option or shares underlying the stock option it elects to repurchase. The amendment also provided that in the event the stock option or shares underlying the stock option are repurchased, the Company would grant the Senior VP a new stock option for the number of shares repurchased at the then fair market value of common stock.

Since there was no established exchange price or ready market for the third Senior VP note, the Company estimated the third note’s present value using a 5.87% interest rate, resulting in a total note receivable discount and deferred charge of $7,000. The discount on the third receivable and the deferred charge were being amortized as compensation expense over 14 months, the estimated term of the third promissory note.

During the years ended December 31, 2005 and 2004, the Company recorded $31,000 and $21,000 of interest income and compensation expense, respectively, related to the first and third Senior VP’s notes.

81

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Senior Vice President of Research and Development Note Receivable

In December 2004, in connection with a new home purchase associated with relocation to the San Francisco Bay Area, the Company loaned its senior vice president of research and development (“Senior VP of R&D”) $500,000 pursuant to a secured, non-interest bearing promissory note. The note was secured by a stock option agreement with the Senior VP of R&D for the purchase of 109,090 shares of common stock. The note was due and payable upon certain conditions, including the filing of a registration statement in connection with an initial public offering. Prior to the filing of a registration statement in connection with an initial public offering, the Company had the right to repurchase a portion of the stock option or shares underlying the stock option having a value determined by the board of directors up to $500,000 plus applicable taxes incurred by the Senior VP of R&D. The vesting of the stock option may be accelerated to the extent necessary for the Company to repurchase the portion of the stock option or shares underlying the stock option it elects to repurchase. The amendment also provided that in the event the stock option or shares underlying the stock option are repurchased, the Company would grant the Senior VP of R&D a new stock option for the number of shares repurchased at the then fair market value of common stock.

Since there was no established exchange price or ready market for the Senior VP of R&D note, the Company estimated the note’s present value using a 6.19% interest rate, resulting in a total note receivable discount and a deferred charge of $44,000. The discount on the note receivable and the deferred charge were being amortized as interest income and compensation expense over an eighteen month period, the estimated term of the promissory note. During the years ended December 31, 2005 and 2004, the Company recorded $30,000 and $0 of interest income and compensation expense, respectively, related to the Senior VP of R&D’s note.

Extinguishment of Officer Notes

In December 2005, the Company extinguished the housing loans that were made to three executive officers, the Chief Executive Officer, Senior Vice President of Corporate and Business Development, and Senior Vice President of Research and Development, having an aggregate principal value of $2.3 million and agreed to pay $1.7 million of taxes related to the extinguishment on the officers’ behalf. In connection with the loan extinguishment agreements, the Company entered into a commitment with the officers to settle the loan extinguishment, prior to the closing of the Company’s initial public offering, by reducing the aggregate intrinsic value of certain stock option awards to acquire up to 490,908 common shares. As a result, variable stock-based compensation expense in the statement of operations and accrued stock compensation expense on the balance sheet were reduced from $4.5 million to $442,000, which reflects a reduction equal to the $4.0 million loan extinguishment and related taxes.

The remaining accrued stock compensation expense liability was reclassified to additional paid-in-capital on the balance sheet upon extinguishment. The remaining unamortized discount on officer notes receivable of $60,000 was offset against deferred compensation at the time of the officer note extinguishments.

On March 7, 2006 (“the Settlement Date”), in settlement for the extinguishment of the officer housing loans, the Company increased the exercise price on the above mentioned stock option awards held by these officers from $1.10 per share to $8.00 per share, the initial public offering price, which reduced the aggregate intrinsic value of these options by $3.4 million. These options were accounted for as variable awards. As a result of changes in the Company’s stock price, the Company recorded a $442,000 reduction in share-based compensation expense during the three months ended March 31, 2006. As the exercise price was fixed in March 2006, the contingency was resolved and variable accounting for these options ceased.

Also on the Settlement Date, the Company entered into amended loan extinguishment agreements with the above mentioned officers, whereby the Company was given the right to increase the exercise price of selected options to $8.00 per share, resulting in an additional reduction in aggregate intrinsic value of $0.6 million. This modification was accounted for under SFAS 123R, and resulted in no additional share-based compensation expense.

82

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Obligations to a Former Officer

In June 2003, the Company recorded a severance charge of $425,000 related to the termination of an officer of the Company. During the years ended December 31, 2005 and 2004, the Company made payments of $102,000 and $213,000, respectively, against the severance accrual. As of December 31, 2005, all of the severance obligations had been paid.

The Company had an obligation to provide the former officer a nonrecourse loan, secured by Company stock owned by the former officers, of up to $400,000. The right to request a loan under the loan expired unused in December 2006.

Note Receivable from Stockholder

In July 2002, the Company entered into a full recourse promissory note agreement with an employee, the proceeds of which were used to exercise an option to purchase common stock of the Company prior to the vesting of such option. The Company had the right to repurchase any unvested shares upon the employee’s termination. The promissory note was in the amount of $53,000 and carried an interest rate of prime plus 1% per annum. In February 2004, the employee terminated employment with the Company. The employee paid the outstanding principal and interest on the note related to the vested shares on the date of termination of employment. The Company repurchased the unvested shares by canceling the remaining outstanding principal balance under the note related to the unvested shares.

Employee Loan

In May 2005, the Company entered into a secured, non-interest bearing promissory note with an employee, the proceeds of which were used to assist with the purchase of a new home. The promissory note is in the amount of $100,000 and is due and payable in May 2010. Since there is no established exchange price or ready market for the employee note, the Company has estimated the note’s present value using a 5.87% interest rate, resulting in a total note receivable discount and a deferred charge of $25,000. The discount on the note receivable and the deferred charge are being amortized to compensation expense over the five year term. During the years ended December 31, 2006 and 2005, the Company recorded $5,000 and $3,000 of compensation expense and interest income, respectively.

10.   Common Stock

The Company had reserved shares of common stock for future issuances as of December 31, 2006 as follows:

Stock options outstanding	2,611,042
Unvested restricted stock units outstanding	34,080
2005 Equity Incentive Plan and 2005 Non Employee Director Stock Option Plan — shares available for issuance	530,399
Employee Stock Purchase Plan — shares available for issuance	368,318
Warrants outstanding	2,015,720
Total	5,559,559

83

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.   Convertible Preferred Stock

At December 31, 2006 and 2005, the Company was authorized to issue zero and 82,000,221 shares of convertible preferred stock, respectively. On March 31, 2006, all of the outstanding convertible preferred stock was converted into common stock. The table below outlines the number of outstanding shares in each series of convertible preferred stock and the number of common shares each series was converted into.

	Shares		Common Shares
	Issued and		Issued upon
	Outstanding		Conversion
Convertible Preferred Stock:
Series A		2,500,000		463,780
Series A-1		1,610,250		321,383
Series B		6,441,000		1,237,366
Series C		28,870,005		5,823,337
Series D		40,435,448		7,351,846
		79,856,703		15,197,712

12.   Warrants

In March 2002, in connection with an equipment financing agreement, the Company issued immediately exercisable and fully vested warrants to purchase 21,429 shares of Series B preferred stock at a per share price of $1.40. The warrants expire on the later of March 20, 2012 or seven years after the date of the Company’s initial public offering. The Company recorded a deferred financing cost of $27,000 related to the issuance of these warrants. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $1.40, an expected volatility of 100%, an expected life of 10 years, an expected dividend yield of 0%, and a risk-free interest rate of 4.61%. The estimated fair value of the warrants is recorded as debt discount. This amount is amortized to interest expense over the commitment term of the equipment financing agreement. In 2006, the warrant was converted to purchase 4,116 shares of common stock at a price of $7.29 per share. As of December 31, 2006, this warrant remained outstanding.

In January and September 2003, in connection with the modifications of an equipment financing agreement, the Company issued immediately exercisable and fully vested warrants to purchase 24,058 and 19,247 shares of Series C preferred stock, respectively, at a per share price of $1.56. The warrants expire at the earlier of seven years after the date of the Company’s initial public offering or January 27, 2013 and September 19, 2013, respectively. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $1.56, an expected volatility of 100%, an expected life of 10 years, an expected dividend yield of 0%, and risk-free interest rate of 4.05% and 4.45%, respectively. The estimated fair values of $35,000 and $27,000, respectively, are recorded as debt discount and are being amortized to interest expense over the remaining commitment term of the financing agreement. In 2006, these warrants were converted into warrants to purchase 4,852 shares and 3,882 shares of common stock, both at a price of $7.74 shares. As of December 31, 2006, both of these warrants remained outstanding.

In March 2004, in connection with the modifications of an equipment financing agreement, the Company issued immediately exercisable and fully vested warrants to purchase 14,232 shares of Series C preferred stock at a per share price of $1.56. The warrants expire at the earlier of seven years after the date of the Company’s initial public offering or April 9, 2014. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $1.56, an expected volatility of 100%, an expected life of 10 years, an expected dividend yield of 0%, and risk-free interest rate of 4.35%. The estimated fair value of $20,000 was recorded as debt discount and amortized to interest expense over the remaining commitment term of the financing

84

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

agreement. In 2006, the warrant was converted into a warrant to purchase 2,870 shares of common stock at a price of $7.74. As of December 31, 2006, these warrants remained outstanding.

In November 2004, in connection with the Series D preferred stock financing, the Company issued immediately exercisable and fully vested warrants to purchase 98,967 shares of common stock at a per share price of $1.10. The warrants were due to expire on November 5, 2011. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $1.10, an expected volatility of 100%, an expected life of 7 years, an expected dividend yield of 0%, and risk-free interest rate of 3.88%. The estimated fair value of $91,000 was recorded as Series D preferred stock issuance costs. This warrant was fully exercised in 2006.

In December 2006, in connection with the Symphony Allegro transaction (see Note 8), the Company issued to Holdings a five-year warrant to purchase 2,000,000 shares of the Company’s common stock at $9.91 per share. The warrants issued upon closing were assigned a value of $10.7 million in accordance with the Black-Scholes option valuation methodology assuming an exercise price of $9.91, an expected volatility of 80%, an expected life of 5 years, an expected dividend yield of 0% and risk-free interest rate of 4.45%. This fair value has been recorded as a reduction to the noncontrolling interest in Symphony Allegro.

13.   Equity Incentive Plans

2005 Equity Incentive Plan

In December 2005, the Company’s Board of Directors adopted the 2005 Equity Incentive Plan (the “2005 Plan”) and authorized for issuance thereunder 1,088,785 shares of common stock. The 2005 Plan became effective upon the closing of the Company’s initial public offering on March 8, 2006. The 2005 Plan is an amendment and restatement of the Company’s previous stock option plans. Stock options issued under the 2005 Plan generally vest over 4 years, vesting is generally based on service time, and have a maximum contractual term of 10 years.

In the third quarter of 2006, the Company began issuing restricted stock units to non-officer employees. Restricted stock units generally vest over a four-year period from the grant date. Prior to vesting, restricted stock units do not have dividend equivalent rights, do not have voting rights and the shares underlying the restricted units are not considered issued and outstanding. Shares are issued on the date the restricted stock units vest.

The 2005 Plan provides for annual reserve increases on the first day of each fiscal year commencing on January 1, 2007 and ending on January 1, 2015. The annual reserve increases will be equal to the lesser of (i) 2% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or (ii) 1,000,000 shares of common stock. The Company’s Board of Directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased prior to the last day of any calendar year.

2005 Non-Employee Directors’ Stock Option Plan

In December 2005, the Company’s Board of Directors adopted the 2005 Non-Employee Directors’ Stock Option Plan (the “Directors’ Plan”) and authorized for issuance thereunder 250,000 shares of common stock. The Directors’ Plan became effective immediately upon the closing of the Company’s initial public offering on March 8, 2006. The Directors’ Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to the Company’s non-employee directors, which vest over four years and have a term of 10 years. The Directors’ Plan provides for an annual reserve increase to be added on the first day of each fiscal year, commencing on January 1, 2007 and ending on January 1, 2015. The annual reserve increases will be equal to the number of shares subject to options granted during the preceding fiscal year less the number of shares that revert back to the share reserve during the preceding fiscal year. The Company’s Board of Directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased prior to the last day of any calendar year.

85

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the summary of stock option activity under the Equity Incentive Plans:

	Outstanding Options
	Number of			Weighted Average
	Shares			Exercise Price
Options granted		298,351		$	0.34
Options exercised		(9,090	)	$	0.22
Balance as of December 31, 2001		289,261		$	0.34
Options granted		210,777		$	1.03
Options exercised		(65,942	)	$	0.84
Options forfeited		(10,909	)	$	0.22
Balance as of December 31, 2002		423,187		$	0.61
Options granted		703,486		$	1.10
Options exercised		(74,904	)	$	0.60
Options forfeited		(50,092	)	$	0.57
Balance as of December 31, 2003		1,001,677		$	0.95
Options granted		893,952		$	1.10
Options exercised		(100,192	)	$	0.74
Options forfeited		(132,641	)	$	1.08
Balance as of December 31, 2004		1,662,796		$	1.04
Options granted		824,035		$	2.86
Options exercised		(380,501	)	$	0.94
Options forfeited		(98,310	)	$	1.08
Balance as of December 31, 2005		2,008,020		$	1.80
Options granted		848,075		$	7.71
Options exercised		(160,662	)	$	1.28
Options forfeited		(82,938	)	$	2.00
Options cancelled		(1,453	)	$	8.64
Balance as of December 31, 2006		2,611,042		$	5.23
Options exercisable at:
December 31, 2004		402,276		$	0.89
December 31, 2005		470,990		$	1.42
December 31, 2006		901,425		$	4.74

The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was $1,003,000, $556,000 and $36,000, respectively.

86

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information regarding the stock options outstanding at December 31, 2006 is summarized below:

	Outstanding						Exercisable
			Remaining						Remaining
			Contractual		Aggregate				Contractual		Aggregate
Exercise	Number		Life		Intrinsic		Number		Life		Intrinsic
Price	of Shares		(In Years)		Value		of Shares		(In Years)		Value
$0.22 - 0.99		40,797		4.90	$	433,000		40,797		4.90	$	433,000
1.10 - 1.10		545,630		7.61		5,615,000		228,234		7.39		2,349,000
1.38 - 1.38		282,416		8.37		2,827,000		105,978		8.34		1,061,000
3.30 - 3.30		190,169		8.29		1,538,000		64,854		7.31		525,000
3.31 - 7.00		242,821		9.21		1,085,000		60,310		8.93		272,000
7.20 - 7.74		329,500		9.65		1,378,000		—		—		—
7.75 - 8.00		777,109		7.71		2,634,000		400,652		7.12		1,358,000
8.01 - 9.73		202,600		9.67		578,000		600		9.81		1,000
		2,611,042		8.30	$	16,088,000		901,425		7.37	$	5,999,000

The intrinsic value is calculated as the difference between the market value as of December 31, 2006 and the exercise price of the shares. The market value as of December 31, 2006 was $11.39 as reported by the NASDAQ Stock Market.

Information with respect to nonvested share units (restricted stock units) as of December 31, 2006 is as follows:

				Weighted
	Number			Average
	of			Grant-Date
	Shares			Fair Value
Outstanding at December 31, 2005		—		$	—
Granted		34,680			7.00
Exercised		—			—
Forfeited		(600	)		7.00
Outstanding at December 31, 2006		34,080

As of December 31, 2006, no restricted stock units have become vested.

The Company authorized shares of common stock for issuance under the Plans as follows.

Year	Number of Shares
2001		363,636
2002		770,732
2003		454,545
2004		1,000,000
2005		25,544
2006		1,327,990

As of December 31, 2006, 530,399 shares remained available for issuance under the 2005 Plan and the Directors’ Plan.

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ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005 Employee Stock Purchase Plan

In December 2005, the Company’s Board of Directors adopted the 2005 Employee Stock Purchase Plan (“ESPP”) and authorized for issuance thereunder 500,000 shares of common stock. The ESPP allows eligible employee participants to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of a fixed offering period, generally twenty-four months with four purchase periods within each offering period. Purchases are generally made on the last trading day of each October and April. The initial offering period began March 8, 2006 and will end on April 30, 2008. Employees purchase shares at each purchase date at 85% of the market value of our common stock on their enrollment date or the end of the purchase period, whichever price is lower. The first purchase occurred on October 31, 2006, in which the Company issued 131,682 shares at a price of $6.80 per share.

The ESPP provides for annual reserve increases on the first day of each fiscal year commencing on January 1, 2007 and ending on January 1, 2015. The annual reserve increases will be equal to the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or (ii) 250,000 shares of common stock. The Company’s Board of Directors has the authority to designate a smaller number of shares by which the authorized number of shares of common stock will be increased prior to the last day of any calendar year.

14.   401(k) Plan

The Company sponsors a 401(k) Plan that stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations. Pursuant to the 401(k) Plan, the Company does not match any employee contributions.

15.   Government Research Grants

The Company has been awarded grants from the National Institute of Health (“NIH”) for various research and development projects. The Company’s federal government research grants provide for the reimbursement of qualified expenses for research and development as defined under the terms of each grant. As of December 31, 2006, the Company had no NIH grants in place.

16.   Income Taxes

There is no provision for income taxes because the Company has incurred operating losses since inception.

The reported amount of income tax expense attributable to operations for the year differs from the amount that would result from applying domestic federal statutory tax rates to loss before income taxes from operations as summarized below (in thousands):

	Year Ended December 31,
	2006			2005			2004
	(In thousands)
Federal tax benefit at statutory rate	$	(14,214	)	$	(11,017	)	$	(5,653	)
State tax benefit net of federal effect		(2,436	)		(1,889	)		(998	)
Research and development credits		(1,189	)		(865	)		(453	)
Deferred tax assets not benefited		17			9			25
Officer loan deduction for tax		—			(1,602	)		—
Share-based compensation		543			1,939			—
Change in valuation allowance		17,317			14,761			7,079
Other		(38	)		(1,336	)		—
Total	$	—		$	—		$	—

88

ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The deferred tax asset was calculated using an effective tax rate of 40%. Significant components of the Company’s deferred tax assets are as follows:

	December 31,
	2006			2005
	(In thousands)
Federal and state net operating loss carryforwards	$	43,217		$	24,857
Federal and state research and development credit carryforwards		3,349			2,129
Accrued liabilities		517			2,711
Other		1,473			1,542
Total deferred tax assets		48,556			31,239
Valuation allowance		(48,556	)		(31,239	)
Net deferred tax assets	$	—		$	—

The Company’s accounting for deferred taxes under SFAS No. 109, Accounting for Income Taxes, involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses, the nature of the Company’s deferred tax assets and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying balance sheets. The valuation allowance increased by approximately $17,317,000 and $14,761,000 during the years ended December 31, 2006 and 2005, respectively.

As of December 31, 2006, the Company had federal net operating loss carryforwards of approximately $110,960,000. The Company also had federal research and development tax credit carryforwards of approximately $1,974,000. The net operating loss and tax credit carryforwards will expire at various dates beginning in 2020, if not utilized.

As of December 31, 2006, the Company had state net operating loss carryforwards of approximately $97,227,000, which will begin to expire in 2012. The Company also had state research and development tax credit carryforwards of approximately $1,965,000, which have no expiration, and a Manufacturer’s Investment Credit of $78,000, which will begin to expire in 2009, if not utilized.

As of December 30, 2006, approximately $178,000 of deferred tax assets is attributable to certain employee stock option deductions. When realized, the benefit of the tax deduction related to these options will be accounted for as a credit to shareholders’ equity rather than as a reduction of the income tax provision.

Utilization of the net operating loss carryforwards and credits may be subject to an annual limitation with substantial effect, due to the ownership change limitations provided by the Internal Revenue Code that are applicable if the Company experiences an “ownership change”. That may occur, for example, as a result of the initial public offering aggregated with certain other sales of our stock.

17.   Development Agreement

In October 2005, the Company entered into a development agreement with Autoliv ASP, Inc. (“Autoliv”) for the development of heat packages that can be incorporated into the Company’s proprietary single dose drug delivery device for sale by the Company. Under the terms of the development agreement, Autoliv and the Company have agreed to contribute $2,500,000 each toward the development efforts. The Company’s contribution is expected to

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ALEXZA PHARMACEUTICALS, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

include $1,750,000 for purchases of equipment and $750,000 for co-development efforts. Any equipment purchased by the Company will be owned by the Company and included on the balance sheet. The Company has the ability to terminate the agreement for any reason with 60 days written notice. If the Company terminates the agreement without any breach by Autoliv, the Company will be required to pay Autoliv $278,000 per calendar quarter or portion thereof elapsed after October 2005 and up to the date of termination. In 2006 we paid $333,000 to Autoliv for co-development fees under the agreement, and did not make payments under the agreement in 2005 or 2004.

Note 18 — Quarterly Results (Unaudited)

The following table is in thousands, except per share amounts:

	Quarter Ended
	March 31			June 30			September 30			December 31
Fiscal 2006
Revenues	$	160		$	539		$	329		$	—
Loss from operations		(8,663	)		(11,181	)		(11,738	)		(13,853	)
Loss before noncontrolling interest in Symphony Allegro, Inc		(8,431	)		(10,578	)		(11,190	)		(13,327	)
Net loss		(8,431	)		(10,578	)		(11,190	)		(11,607	)
Basic and diluted net loss per share	$	(1.15	)	$	(0.45	)	$	(0.47	)	$	(0.49	)
Shares used in computation of basic and diluted net loss per share		7,316			23,629			23,638			23,752
Fiscal 2005
Revenues	$	1,019		$	853		$	175		$	183
Loss from operations		(6,089	)		(6,844	)		(9,573	)		(11,153	)
Net loss		(5,762	)		(6,491	)		(9,263	)		(10,886	)
Basic and diluted net loss per share	$	(3.54	)	$	(3.86	)	$	(5.42	)	$	(6.02	)
Shares used in computation of basic and diluted net loss per share		1,629			1,681			1,710			1,809

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Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A.   Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures:

Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act) required by Rules 13a-15(b) or 15d-15(b) of the Securities Exchange Act, our chief executive officer and chief financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)  Exemption from Management’s Report on Internal Control Over Financial Reporting for 2006:

This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly-public companies.

(c)  Changes in Internal Control Over Financial Reporting:

There has been no change in the company’s internal control over financial reporting during the company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

Item 9B.   Other Information

None.

PART III

Item 10.   Directors and Executive Officers of the Registrant

The information required by this Item concerning our directors and executive officers is listed at the end of Part I of this Annual Report.

Code of Ethics

We have adopted the Alexza Pharmaceuticals, Inc. Code of Business Conduct for Employees, Executive Officers and Directors, or Code of Conduct, which applies to all directors and employees, including executive officers, including, without limitation, our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Code of Conduct is filed as an exhibit to this Annual Report.

Audit and Ethics Committee

The members of our audit and ethics committee are Dr. Read and Messrs. Frazier and Stein. Mr. Frazier chairs the audit and ethics committee. Our Board of Directors has determined that all members of our audit and ethics committee satisfy the independence and financial literacy requirements of the Nasdaq Global Market (as independence is currently defined under Rule 4350(c)(2)(A)(i) of the Nasdaq listing standards and the SEC Rules). Our board of directors has also determined that Mr. Frazier is an audit committee “financial expert” as defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 and satisfies the financial sophistication requirements of the Nasdaq Global Market. Our Board of Directors made a qualitative assessment of Mr. Frazier’s level of knowledge and experience based on a number of factors, including his formal education and experience.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file.

Based solely upon its review of the copies of such forms furnished to us and written representations from the executive officers and directors, we believe that all Section 16(a) filing requirements were met during 2006.

Item 11.   Executive Compensation

Compensation Discussion and Analysis

General.

Our executive officer compensation program is intended to attract, reward and retain individuals with the skills we believe are necessary for us to achieve our goals and to establish an appropriate relationship between compensation and stockholder value. We have an executive officer compensation program that consists of cash and equity awards with short and long-term components and fixed and contingent components, in proportions we believe are appropriate to incentivize, reward and retain our executive officers. We believe our executive officer compensation program fairly compensates our executive officers with respect to the value created for our stockholders and is competitive in our industry.

Our executive officer compensation program for 2006 consisted of three components:

•  Base Salary.  Salary for each of our executive officers was based principally on an assessment of the executive officer’s current salary against individual performance and contribution to our overall strategic goals as well as comparable salaries at similar companies.

•  Bonus.  Annual cash and equity incentive bonuses are awarded to executive officers based on the achievement of individual and company-wide performance objectives as a percent of base salary as well as bonuses for similar positions at similar companies.

•  Long-Term Incentive Compensation.  Long-term incentive awards, comprised of stock option grants, are designed to link incentive compensation to our long-term performance and to align our executive officers’ interests with our stockholders’ interest.

Our Compensation Committee has not adopted any policies for allocating compensation between long-term and current compensation, between cash and non-cash compensation, or among other different forms of compensation. Our Compensation Committee believes it is more relevant to tailor executive officer’s compensation to reward and retain each executive officer. Commensurate with our philosophy of linking executive officer compensation and corporate performance, our Compensation Committee believes that a greater component of compensation for executive officers relative to other employees should be performance-based.

Role of Our Compensation Committee.

Our Compensation Committee administers, interprets and recommends to our Board of Directors our executive officer compensation policies, including our equity compensation plans. Our Compensation Committee is appointed by our Board of Directors, and consists entirely of directors who are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. Our Compensation Committee is comprised of Samuel D. Colella (Chairman), Ernest Mario, Ph.D., Deepika R. Pakianathan, Ph.D. and Gordon Ringold, Ph.D.

Our Compensation Committee reviews and recommends to our Board of Directors an executive officer compensation program intended to link compensation with our compensation philosophy. Our Compensation Committee evaluates and recommends to our Board of Directors, among other things, the performance and

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compensation of our President and Chief Executive Officer and of our executive officers, and our strategic goals, including reviewing and approving for each executive officer:

•  the annual base salary level;

•  the annual incentive opportunity level; and

•  long-term incentive opportunity level.

Our compensation philosophy does not increase or reduce compensation from one component of compensation based on payments from other components of compensation. Our Compensation Committee recommends to our Board of Directors what it believes to be the appropriate compensation level for each compensation component based in part on its view of equity and consistency, individual performance and other information it deems relevant, such as executive and employee compensation surveys and databases. Our Compensation Committee also reviews compensation paid to executive officers of what it believes to be similarly situated companies

Our Compensation Committee annually reviews our executive officers’ compensation to determine whether it provides adequate incentives. Our Compensation Committee’s most recent review occurred in November 2006. The Compensation Committee meetings typically have included, for all or a portion of each meeting, the committee members and President and Chief Executive Officer, Thomas B. King. For compensation decisions, including decisions regarding the grant of long-term incentive compensation relating to executive officers (other than for Mr. King), our Compensation Committee considers the recommendations of Mr. King.

Cash and Long-Term Incentive Compensation.

Our Compensation Committee believes it is important to consider current compensation paid by comparable pharmaceutical and biotechnology companies, particularly those located in the San Francisco Bay Area. Our Compensation Committee has sought to set executive base salaries at approximately the 50th percentile of comparably sized companies in our industry. In 2006 in light of our transition from a private to a public company, the Compensation Committee retained a compensation consulting firm to provide recommendations with respect to the bonus and long-term incentive compensation elements of compensation appropriate for similarly situated companies.

The Compensation Committee reviewed national surveys and databases of executive and employee compensation and other data compiled by the compensation consulting firm in determining its 2006 bonus and long-term incentive compensation recommendations for our executive officers. The report provided by the compensation consulting firm included base salaries, bonuses and equity compensation, and financial data. In addition to benchmarking data, the Compensation Committee considers input from other sources, including members of our Board of Directors and data relating to the compensation of executive officers in comparable companies.

Executive Officer Compensation Program.

Our executive officer compensation program consists of three principal components: base salary, annual cash and equity incentive bonuses and long-term incentive compensation. We also provide our executive officers with certain severance and change in control benefits. Finally, we offer our executive officers participation (with all other eligible employees) in our 401(k) Plan and certain other benefits available generally to our employees.

Base Salary.  In setting or adjusting base salaries for 2006, the Compensation Committee assessed each executive officer’s current salary against a number of factors including contribution to our strategic goals, individual performance, pay level compared to other executive officers, base salary compared to those of similar positions at comparable companies, as well as general economic factors including the cost of living. Increases in the base salaries of executive officers are made in consideration of the total salary increases approved by our Compensation Committee for the entire company and targets the base salaries for our executives officers to the base salaries to approximately the 50th percentile of comparably sized companies in our industry. The Compensation Committee also considered the recommendation of Mr. King in setting or adjusting base salaries for our other executive officers. The Compensation Committee considered a mix of factors in determining base salary for each officer. Generally, executive salaries are adjusted effective January 1st of each year.

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In 2006, the salaries for Messrs. King, Moretti and Williams and Drs. Cassella and Houghton were set at $350,000, $288,750, $242,000, $288,750 and $275,000, respectively.

At its November 2006 meeting, our Compensation Committee approved an overall aggregate salary increase for all employees averaging 5.5% for 2007. Our Compensation Committee also determined at that time that if our executive officers’ salaries were increased for 2007 consistent with this range of overall increase for the company, their salaries for 2007 would be at or near the median of executive officer’s salaries with similar roles at comparable public and recently public companies. Based on this determination, our Compensation Committee increased Mr. King’s base salary by approximately 4% to $365,000 and increased the base salaries of Messrs. Moretti and Williams and Drs. Cassella and Houghton by an average of approximately 5% to $303,750, $252,500, $303,750 and $290,000, respectively. No material changes will be made to the base salary levels of our executives until our annual executive performance reviews are conducted in the fourth quarter of 2007. We believe that, given the industry in which we operate and the corporate culture we have created, our compensation levels for 2007 are generally sufficient to retain our existing executive officers and to hire new executive officers as required.

Bonus.  In 2006, we completed our initial public offering, and in light of our transition from a private to a public company, our Compensation Committee reviewed our bonus compensation. As a result of this review, and based on the recommendation of our Compensation Committee, our Board of Directors adopted the 2006 Bonus Program that applied to all employees who commenced employment on or before June 30, 2006 and were employed at December 31, 2006. Employees employed more than six months, but less than one year, were eligible to receive a pro-rated bonus payout. Payment of bonuses pursuant to the 2006 Bonus Program were based on the achievement of the following corporate goals: (i) completion of the our initial public offering; (ii) certain corporate development goals; (iii) achievement of certain commercial manufacturing goals; (iv) achievement of certain clinical trial advancement goals; and (v) corporate/financial goals relating to achievement of certain financial measures.

Based on these goals our Board of Directors established a target bonus for each employee, including executives officers, of between 10%-50% of annual base salary. Target bonuses, as a percentage of base salary, increase with the level of employee. Our Board of Directors set target bonuses for our executive officers at approximately the 75^th percentile of bonuses of executive officers of comparable companies. Our Compensation Committee recommended a higher percentile for the incentive bonus than the base salary because it believed the thresholds for achieving bonus payout are difficult, and it believed our stockholders interests would be served if management was properly motivated to achieve their performance goals.

Bonuses awarded under the 2006 Bonus Program were comprised of cash and stock options. The annual cash bonuses and stock option awards were calculated in accordance with a formula that took into account base salary and accomplishment of specified corporate, departmental and individual goals. The relative weighting of the components, the allocation of awards between cash bonuses and stock option awards and the percentage of base salary used to determine bonus eligibility varied by the level of employee, with the bonuses of executive officers being weighted toward achievement of corporate goals, stock option awards and a higher percentage of base salary.

In 2006, the bonuses for executive officers was payable in cash and equity awards of stock options. Stock option awards under the 2006 Bonus Program were valued with a Black Scholes calculation of the option award value of an option with an exercise price of $11.70 per share, the closing price of a share of our Common Stock on January 4, 2007. These options vest in two installments; 50% on January 4, 2007 and 50% on January 4, 2007.

The Compensation Committee determined that all of the corporate objectives set forth above were achieved in 2006, except for certain goals relating to achievement of certain financial measures. As a result, all employees were entitled to a maximum of 80% of target bonus. Mr. King’s bonus was dependant on the achievement of the corporate goals and he received a bonus of $102,200 and options to purchase 5,159 shares of common stock.

For all other executive officers, bonuses were dependent on corporate, departmental and individual goals. In 2006, Mr. Moretti’s bonus was $56,595 in cash and options to purchase 2,856 shares of common stock. Mr. Williams’ bonus was $46,958 in cash and options to purchase 2,370 shares of common stock. Dr. Cassella’s bonus was $56,595 in cash and options to purchase 2,856 shares of common stock. Dr. Houghton’s bonus was comprised of $53,900 in cash and options to purchase 2,720 shares of common stock.

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In March 2007, the Board of Directors adopted the 2007 Bonus Program that applies to all employees who commence employment on or before June 30, 2007 and who are employed at December 31, 2007. Payment of bonuses pursuant to the 2007 Bonus Plan is dependent upon achievement of (i) certain operational goals (ii) certain corporate development goals; (iii) certain commercial manufacturing goals; (iv) certain clinical trial advancement goals; (v) certain goals relating to our move to our new facilities and (vi) corporate/financial goals relating to achievement of certain financial measures.

Based on these goals, our Board of Directors established a target bonus for each employee, including executives officers, based on a percentage of annual base salary. For all employees, 80% of target bonus is dependent upon the achievement of six corporate strategic goals. Our Compensation Committee and our Board of Directors have reserved discretion to determine whether and when the remaining 20% of the target bonus should be paid.

Long-Term Incentive Compensation.  We believe that providing a portion of our total compensation package in stock options aligns the incentives of our executive officers with the interests of our stockholders. At present, our long-term compensation program consists solely of the grant of stock options subject to vesting conditions. We grant stock options to our executive officers through the 2005 Equity Incentive Plan. The 2005 Equity Incentive Plan was established to provide our employees with an opportunity to participate, along with our other stockholders, in our long-term performance. These stock options are intended to produce significant value for each employee, including executives, if our performance is outstanding and if the employee has an extended tenure.

In considering and recommending stock option grants for our executive officers, our Compensation Committee considers individual performance, overall contribution, equity, officer retention and unvested stock options. The authority to make equity grants to executive officers rests with our Compensation Committee (subject to ratification by the full board of directors). As noted above, our Compensation Committee also considers the recommendations of Mr. King in determining stock option grant recommendations for other executive officers. Mr. King has the authority to make equity grants to non-officer employees.

Under the 2005 Equity Incentive Plan, initial grants of stock options are made to eligible employees, including executive officers, in connection with their commencement of employment. All initial grants have four-year vesting, with the first 25% vesting after one year of service and the remainder of the options vesting ratably on a monthly basis thereafter over three additional years. In July 2006, we adopted a policy of issuing additional options to employees who have been employed for at least two years. These options were also subject to four year vesting, with the first 25% vesting after one year of service and the remainder of the options vesting ratably on a monthly basis thereafter over three additional years.

All option grants made prior to our initial public offering on March 8, 2006 were made at what our Board of Directors assessed as the estimated fair value of our common stock at the date the options were granted. In light of the expected completion of our initial public offering the board reassessed the fair market value on the date of each of these grants. As a result of this retrospective analysis, we determined that the fair value of our common stock on a fully-diluted basis steadily increased from $2.04 per share at January 20, 2005, to $9.90 per share at December 7, 2005, even though our options were granted between the range of $1.10 to $6.88 per share on those dates. For more information on this retrospective analysis, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Stock-Based Compensation.” Since our initial public offering, we have made option grants based on the closing market value of our stock as reported on The Nasdaq Global Market on the date of grant. The value of the shares subject to our 2006 option grants to executive officers is reflected in the “Summary Compensation Table” and “Grants of Plan-Based Awards” tables below. In 2006, Mr. King received an option to purchase 81,000 shares of common stock at an exercise price of $7.20 subject to four year vesting. Messrs. Moretti and Williams and Dr. Cassella each received an option to purchase 39,000 shares of common stock at an exercise price of $7.20 subject to four year vesting. Dr. Houghton had not been employed for two years at the time of the grants and, accordingly, did not receive any options.

We intend to make similar grants of options to our employees in 2007. We believe that these grants will provide additional long term incentive to our employees. However, we do not have any obligation that requires us to grant equity compensation to any executive on specified dates.

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Severance and Change of Control Benefits.  Each of our executive officers has a provision for severance benefits and for the acceleration of then unvested stock options in the event of termination in connection with a change of control. Pursuant to the terms of the agreements, if the executive’s employment is terminated without cause or terminated by the executive for good reason within three months before or 12 months following a change of control, then the executive is entitled to the following benefits:

•  acceleration of vesting of all of the executive’s outstanding unvested options to purchase common stock;

•  payment in a lump sum of the executive’s annual base salary plus the greater of the bonus paid for the latest completed fiscal year and the target bonus for the year in which the notification of the executive’s termination of employment occurs; and

•  payment in a lump sum for 18 months of continued healthcare coverage.

If and to the extent that any payments in the context of a change of control are made to our executives who are party to these change of control agreements and the payments are equal to or exceed three times the average of that executive’s annual W-2 compensation for the five years preceding the change of control, the payments or benefits exceeding the five-year average will be subject to the excise tax imposed by Section 4999 and the nondeductibility provisions imposed by Section 280G of the Internal Revenue Code. In such circumstances, we will make a gross-up payment to the executive to compensate the executive for all taxes imposed under Section 4999 and any related income taxes imposed under the Internal Revenue Code and state and local authorities for the gross-up payment, and we will not be permitted to deduct from our taxes the amount in excess of the five-year average of the compensation paid to the executive. For purposes of the change of control agreements, a change of control includes a merger, consolidation or reverse merger in which we are the surviving corporation but our outstanding shares of common stock immediately preceding the merger are converted by virtue of the merger into other property or any transaction or series of related transactions in which our stockholders own less than 50% of voting power in the surviving corporation or a sale of all or substantially all of our assets.

In our industry, there is a high level of merger and acquisition activity, and the executives of companies engaged in merger and acquisition activity are often terminated or have their responsibilities reduced upon the change of control. We provide these benefits to ensure that, in the event of a change of control, our executives will not have any personal incentive to resist a change of control that is approved by our Board of Directors and stockholders and will be incentivized to remain with us through, and to facilitate, the closing of any such transaction. We believe this benefit is comparable to such severance benefits provided by companies in our industry.

Other Benefits.  Our executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance, employee stock purchase plan and our 401(k) plan, in each case on the same basis as our other employees.

Perquisites.  Mr. King, Mr. Williams and Dr. Cassella were residing outside the San Francisco Bay Area at the time of their recruitment by the company. In connection with their respective moves to the San Francisco Bay Area, we provided them with housing loans (which were extinguished in December 2005, prior to the filing of our registration statement in connection with our initial public offering) and monthly housing supplements more fully described at “Indebtedness of Management and Related Agreements.” As reflected in the Summary Compensation Table, the value for these perquisites aggregated to $114,076 ($189,076 if include Houghton relocation bonus) for our executive officers during 2006. We do not consider such arrangements to be a standard component of executive officer compensation.

Evolution of our Compensation Strategy.  Our compensation strategy is necessarily tied to our stage of development. Accordingly, the specific direction, emphasis and components of our executive officer compensation program continue to evolve in parallel with the evolution of our business strategy. Our Compensation Discussion and Analysis will, in the future, reflect these evolutionary changes.

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Accounting and Tax Considerations.  Effective January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123 (revised 2004), Share-Based Payment, or SFAS 123R. Under SFAS 123R, we are required to estimate and record an expense for each award of equity compensation over the vesting period of the award. Until we achieve sustained profitability, the availability to us of a tax deduction for compensation expense is not material to our financial position. We structure cash incentive bonus compensation so that it is taxable to our employees at the time it becomes available to them.

Section 162(m) of the Internal Revenue Code of 1986 limits us to a deduction for federal income tax purposes of up to $1 million of compensation paid to certain named executive officers in a taxable year. Compensation above $1 million may be deducted if it is “performance-based compensation.” Stock option awards under the 2005 Equity Incentive Plan, to the extent our Board of Directors or the committee of our Board of Directors granting such stock awards is composed solely of “outside directors,” are performance-based compensation within the meaning of Section 162(m) and, as such, are fully deductible. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, our Compensation Committee has not adopted a policy requiring all compensation to be deductible. Our Compensation Committee intends to continue to evaluate the effects of the compensation limits of Section 162(m) and to grant compensation awards in the future in a manner consistent with the best interests of our company and our stockholders.

Summary.

Through the compensation arrangements described above, a significant portion of our executive officer compensation program is contingent upon individual and company-wide performance, and realization of benefits by our executive officers is closely linked to increases in long-term stockholder value. We remain committed to this philosophy of pay-for-performance, recognizing that the competitive market for talented executive officers and the volatility of our business may result in highly variable compensation during any given annual period.

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation awarded to or paid, or earned by, by us to our Chief Executive Officer and our four other most highly compensated employees for the fiscal years ended 2006, 2005 and 2004. We refer to these persons as our “named executive officers.”

										Non-Equity
										Incentive
								Option		Plan			All Other
			Salary		Bonus			Awards		Compensation			Compensation			Total
Name and Principal Position	Year		($)		($)			($)(2)		($)(12)			($)			($)
Thomas B. King		2006		352,619		—			39,234		102,200	(1)		50,076	(3)		544,129
President & Chief Executive		2005		305,000		—			—		134,200	(1)		2,113,970	(4)		2,553,170
Officer and Director		2004		275,208		—			—		60,000	(1)		59,142	(3)		394,350
James V. Cassella, Ph.D.		2006		288,750		—			81,736		56,595	(1)		36,500	(3)		463,581
Senior Vice President		2005		263,638		—			24,179		15,019	(1)		926,544	(5)		1,229,380
Research & Development		2004		142,147		—			—		25,000	(1)		179,421	(3)		346,568
August J. Moretti		2006		288,750		—			133,186		56,595	(1)		—			478,531
Senior Vice President, Chief		2005		262,500		—			105,964		55,000	(11)		—			423,464
Financial Officer and Secretary(7)		2004		52,083		—			—		7,558	(1)		—			59,671
Jeffrey S. Williams		2006		242,000		—			85,493		46,958	(1)		27,500	(3)		401,951
Senior Vice President, Business		2005		230,000		—			26,230		18,083	(1)		1,073,983	(6)		1,348,296
and Corporate Development		2004		171,096		—			—		11,500	(1)		196,649	(3)		379,245
William C. Houghton, M.D.		2006		277,034		—			69,266		130,214	(9)		—			476,514
Vice President, Clinical and		2005		36,490		50,000(10	)		13,664		—			75,000	(3)		175,154
Regulatory Affairs(8)		2004		—		—			—		—			—			—

(1)

Represents cash bonuses earned in the current year and paid in the following year.

(2)

For options issued prior to January 1, 2006, amounts were calculated utilizing the provisions of Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees,” and for options issued after January 1, 2006, amounts were calculated utilizing the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, “Share-based Payments.” Pursuant to SEC Rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting. See Note 2 of the consolidated financial

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	statements in our Annual Report for the year ended December 31, 2006 regarding assumption underlying valuation of equity awards.
(3)	Represents housing and relocation costs.
(4)	Represents loan extinguishment and payment of related taxes of $2,068,966 and housing allowance of $45,004 paid in cash. In March 2006, the aggregate exercise price of Mr. King’s outstanding options to purchase our common stock was increased by an aggregate of $2,068,966 in exchange for the loan extinguishment and payment of related taxes. See “Indebtedness of Management and Related Agreements” for more information.
(5)	Represents loan extinguishment and payment of related taxes of $862,069 and housing allowance and moving expenses of $64,475 paid in cash. In March 2006, the aggregate exercise price of Dr. Cassella’s outstanding options to purchase our common stock was increased by an aggregate of $862,069 in exchange for the loan extinguishment and payment of related taxes. See “Indebtedness of Management and Related Agreements” for more information.
(6)	Represents loan extinguishment and payment of related taxes of $1,034,483 and housing allowance and moving expenses of $39,500 paid in cash. In March 2006, the aggregate exercise price of Mr. William’s. outstanding options to purchase our common stock was increased by an aggregate of $1,034,483 in exchange for the loan extinguishment and payment of related taxes. See “Indebtedness of Management and Related Agreements” for more information.
(7)	Mr. Moretti served as our part time Chief Financial Officer from August 2004 to February 2005. Since 2005, he has served as our Senior Vice President and Chief Financial Officer.
(8)	Dr. Houghton has served as our Vice President since November 2005.
(9)	Represents a bonus earned in 2006 but paid in 2007 of $53,900 and a bonus earned and paid in 2006 of $76,314.
(10)	Represents a sign-on bonus paid in 2005.
(11)	Represents bonus earned in 2005, of which $41,250 was paid in 2005 and $13,750 was paid in 2006.
(12)	Cash bonuses are paid under an incentive plan and therefore are reported in the column “Non-Equity Incentive Plan Compensation.”

2006 Grants of Plan-Based Awards Table

The following table sets forth information with respect to our stock options granted during fiscal year ended December 31, 2006 to each of the named executive officers. Options were incentive and nonqualified stock options granted under our 2005 Equity Incentive Plan. All options were granted at an exercise price equal to the fair market value of our common stock on the date of grant. The option vesting will accelerate in full in certain circumstances after a change in control.

							All Other
							Option
							Awards:				Grant Date
			Estimated Possible Payouts				Number of		Exercise or		Fair Value of
			Under Non-Equity Incentive				Securities		Base Price of		Stock and
			Plan Awards				Underlying		Option or		Option
	Grant		Target		Maximum		Option		Award		Awards
Name	Date		($)(1)		($)		(#)(2)		($)		($)(3)
Thomas B. King		8/29/2006		162,500		162,500		81,000		7.20		418,996
James V. Cassella, Ph.D.		8/29/2006		101,063		101,063		39,000		7.20		201,739
August J. Moretti		8/29/2006		101,063		101,063		39,000		7.20		201,739
Jeffrey S. Williams		8/29/2006		84,700		84,700		39,000		7.20		201,739
William C. Houghton, M.D.		8/29/2006		96,250		96,250		—		—		—

(1) This column sets forth the target amount of each named executive officer’s annual cash bonus award for the year ended December 31, 2006 under our 2006 Bonus Program. The actual cash bonus award earned for the year ended December 31, 2006 for each named executive officer is set forth in the Summary Compensation Table

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above. As such, the amounts set forth in this column do not represent additional compensation earned by the named executive officers for the year ended December 31, 2006. For more information regarding our 2006 Bonus Plan and the cash bonus awards granted to the named executive officers for the year ended December 31, 2006, see “Compensation Discussion and Analysis — Bonus.” Executive Officer Bonuses were paid out in a combination of 70% cash and 30% in options to purchase Alexza common stock. The number of common shares eligible to purchase under the options was based on 1) the total bonus earned by each officer 2) the percentage of the total bonus earned allocated to stock options and 3) the valuation of the stock option as computed using the Black-Scholes valuation model on the date the option was granted.

(2)	Stock option awards subject to four year vesting.
(3)	Represents the grant date fair value of each award determined in accordance with FAS 123(R).

For a complete description of the material terms of our 2006 Bonus Program, please see “Compensation Discussion and Analysis — Bonus.”

2006 Outstanding Equity Awards Value at Fiscal Year-End Table

The following table includes certain information with respect to the value of all unexercised options previously awarded to our named executive officers during the fiscal year ended December 31, 2006. The number of options held at December 31, 2006 include options granted under the our shareholder approved equity incentive plans.

	Number of
	Securities		Number of
	Underlying		Securities
	Unexercised		Underlying		Option
	Options		Unexercised		Exercise		Option
	Exercisable		Options		Price		Expiration
Name	(#)		Unexercisable		($)		Date
Thomas B. King		215,907		56,821		8.00		7/30/2013
		23,203		131,493		1.10		12/15/2014
		4,068		23,054		8.00		3/7/2016
		—		81,000		7.20		8/29/2016
James V. Cassella, Ph.D.		68,181		40,909		8.00		7/8/2014
		—		27,119		1.38		9/1/2015
		3,185		—		6.88		12/7/2015
		—		16,517		8.00		3/7/2016
		—		39,000		7.20		8/29/2016
August J. Moretti		8,258		9,470		1.10		10/28/2014
		56,249		66,478		1.38		4/14/2015
		18,181		—		6.88		12/7/2015
		—		39,000		7.20		8/29/2016
Jeffrey S. Williams		75,000		34,090		8.00		4/7/2014
		—		1,074		1.38		9/1/2015
		3,835		—		6.88		12/7/2015
		—		42,562		8.00		3/7/2016
		—		39,000		7.20		8/29/2016
William C. Houghton, M.D.		14,772		39,773		3.30		10/20/2015

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Option Exercises and Stock Vested

The following table includes certain information with respect to the options exercised by our named executive officers during the fiscal year ended December 31, 2006.

	Option Awards
	Number of shares		Value Realized on
Name	Acquired on Exercise		Exercise($)
Thomas B. King		—		—
James V. Cassella, Ph.D.		—		—
August J. Moretti		2,727		15,762
Jeffrey S. Williams		—		—
William C. Houghton, M.D.		—		—

2006 Director Compensation Table

The following table provides compensation information for the one year period ended December 31, 2006 for each member of our Board of Directors:

	Fees Earned or		Option
Name	Paid in Cash($)		Awards($)(2)		Total($)
Thomas B. King(1)		—		—		—
Samuel D. Colella		53,000		29,146		82,146
Alan D. Frazier		49,000		29,146		78,146
Ernest Mario, Ph.D.		40,500		29,146		69,646
Deepika R. Pakianathan, Ph.D.		49,000		29,146		78,146
J. Leighton Read, M.D.		45,000		29,146		74,146
Gordon Ringold, Ph.D.		48,500		29,146		77,646
Isaac Stein		57,000		29,146		86,146
Alejandro A. Zaffaroni, M.D.		44,500		29,146		73,646

(1)

See Summary Compensation Table for disclosure related to Thomas B. King, who is also one of our named executive officers.

(2)

Amounts calculated utilizing the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, “Share-based Payments.” See Note 2 of the consolidated financial statements in our Annual Report for the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards. The full grant date fair value of the awards to each director, computed in accordance with SFAS 123R is $142,893. At fiscal year end each director, excluding Mr. King, has an option to purchase 25,000 shares of our common stock. See “Executive Compensation — Summary Compensation Table” for disclosure of Mr. King’s equity awards.

Nonemployee directors are paid a retainer of $30,000 per year. Each nonemployee director also receives a meeting fee of $2,500 for each regularly scheduled Board meeting attended in person ($500 for meetings attended by video or telephone conference) and $1,000 for each committee meeting attended in person ($500 for meetings attended by video or telephone conference). In addition, the lead director and the Chair of the Audit and Ethics Committee will receive an additional retainer of $5,000 per year. The Chair of our Compensation Committee and the Corporate Governance and Nominating Committee will receive an additional retainer of $2,500 per year. No additional amounts are currently payable for committee participation or special assignments. Nonemployee directors also receive nondiscretionary, automatic grants of options to purchase 25,000 shares of our common stock upon joining our Board of Directors and nondiscretionary, automatic grants of options to purchase 6,250 shares of our common stock each year pursuant to our 2005 Nonemployee Directors Stock Option Plan. Both the initial grants and the subsequent grants vest ratably over four years on a monthly basis, provided the director continues as a member of our Board of Directors. Upon a change in control, each option granted to a nonemployee director will vest in full immediately and automatically.

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2006 Potential Payments Upon Termination or Change in Control

The amount of compensation and benefits payable to each of our named executive officers in various termination situations has been estimated in the tables below. The actual amount of compensation and benefits payable in any termination event can only be determined at the time of the termination of our named executive officer’s employment with us.

	Change of Control							No Change of Control
			Equity			Health Care				Equity		Health Care
Name	Salary($)(1)		Acceleration($)(2)			Benefits($)(4)		Salary($)		Acceleration($)		Benefits($)
Thomas B. King		547,500		2,006,716			28,429		—		—		—
James V. Cassella, Ph.D.		410,063		656,174			28,429		—		—		—
August J. Moretti		410,063		1,196,515	(3)		28,429		—		—		—
Jeffrey S. Williams		340,875		466,367			28,429		—		—		—
William C. Houghton, M.D.		391,500		—			21,716		—		—		—

(1)	Includes one year salary plus the current year target bonus.
(2)	Value of the stock options, as computed using the Black-Scholes valuation model, assuming all options were fully vested as of December 31, 2006.
(3)	Includes an estimated $216,218 of gross-up payment to Mr. Moretti to compensate him for taxes imposed under Section 4999 and any related income taxes imposed under the Internal Revenue Code and state and local authorities for the gross-up payment pursuant to the terms of our Change of Control Agreement.
(4)	Includes a lump sum payment for 18 months of continued healthcare coverage.

For a complete description of the terms of our severance and change of control arrangements with our named executive officers, please see “Compensation Discussion and Analysis — Severance and Change of Control Benefits.”

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the beneficial ownership of our common stock as of March 16, 2007 by (i) each stockholder that is known by us to beneficially own more than 5% of the common stock, (ii) each of our named executive officers named in the Summary Compensation Table, (iii) each director and nominee for director and (iv) all named executive officers and directors as a group.

Percentage of ownership is based upon 23,888,235 shares outstanding as of March 16, 2007. Beneficial ownership is calculated based upon SEC requirements. All shares of common stock subject to options currently exercisable or exercisable within 60 days of March 16, 2007 are deemed to be outstanding for the purpose of computing the percentage of ownership of the person holding such options, but are not deemed to be outstanding for computing the percentage of ownership of any other person. Unless otherwise indicated below, each stockholder named in the table has sole or shared voting and investment power with respect to all shares beneficially owned, subject to applicable community property laws. Unless otherwise indicated in the table, the address of each individual listed in the table is c/o Alexza Pharmaceuticals, Inc., 1020 East Meadow Circle, Palo Alto, California 94303.

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	Number of		Shares Issuable		Percentage
	Shares		Pursuant to Options		of Shares
	Beneficially		Exercisable Within 60		Beneficially
	Owned		Days of March 16, 2007		Owned
5% Stockholders
Entities affiliated with Frazier Healthcare Ventures(1)		2,183,127		—		9.14	%
Entities affiliated with Versant Ventures(2)		2,183,128		—		9.14	%
Entities affiliated with Alloy Ventures(3)		1,353,950		—		5.67	%
Named Executive Officers and Directors
Thomas B. King(4)		182,597		289,697		*
James V. Cassella		2,653		84,157		*
August J. Moretti		5,741		99,267		*
Jeffrey S. Williams		2,001		96,471		*
William Houghton, M.D.		3,125		21,814		*
Samuel D. Colella(2)		2,183,128		7,291		9.14	%
Alan D. Frazier(1)		2,183,127		7,291		9.14	%
Ernest Mario, Ph. D.		18,181		7,291		*
Deepika R. Pakainathan, Ph.D.(5)		990,678		7,291		4.14	%
J. Leighton Read, M.D.(3)		1,353,950		7,291		5.67	%
Gordon Ringold, Ph.D.(6)		100,555		7,291		*
Isaac Stein(7)		117,653		7,291		*
Alejandro A. Zaffaroni, M.D.(8)		1,073,360		7,291		4.49	%
All directors and named executive officers as a group (13 persons)(9)		8,216,749		649,734		33.49	%

*	Less than 1% of our outstanding common stock.
(1)	Includes 583,931 shares held by Frazier Healthcare III, L.P., 1,586,752 shares held by Frazier Healthcare IV, L.P., 4,390 shares held by Frazier Affiliates III, L.P. and 8,054 shares held by Frazier Affiliates IV, L.P. Mr. Frazier is the president and controlling stockholder of Frazier and Company, Inc., the managing member of FHM III, LLC, which is the general partner of Frazier Healthcare III, L.P. and Frazier Affiliates III, L.P., and he shares voting and investment power over the shares held by these entities. He is also a managing member of FHM IV, LLC, which is the general partner of FHM IV, LP, which is the general partner of Frazier Healthcare IV, L.P. and Frazier Affiliates IV, L.P., and he shares voting and investment power over the shares held by those entities. He disclaims beneficial ownership of the shares held by these entities, except to the extent of his proportionate pecuniary interest therein. The address for all entities and individuals affiliated with Frazier Healthcare Ventures is Two Union Square, Suite 3200, 601 Union Street, Seattle, WA 98101.
(2)	Includes 2,153,442 shares held by Versant Venture Capital II, L.P., 10,440 shares held by Versant Affiliates Fund II-A, L.P. and 19,246 shares held by Versant Side Fund II, L.P. (together the “Versant Funds”). Mr. Colella is a managing member of Versant Ventures II, LLC, which is the general partner of each of the Versant Funds, and he shares voting and investment power over the shares held by these entities. He disclaims beneficial ownership of the shares held by these entities, except to the extent of his proportionate pecuniary interest therein. The address for all entities and individuals affiliated with Versant Ventures is 3000 Sand Hill Road, Building 4, Ste. 210, Menlo Park, CA 94025.
(3)	Includes 35,594 shares held by Alloy Partners 2002, L.P. and 1,318,356 shares held by Alloy Ventures 2002, L.P. (together, the “Alloy Funds”). Dr. Read is a managing member of Alloy Ventures 2002, LLC, which is the general partner of each of the Alloy Funds, and he shares voting and investment power over the shares held by these entities. He disclaims beneficial ownership of the shares held by these entities, except to the extent of his proportionate pecuniary interest therein. The address for all entities and individuals affiliated with Alloy Ventures is 400 Hamilton Avenue, 4th Floor, Palo Alto, CA 94301.

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(4)	Includes 181,542 shares held by the Thomas and Beth King 2000 Family Trust, of which Mr. King and his spouse are trustees.
(5)	Includes 979,880 shares held by Delphi Ventures VI, L.P. and 9,798 shares held by Delphi BioInvestments VI, L.P. (together, the “Delphi Funds”). Dr. Pakianathan is a managing member of Delphi Management Partners VI, LLC, which is the general partner of each of the Delphi Funds, and she shares voting and investment power over the shares held by these entities. She disclaims beneficial ownership of the shares held by these entities, except to the extent of her proportionate pecuniary interest therein. The address for all entities and individuals affiliated with Delphi Ventures is 3000 Sand Hill Road, Building 1, Ste. 135, Menlo Park, CA 94025.
(6)	Includes 9,276 shares held by the Gordon Ringold and Tanya Zurucki 1999 Reversible Trust, of which Dr. Ringold and his spouse are trustees.
(7)	Includes 117,653 shares held by The Stein 1995 Revocable Trust, of which Mr. Stein and his spouse are trustees.
(8)	Includes 269,090 shares held by Zaffaroni Partners, L.P., of which Dr. Zaffaroni and his spouse are general and limited partners, 38,317 shares held by his spouse, 354,420 shares held by the Silveira Irrevocable Trust u/a/d 7/29/87, of which Dr. Zaffaroni and his spouse are trustees and 355,035 shares held by the Lida Zaffaroni 2005 Annuity Trust #1, of which Dr. Zaffaroni’s spouse holds a pecuniary interest in the annuity provided for in the trust agreement.
(9)	See notes (1) through (8).

Securities Authorized for Issuance Under Equity Compensation Plans

We maintain a 2005 Equity Incentive Plan, or the 2005 Plan, a 2005 Non-Employee Directors’ Stock Option Plan, or the Directors’ Plan, and a 2005 Employee Stock Purchase Plan, or the ESPP, pursuant to which we may grant equity awards to eligible persons.

The following table gives information about equity awards under our 2005 Plan, Directors’ Plan, and ESPP as of December 31, 2006.

	(a)		(b)		(c)
	Number of Securities		Weighted-Average		Number of Securities Remaining
	to be Issued Upon		Exercise Price of		Available for Future Issuance
	Exercise of		Outstanding		Under Equity Compensation
	Outstanding Options,		Options, Warrants		Plans (Excluding Securities
Plan category	Warrants and Rights		and Rights		Reflected in Column (a))
Equity compensation plans approved by security holders		564,479	$	5.23		898,717	(1)(2)
Equity compensation plans not approved by security holders		—		—		—
Total		564,479	$	5.23		898,717

(1)	The 2005 Plan incorporates an evergreen formula pursuant to which on each January 1, the aggregate number of shares reserved for issuance under the 2005 Plan will increase by a number equal to the lesser of (i) 1,000,000 shares, (ii) 2% of the outstanding shares on December 31 of the preceding calendar year, or (iii) an amount determined by our Board of Directors.
	The Directors’ Plan incorporates an evergreen formula pursuant to which on each January 1, the aggregate number of shares reserved for issuance under the Director’s Plan will increase by the number of shares subject to options granted during the preceding calendar year less the number of shares that revert back to the share reserve during the preceding calendar year.
	The ESPP incorporates an evergreen formula pursuant to which on each January 1, the aggregate number of shares reserved for issuance under the ESPP will increase by a number equal to the lesser of (i) 250,000 shares, (ii) 1% of the outstanding shares on December 31 of the preceding calendar year, or (iii) an amount determined by our Board of Directors.
(2)	Of these shares, 368,318 shares remain available for purchase under the ESPP.

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Item 13.   Certain Relationships and Related Transactions and Director Independence

Indebtedness of Management and Related Agreements

In 2003, in connection with his commencement of employment and relocation to the San Francisco Bay Area, we entered into a loan agreement with Thomas B. King, our President and Chief Executive Officer. Pursuant to the terms of this agreement, we loaned Mr. King $1.2 million for the purchase of a principal residence. This note was secured by Mr. King’s residence and was interest free. In December 2005, immediately prior to the filing of the registration statement for our initial public offering, we extinguished the note and agreed to pay the taxes incurred as a result of such extinguishment on Mr. King’s behalf, a total of $2,068,966. In March 2006, in return for the loan extinguishment and the payment of associated taxes, we increased the aggregate exercise price of options to purchase common stock held by Mr. King by $2,068,966. In connection with Mr. King’s employment, we also agreed to pay Mr. King a monthly housing supplement during his employment with us of $5,000 for the first year after his move to the Bay Area, $4,000 for the second year, $3,000 for the third year, $2,000 for the fourth year and $1,000 for the fifth year.

In 2004, in connection with his commencement of employment and relocation to the San Francisco Bay Area, we entered into a loan agreement with James V. Cassella, our Senior Vice President, Research and Development. Pursuant to this agreement, we loaned Dr. Cassella $500,000 for the purchase of a principal residence. This loan was secured by Dr. Cassella’s residence and was interest free. In December 2005, immediately prior to the filing of the registration statement for our initial public offering, we extinguished the note and agreed to pay the taxes incurred as a result of such extinguishment on Dr. Cassella’s behalf, a total of $862,069. In March 2006, in return for the loan extinguishment and the payment of associated taxes, we increased the aggregate exercise price of options to purchase common stock held by Dr. Cassella by $862,069. In connection with Dr. Cassella’s employment, we agreed to pay Dr. Cassella a monthly housing supplement during his employment with us of $4,000 for the first year after his move to the Bay Area, $3,000 for the second year, $2,000 for the third year and $1,000 for the fourth year.

In 2004, in connection with his commencement of employment and relocation to the San Francisco Bay Area, we entered into three loan agreements with Jeffrey S. Williams, our Senior Vice President, Corporate and Business Development. Pursuant to the first loan agreement, we loaned Mr. Williams $500,000 as a temporary housing loan to facilitate the closing of the purchase of his home. Mr. Williams repaid the temporary housing loan in December 2004. In two subsequent loan agreements, we loaned Mr. Williams a total of $600,000 for the purchase of a principal residence. The purchase loans were secured by Mr. Williams’ residence and were interest free. In December 2005, immediately prior to the filing of the registration statement for our initial public offering, we extinguished the loans and agreed to pay the taxes incurred as a result of such extinguishment on Mr. Williams’ behalf, a total of $1,034,473. In March 2006, in return for the loan extinguishment and the payment of associated taxes, we increased the aggregate exercise price of options to purchase common stock held by Mr. Williams by $1,034,473. In connection with Mr. Williams’ employment, we agreed to pay Mr. Williams a monthly housing supplement during his employment with us of $4,000 for the first year after his move to the Bay Area, $3,000 for the second year, $2,000 for the third year and $1,000 for the fourth year.

Policies and Procedures for Review of Related Party Transactions

In 2007, we adopted a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-persons transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $25,000. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or more than 5% stockholder, including any of their immediate family members, and any entity owned or controlled by such persons.

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to the audit and ethics committee (or, where audit and ethics committee approval would be inappropriate, to another independent body of the board) for consideration and approval or ratification. The presentation must include a description of, among other things, the

104

material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, we rely on information supplied by its executive officers and directors. In considering related-person transactions, the audit and ethics committee takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to us, (b) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the audit and ethics committee look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of the us and our stockholders, as the audit and ethics committee determines in the good faith exercise of its discretion.

Item 14.   Principal Accountant Fees and Services

The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of our annual financial statements for the years ended December 31, 2006, and December 31, 2005, and fees billed for other services rendered by Ernst & Young LLP during those periods.

	2006		2005
Audit fees(1)	$	314,518	$	751,344
Tax fees(2)		17,050		10,000
All other fees(3)		1,500		1,500
Total	$	333,068	$	762,844

(1)	Audit fees consisted of professional services rendered by Ernst & Young LLP for the audit of our annual financial statements, review of unaudited interim financial statements included in our quarterly reports on Form 10-Q, consultation regarding financial accounting and reporting standards as well as assistance with and review of our S-1 filing and other documents filed with the SEC.
(2)	Tax fees included income tax return preparation fees.
(3)	Other fees consist of subscription fees paid for access to Ernst & Young’s Accounting & Auditing Research Tool.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

See Index to Financial Statements under Item 8 on page 58

(a) 2. Financial Statement Schedules

All schedules are omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Financial Statements or notes thereto.

(a) 3. Exhibits

EXHIBIT INDEX

Exhibit
Number			Description of Document
	3	.1†	Restated Certificate of Incorporation

105

Exhibit
Number			Description of Document
	3	.6†	Amended and Restated Bylaws
	3	.7	Amendment to Amended and Restated Bylaws
	4	.1†	Specimen Common Stock Certificate(1)
	4	.2†	Second Amended and Restated Investors’ Rights Agreement between Registrant and certain holders of Preferred Stock dated November 5, 2004(1)
	10	.1†	2005 Bonus Program(1)*
	10	.2†	Form of Director/Officer Indemnification Agreement entered into between Registrant and each of its directors and officers(1)*
	10	.3†	Form of Change of Control Agreement(1)*
	10	.4†	2005 Equity Incentive Plan(1)*
	10	.5†	Form of Option Grant Notice, Form of Option Agreement and Form of Notice of Exercise to 2005 Equity Incentive Plan(1)*
	10	.6†	2005 Non-Employee Directors’ Stock Option Plan(1)
	10	.7†	Form of Option Grant Notice, Form of Option Agreement and Form of Notice of Exercise to 2005 Non-Employee Directors’ Stock Option Plan(1)
	10	.8†	2005 Employee Stock Purchase Plan(1)*
	10	.9†	Form of Offering Document to 2005 Employee Stock Purchase Plan(1)*
	10	.10†	Lease between Registrant and California Pacific Commercial Corporation dated March 20, 2002(1)
	10	.11†	First Amendment to Lease between Registrant and California Pacific Commercial Corporation dated May 8, 2003(1)
	10	.12†	Second Amendment to Lease between Registrant and California Pacific Commercial Corporation dated February 11, 2005(1)
	10	.13†	Development Agreement between Registrant and Autoliv ASP, Inc. dated October 3, 2005(1)
	10	.14†	Loan and Security Agreement between Registrant and Silicon Valley Bank dated March 20, 2002, as amended on January 7, 2003, September 3, 2003, March 18, 2004 and May 16, 2005(1)
	10	.15†	Master Security Agreement between Registrant and General Electric Capital Corporation dated May 17, 2005, as amended on May 18, 2005(1)
	10	.16†	Promissory Note between Registrant and General Electric Capital Corporation dated June 15, 2005(1)
	10	.17†	Promissory Note between Registrant and General Electric Capital Corporation dated August 24, 2005(1)
	10	.19†	Warrant to Purchase shares of Common Stock issued to Montgomery 2004-3 Partnership dated November 5, 2004(1)
	10	.20†	Warrant to Purchase shares of Series B Preferred Stock issued to Silicon Valley Bank dated March 20, 2002(1)
	10	.21†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated January 7, 2003, as amended on March 4, 2003(1)
	10	.22†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated September 19, 2003(1)
	10	.23†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated April 7, 2004(1)
	10	.24	Lease Agreement between the Brittania, LLC and the Registrant dated August 25, 2006
	10	.25	2006 Performance Bonus Program*
	10	.26††	Purchase Option Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.27	Warrant Purchase Agreement between Symphony Allegro Holdings LLC and Registrant dated December 1, 2006

106

Exhibit
Number			Description of Document
	10	.28	Warrant to Purchase shares of Common Stock issued to Symphony Allegro Holdings LLC dated December 1, 2006
	10	.29††	Amended and Restated Research and Development Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.30	Registration Rights Agreement between Symphony Allegro Holdings LLC and Registrant dated December 1, 2006
	10	.31††	Novated and Restated Technology License Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.32	Confidentiality Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.33	2007 Performance Bonus Program*
	14	.1	Alexza Pharmaceuticals, Inc. Code of Business Conduct for Employees, Executive Officers and Directors.
	23	.1	Consent of Independent Registered Public Accounting Firm
	24	.1†	Power of Attorney included on this signature pages hereto
	31	.1	Section 302 Certification of CEO.
	31	.2	Section 302 Certification of CFO.
	32	.1	Section 906 Certifications of CEO and CFO.

*	Management contract or compensation plan or arrangement.
†	Previously filed
††	Confidential treatment has been requested with respect to certain portions of this exhibit. This exhibit omits the information subject to this confidentiality request. Omitted portions have been filed separately with the SEC.
(1)	Incorporated by reference to exhibits to our Registration Statement on Form S-1 filed on December 22, 2005, as amended (File No. 333-130644)

107

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ALEXZA PHARMACEUTICALS, INC.

By:  /s/  THOMAS B. KING

Thomas B. King

President and Chief Executive Officer

Dated: March 29, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas B. King and August J. Moretti, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 29th, 2007.

Signature	Title
/s/  THOMAS B. KING Thomas B. King	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/  AUGUST J. MORETTI August J. Moretti	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
/s/  SAMUEL D. COLELLA Samuel D. Colella	Director
/s/  ALAN D. FRAZIER Alan D. Frazier	Director
/s/  ERNEST MARIO Ernest Mario	Director
/s/  DEEPIKA R. PAKIANATHAN Deepika R. Pakianathan	Director

108

Signature	Title
/s/  J. LEIGHTON READ J. Leighton Read	Director
/s/  GORDON RINGOLD Gordon Ringold	Director
/s/  ISAAC STEIN Isaac Stein	Director
/s/  ALEJANDRO A. ZAFFARONI Alejandro A. Zaffaroni	Director

109

EXHIBIT INDEX

Exhibit
Number			Description of Document
	3	.1†	Restated Certificate of Incorporation
	3	.6†	Amended and Restated Bylaws
	3	.7	Amendment to Amended and Restated Bylaws
	4	.1†	Specimen Common Stock Certificate(1)
	4	.2†	Second Amended and Restated Investors’ Rights Agreement between Registrant and certain holders of Preferred Stock dated November 5, 2004(1)
	10	.1†	2005 Bonus Program(1)*
	10	.2†	Form of Director/Officer Indemnification Agreement entered into between Registrant and each of its directors and officers(1)*
	10	.3†	Form of Change of Control Agreement(1)*
	10	.4†	2005 Equity Incentive Plan(1)*
	10	.5†	Form of Option Grant Notice, Form of Option Agreement and Form of Notice of Exercise to 2005 Equity Incentive Plan(1)*
	10	.6†	2005 Non-Employee Directors’ Stock Option Plan(1)
	10	.7†	Form of Option Grant Notice, Form of Option Agreement and Form of Notice of Exercise to 2005 Non-Employee Directors’ Stock Option Plan(1)
	10	.8†	2005 Employee Stock Purchase Plan(1)*
	10	.9†	Form of Offering Document to 2005 Employee Stock Purchase Plan(1)*
	10	.10†	Lease between Registrant and California Pacific Commercial Corporation dated March 20, 2002(1)
	10	.11†	First Amendment to Lease between Registrant and California Pacific Commercial Corporation dated May 8, 2003(1)
	10	.12†	Second Amendment to Lease between Registrant and California Pacific Commercial Corporation dated February 11, 2005(1)
	10	.13†	Development Agreement between Registrant and Autoliv ASP, Inc. dated October 3, 2005(1)
	10	.14†	Loan and Security Agreement between Registrant and Silicon Valley Bank dated March 20, 2002, as amended on January 7, 2003, September 3, 2003, March 18, 2004 and May 16, 2005(1)
	10	.15†	Master Security Agreement between Registrant and General Electric Capital Corporation dated May 17, 2005, as amended on May 18, 2005(1)
	10	.16†	Promissory Note between Registrant and General Electric Capital Corporation dated June 15, 2005(1)
	10	.17†	Promissory Note between Registrant and General Electric Capital Corporation dated August 24, 2005(1)
	10	.19†	Warrant to Purchase shares of Common Stock issued to Montgomery 2004-3 Partnership dated November 5, 2004(1)
	10	.20†	Warrant to Purchase shares of Series B Preferred Stock issued to Silicon Valley Bank dated March 20, 2002(1)
	10	.21†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated January 7, 2003, as amended on March 4, 2003(1)
	10	.22†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated September 19, 2003(1)
	10	.23†	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated April 7, 2004(1)
	10	.24	Lease Agreement between the Brittania, LLC and the Registrant dated August 25, 2006
	10	.25	2006 Performance Bonus Program*
	10	.26††	Purchase Option Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006

110

Exhibit
Number			Description of Document
	10	.27	Warrant Purchase Agreement between Symphony Allegro Holdings LLC and Registrant dated December 1, 2006
	10	.28	Warrant to Purchase shares of Common Stock issued to Symphony Allegro Holdings LLC dated December 1, 2006
	10	.29††	Amended and Restated Research and Development Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.30	Registration Rights Agreement between Symphony Allegro Holdings LLC and Registrant dated December 1, 2006
	10	.31††	Novated and Restated Technology License Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.32	Confidentiality Agreement by and among Symphony Allegro Holdings LLC and Symphony Allegro, Inc. and Registrant dated December 1, 2006
	10	.33	2007 Performance Bonus Program*
	14	.1	Alexza Pharmaceuticals, Inc. Code of Business Conduct for Employees, Executive Officers and Directors.
	23	.1	Consent of Independent Registered Public Accounting Firm
	24	.1†	Power of Attorney included on this signature pages hereto
	31	.1	Section 302 Certification of CEO.
	31	.2	Section 302 Certification of CFO.
	32	.1	Section 906 Certifications of CEO and CFO.

*	Management contract or compensation plan or arrangement.
†	Previously filed
††	Confidential treatment has been requested with respect to certain portions of this exhibit. This exhibit omits the information subject to this confidentiality request. Omitted portions have been filed separately with the SEC.
(1)	Incorporated by reference to exhibits to our Registration Statement on Form S-1 filed on December 22, 2005, as amended (File No. 333-130644)

111

EX-3.7

Exhibit 3.7

AMENDMENT TO THE

AMENDED AND RESTATED BYLAWS
OF
ALEXZA PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)

Approved February 6, 2007

     “Section 35. Form And Execution Of Certificates.

          The shares of the corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by certificate in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.”

     “Section 37 Transfers.

          (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

          (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.”

EX-10.24

Exhibit 10.24

LEASE

Landlord:	Britannia Hacienda VIII LLC
Tenant:	Alexza Pharmaceuticals, Inc.
Date:	August 25, 2006

TABLE OF CONTENTS

1.	PROPERTY		1
	1.1	Lease of Premises	1
	1.2	Landlord’s Reserved Rights	2
	1.3	First Refusal Right to Lease	2
	1.4	Right of First Offer to Lease	4
2.	TERM		5
	2.1	Term	5
	2.2	Early Possession	5
	2.3	Condition of Premises	5
	2.4	Acknowledgment of Rent Commencement Date	8
	2.5	Holding Over	8
	2.6	Option to Extend Term	8
3.	RENTAL		9
	3.1	Minimum Rental	9
		(a)     Rental Amounts	9
		(b)     Rental Amounts During Extended Term(s)	10
		(c)     Square Footage of Premises	10
	3.2	Late Charge	10
4.	TAXES		11
	4.1	Personal Property	11
	4.2	Real Property	11
5.	OPERATING EXPENSES		12
	5.1	Payment of Operating Expenses	12
	5.2	Definition of Operating Expenses	12
	5.3	Determination of Operating Expenses	14
	5.4	Final Accounting for Expense Year	14
	5.5	Proration	15
6.	UTILITIES		15
	6.1	Payment	15
	6.2	Interruption	16
7.	ALTERATIONS; SIGNS		16
	7.1	Right to Make Alterations	16
	7.2	Title to Alterations	17
	7.3	Tenant Trade Fixtures	18
	7.4	No Liens	18
	7.5	Signs	18

8.	MAINTENANCE AND REPAIRS		18
	8.1	Landlord’s Obligation for Maintenance	18
	8.2	Tenant’s Obligation for Maintenance	19
		(a)     Good Order, Condition and Repair	19
		(b)     Landlord’s Remedy	19
		(c)     Condition upon Surrender	20
9.	USE OF PROPERTY		20
	9.1	Permitted Use	20
	9.2	[Intentionally Omitted.]	20
	9.3	No Nuisance	20
	9.4	Compliance with Laws	21
	9.5	Liquidation Sales	21
	9.6	Environmental Matters	21
10.	INSURANCE AND INDEMNITY		27
	10.1	Insurance	27
	10.2	Quality of Policies and Certificates	30
	10.3	Workers’ Compensation; Employees	30
	10.4	Waiver of Subrogation	30
	10.5	Increase in Premiums	31
	10.6	Indemnification	31
	10.7	Blanket Policy	32
11.	SUBLEASE AND ASSIGNMENT		32
	11.1	Assignment and Sublease of Building	32
	11.2	Rights of Landlord	33
12.	RIGHT OF ENTRY AND QUIET ENJOYMENT		34
	12.1	Right of Entry	34
	12.2	Quiet Enjoyment	34
13.	CASUALTY AND TAKING		34
	13.1	Damage or Destruction	34
	13.2	Condemnation	36
	13.3	Reservation of Compensation	37
	13.4	Restoration of Improvements	37
14.	DEFAULT		37
	14.1	Events of Default	37
		(a)     Abandonment	37
		(b)     Nonpayment	38
		(c)     Other Obligations	38
		(d)     General Assignment	38
		(e)     Bankruptcy	38
		(f)     Receivership	38
		(g)     Attachment	38
		(h)     Insolvency	39
	14.2	Remedies upon Tenant’s Default	39
	14.3	Remedies Cumulative	40
15.	SUBORDINATION, ATTORNMENT AND SALE		40
	15.1	Subordination to Mortgage	40

- ii -

	15.2	Sale of Landlord’s Interest	41
	15.3	Estoppel Certificates	41
	15.4	Subordination to CC&R’s	41
	15.5	Mortgagee Protection	42
16.	SECURITY		43
	16.1	Deposit	43
		(a)     Cash Security Deposit	43
		(b)     Letter of Credit	43
		(c)     Adjustment of Security Deposit	45
17.	MISCELLANEOUS		45
	17.1	Notices	45
	17.2	Successors and Assigns	47
	17.8	No Waiver	47
	17.4	Severability	47
	17.5	Litigation Between Parties	47
	17.6	Surrender	47
	17.7	Interpretation	47
	17.8	Entire Agreement	48
	17.9	Governing Law	48
	17.10	No Partnership	48
	17.11	Financial Information	48
	17.12	Costs	49
	17.13	Time	49
	17.14	Rules and Regulations	49
	17.15	Brokers	49
	17.16	Memorandum of Lease	49
	17.17	Corporate Authority	49
	17.18	Execution and Delivery	50
	17.19	Survival	50
	17.20	Parking	50

EXHIBITS
EXHIBIT A- 1	Site Plan (The Center)
EXHIBIT A-2	Building Plan
EXHIBIT B	Workletter
EXHIBIT C	Form of Acknowledgment of Rent Commencement Date
EXHIBIT D	Existing Tenant Rights

- iii -

LEASE

     THIS LEASE (“Lease”) is made and entered into as of August 25, 2006 (the “Lease Commencement Date”) by and between BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company (“Landlord”), and ALEXZA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”).

THE PARTIES AGREE AS FOLLOWS:

1. PROPERTY

     1.1 Lease of Premises.

          (a) Landlord leases to Tenant and Tenant hires and leases from Landlord, on the terms, covenants and conditions hereinafter set forth, the premises (the “Premises”) consisting of approximately 65,604 square feet of space constituting the building commonly known as 2091 Stierlin Court (the “Building”) located in the Britannia Shoreline Technology Park (referred to interchangeably herein as the “Center” or the “Property”) in the City of Mountain View, County of Santa Clara, State of California. The location of the Premises within the Center is depicted on the site plan attached hereto as Exhibit A-l and incorporated herein by this reference (the “Site Plan”). The outline or footprint of the Building is depicted on the building plan attached hereto as Exhibit A-2 and incorporated herein by this reference (the “Building Plan”). The parking areas, driveways, sidewalks, landscaped areas and other portions of the Center that lie outside the exterior walls of the buildings now or hereafter existing from time to time in the Center, as depicted in the Site Plan and as hereafter modified by Landlord from time to time in accordance with the provisions of this Lease, are sometimes referred to herein as the “Common Areas”. Such Common Areas include, but are not limited to, the “recreational area” which is currently maintained by Landlord in the area between the buildings at 2023 Stierlin Court and 2025 Stierlin Court, provided that the right of Tenant and other occupants of the Center to use such “recreational area” is subject to the right of the City of Mountain View to require that a portion of the recreational area be paved and converted to parking use at a time to be determined at the discretion of the City and/or the potential development of the area by Landlord or any subsequent owner of the Center.

          (b) As an appurtenance to Tenant’s leasing of the Premises pursuant to Section 1.1(a), Landlord hereby grants to Tenant, for the benefit of Tenant and its employees, suppliers, shippers, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, (i) those portions of the Common Areas improved from time to time for use as parking areas, driveways, sidewalks, landscaped areas, or for other common purposes, and (ii) all access easements and similar rights and privileges relating to or appurtenant to the Center and created or existing from time to time under any access easement agreements, declarations of covenants, conditions and restrictions, or other written agreements now or hereafter of record with respect to the Center, subject however to any

limitations applicable to such rights and privileges under applicable law, under this Lease and/or under the written agreements creating such rights and privileges.

     1.2 Landlord’s Reserved Rights. To the extent reasonably necessary to permit Landlord to exercise any rights of Landlord and discharge any obligations of Landlord under this Lease, Landlord shall have, in addition to the right of entry set forth in Section 12.1 hereof, the following rights: (i) to make changes to the Common Areas, including, without limitation, changes in the location, size or shape of any portion of the Common Areas, and to construct and/or relocate parking structures and/or parking spaces in the Center; (ii) to close temporarily any of the Common Areas for maintenance or other reasonable purposes; (iii) to construct, alter or add to other buildings and Common Area improvements in the Center; (iv) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Center or any portion thereof; and (v) to do and perform such other acts with respect to the Common Areas and the Center as may be necessary or appropriate. Landlord shall not exercise rights reserved to it pursuant to this Section 1.2 in such a manner as to cause any material diminution of Tenant’s rights, or any material increase of Tenant’s obligations, under this Lease, or in such a manner as to leave Tenant without reasonable parking or reasonable access to the Premises or otherwise to materially impair Tenant’s ability to conduct its activities in the normal manner; provided, however, that the foregoing shall not limit or restrict Landlord’s right to undertake reasonable construction activity and Tenant’s use of the Premises shall be subject to reasonable temporary disruption incidental to such activity diligently prosecuted.

     1.3 First Refusal Right to Lease.

          (a) The four buildings in the Center (collectively referred to herein as the “First Refusal Buildings” and each designated as a “First Refusal Building” on the Site Plan) which are commonly known as 2021 Stierlin Court, 2023 Stierlin Court, 2071 Stierlin Court and 2081 Stierlin Court are each presently leased (or, in the case of the building at 2023 Stierlin Court, partially leased) to existing tenants (collectively, the “Existing Tenants” and individually, each an “Existing Tenant”) pursuant to written lease agreements (as such existing lease agreements now exist and as they may be amended from time to time, the “Existing Leases”). Landlord shall not lease all or any portion of any of the First Refusal Buildings at any time during the term of this Lease (including any extended terms, if applicable), except in compliance with this Section 1.3; provided, however, that the foregoing restriction shall not apply during any period in which Tenant is in default under this Lease, beyond any applicable notice and cure periods, and provided further, however, that Tenant’s rights pursuant to this Section 1.3 are subordinate to the rights of the Existing Tenants and their respective successors in interest (if any) pursuant to the Existing Leases and are further subordinate to the existing rights of all other tenants of the Center as of the Lease Commencement Date and their respective successors in interest, including (without limitation) any renewal, first refusal, first offer and other similar rights existing in favor of any other tenant or occupant of the Center as of the date of this Lease. (The rights of the Existing Tenants and other tenants [if any] in the Center with respect to the First Refusal Buildings and the ROFO Building [as defined below], to the extent material with respect to Tenant’s rights under Sections 1.3 and/or 1.4 hereof, are summarized in Exhibit D attached hereto and incorporated herein by this reference and are hereinafter collectively referred to as “Existing Tenant Rights”).

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          (b) If, at any time during the term of this Lease (including any extended terms, if applicable), Landlord receives and wishes to accept a bona fide written offer from a person or entity (an “Offeror,” provided, however, that the term “Offeror” shall not include any tenant with Existing Tenant Rights, nor shall it include the Existing Tenants with respect to any rights or negotiations under the Existing Leases) to lease all or any portion of any First Refusal Building and if Tenant is not then in default under this Lease (beyond any applicable notice and cure periods), then Landlord shall give written notice of such bona fide written offer to Tenant (the “First Refusal Notice”), specifying the material terms on which the Offeror proposes to lease the applicable First Refusal Building or applicable portion thereof (the “First Refusal Space”), and shall offer to Tenant the opportunity to lease the First Refusal Space on the terms specified in the First Refusal Notice. For purposes of this Section 1.3(b), an offer shall be considered bona fide if it is contained in a letter of intent or other writing signed by the Offeror and specifies the material terms of the proposed lease. Tenant shall have ten (10) business days after the date of giving of the First Refusal Notice in which to accept such offer by written notice to Landlord. Upon such acceptance by Tenant, the First Refusal Space shall be leased to Tenant on the terms set forth in the First Refusal Notice and on the additional terms and provisions set forth in this Lease (except to the extent inconsistent with the terms set forth in the First Refusal Notice), and the parties shall promptly (and in all events within twenty (20) business days after delivery of Tenant’s acceptance) execute a lease amendment or other written agreement containing the terms of the First Refusal Notice and all other terms and provisions of this Lease not inconsistent with the terms of said First Refusal Notice, except as the parties may otherwise mutually agree. If Tenant does not accept Landlord’s offer within the allotted time or if the parties fail to enter into such a lease amendment or other written agreement within the required time (notwithstanding Landlord’s and Tenant’s good faith and diligent efforts to enter into such a lease amendment or other written agreement, provided that neither party shall be entitled to invoke its own lack of good faith, diligent efforts, if applicable, as a basis for invoking this parenthetical qualification), Landlord shall thereafter have the right to lease the First Refusal Space to the Offeror or to any other third party, at any time within one hundred eighty (180) days after the expiration of Landlord’s offer under the First Refusal Notice, at a minimum rental and on other terms and conditions not materially more favorable to the lessee than the minimum rental and other terms offered to Tenant in the First Refusal Notice. If, in the course of negotiations with the Offeror or another third party during the 180-day period described in the preceding sentence, Landlord wishes to modify the minimum rental or other terms set forth in the First Refusal Notice in a manner materially more favorable to the Offeror or other third party than the minimum rental or other terms set forth in the First Refusal Notice, then Landlord shall be required to re-offer the First Refusal Space to Tenant on such more favorable terms pursuant to a new First Refusal Notice, but Tenant’s time to respond to such new First Refusal Notice shall be limited to five (5) business days. If Landlord does not lease the First Refusal Space to the Offeror or another third party during the 180-day period described above, or if Landlord leases the First Refusal Space to the Offeror or another third party and Landlord later, upon expiration or termination of such lease, again wishes to lease the First Refusal Space or any portion thereof during the term of this Lease (including any extended terms, if applicable), then in either such event this First Refusal Right shall reattach to the First Refusal Space on all of the same terms set forth above.

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     1.4 Right of First Offer to Lease.

          (a) The building commonly known as 2011 Stierlin Court and designated as “ROFO Building” on the Site Plan (the “ROFO Building”) is presently leased and occupied by an existing tenant (the “Existing ROFO Tenant”) pursuant to a written lease agreement (as it now exists and as it may be amended from time to time). Landlord shall not lease all or any portion of the ROFO Building at any time during the term of this Lease (including any extended terms, if applicable), except in compliance with this Section 1.4; provided, however, that the foregoing restriction shall not apply during any period in which Tenant is in default under this Lease, beyond any applicable notice and cure periods, and provided further, however, that Tenant’s rights pursuant to this Section 1.4 are subordinate to the Existing Tenant Rights.

          (b) If, at any time during the term of this Lease (including any extended terms, if applicable), Landlord intends to lease all or any portion of the ROFO Building (other than pursuant to the exercise of any Existing Tenant Rights) and if Tenant is not then in default under this Lease (beyond any applicable notice and cure periods), then Landlord shall give written notice of such intention to Tenant (the “First Offer Notice”), specifying the rent and other material terms on which Landlord proposes to lease the ROFO Building or applicable portion thereof (the “Offered Space”), and shall offer to Tenant the opportunity to lease the Offered Space on the terms specified in the First Offer Notice. Tenant shall have ten (10) business days after the date of giving of the First Offer Notice in which to accept such offer by written notice to Landlord. Upon such acceptance by Tenant, the Offered Space shall be leased to Tenant on the terms set forth the First Offer Notice and on the additional terms and provisions set forth in this Lease (except to the extent inconsistent with the terms set forth in the First Offer Notice), and the parties shall promptly (and in all events within twenty (20) business days after delivery of Tenant’s acceptance) execute a lease amendment or other written agreement containing the terms of the First Offer Notice and all other terms and provisions of this Lease not inconsistent with the terms of said First Offer Notice, except as the parties may otherwise mutually agree. If Tenant does not accept Landlord’s offer within the allotted time or if the parties fail to enter into such a lease amendment or other written agreement within the required time (notwithstanding Landlord’s and Tenant’s good faith and diligent efforts to enter into such a lease amendment or other written agreement, provided that neither party shall be entitled to invoke its own lack of good faith, diligent efforts, if applicable, as a basis for invoking this parenthetical qualification), Landlord shall thereafter have the right to lease the Offered Space to any third party, at any time within one hundred eighty (180) days after the expiration of Tenant’s acceptance period under the First Offer Notice, at a minimum rental and on other terms and conditions not materially more favorable to the lessee than the minimum rental and other terms offered to Tenant in the First Offer Notice. If, in the course of negotiations with a third party during the 180-day period described in the preceding sentence, Landlord wishes to modify the minimum rental or other terms set forth in the First Offer Notice in a manner materially more favorable to the third party than the minimum rental or other terms set forth in the First Offer Notice, then Landlord shall be required to re-offer the Offered Space to Tenant on such more favorable terms pursuant to a new First Offer Notice, but Tenant’s time to respond to such new First Offer Notice shall be limited to five (5) business days. If Landlord does not lease the Offered Space to a third party during the 180-day period described above, or if Landlord leases

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the Offered Space to third party and Landlord later, upon expiration or termination of such lease, again wishes to lease the Offered Space or any portion thereof during the term of this Lease (including any extended terms, if applicable), then in either such event this first offer right shall reattach to the Offered Space on all of the same terms set forth above.

2. TERM

     2.1 Term. The term of this Lease shall commence on the Lease Commencement Date as defined above. Tenant’s obligation to pay minimum rental and Operating Expenses under this Lease shall commence on April 1, 2007 (the “Rent Commencement Date”), except as otherwise expressly provided in Section 2.2 below (if applicable). The term of this Lease shall end on the day immediately preceding the eleventh (11^th) anniversary of the Rent Commencement Date (the “Termination Date”), unless sooner terminated or extended as hereinafter provided.

     2.2 Early Possession. Tenant shall have the nonexclusive right to enter and use the Premises for the purpose of conducting preliminary inspections and measurements, preparing drawings, constructing improvements in the Premises (subject to all the terms and conditions of Article 7 below and of the Workletter as defined below), installing fixtures and furniture, laboratory equipment, computer equipment, telephone equipment, low-voltage data wiring and personal property and performing other similar work preparatory to the commencement of Tenant’s business in the Premises, beginning on the first (1^st) business day following the Lease Commencement Date (the “Early Access Date”). Such early occupancy and possession by Tenant shall be subject to and upon all of the terms and conditions of this Lease (including, but not limited to, conditions relating to the payment of utilities and maintenance of required insurance by Tenant), except that (i) Tenant shall have no obligation to pay minimum rental or Operating Expenses for any period prior to the Rent Commencement Date, and (ii) such early possession shall not advance or otherwise affect the Rent Commencement Date or Termination Date determined under Section 2.1, except to the extent (if any) expressly provided above in this Section 2.2. To the extent Landlord and/or its contractors or consultants are also performing work in the Premises prior to the Rent Commencement Date, Tenant shall not unreasonably interfere with or delay Landlord’s contractors or consultants by any early access, occupancy or possession under this Section 2.2, shall coordinate and cooperate with Landlord and its contractors and consultants (who shall similarly coordinate and cooperate with Tenant and its contractors) to minimize any interference or delay by either party with respect to the other party’s work following the Early Access Date, and shall indemnify Landlord and its agents and employees to the extent provided in Section 10.6(a) below and in Paragraph 5(c) of the Workletter in connection with Tenant’s early entry upon the Premises hereunder.

     2.3 Condition of Premises. Tenant has had an opportunity to inspect the condition of the Premises and agrees to accept the Premises “as is” in their condition existing as of the Lease Commencement Date, without any obligation on the part of Landlord to improve, alter, repair or clean the Premises in any way for Tenant’s occupancy hereunder, except as otherwise expressly provided herein. Notwithstanding the foregoing:

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          (a) Landlord shall deliver the Premises and all Building systems and existing improvements in “as is” condition, except that Landlord shall, at Landlord’s sole expense, perform all work necessary to cause the following (collectively, “Landlord’s Work”) to be true as soon as practicable after the Early Access Date (and in all events prior to the Rent Commencement Date): (i) the Building roof shall be in good and watertight condition; (ii) all existing Building systems (including, but not limited to, mechanical, electrical, plumbing and life safety systems), utilities serving the Premises, Building glazing, Building roll-up doors and other existing improvements in the Premises shall be in good working condition and operable in their current locations, prior to modifications (or damage, if any) as a result of Tenant’s improvements or use, and shall remain so for a period of nine (9) months after the Rent Commencement Date (subject to the qualification set forth below in this paragraph regarding corrective work attributable to modifications or damage, if any, in the course of Tenant’s improvements to or use of the Premises); (iii) the walkways, parking lots, driveways and landscaping in the Common Areas shall be in good working condition; and (iv) the Premises and existing improvements therein, as delivered to Tenant prior to modifications (or damage, if any) as a result of Tenant’s improvements or use, and the Common Areas of the Center shall comply with all applicable laws, ordinances, regulations and building codes (including, but not limited to, the Americans with Disabilities Act (“ADA”), subject to the allocation of ADA compliance responsibilities under Section 2.3(c) below). Landlord shall proceed diligently and with reasonable efforts to complete Landlord’s Work as promptly as practicable after the Early Access Date, and Landlord and Tenant shall cooperate reasonably and in good faith with one another (and cause their respective consultants and contractors to cooperate reasonably and in good faith with one another) in the manner described in Section 2.2 above in connection with the concurrent performance of their respective work in the Building. Following Landlord’s written notice to Tenant that Landlord has completed Landlord’s Work and is delivering the Premises and the existing Building systems and improvements in the condition required above in this paragraph (“Landlord’s Completion Notice”), Tenant shall thereafter during the term of this Lease be responsible (subject, however, to any corrective obligations of Landlord as expressly set forth in this Section 2.3) for maintenance, repair and/or replacement of all such systems and improvements to the extent required in accordance with Article 8 hereof. Notwithstanding the preceding sentence, if Landlord’s obligations with respect to Landlord’s Work under this paragraph are violated in any respect, then it shall be the obligation of Landlord, after receipt of written notice from Tenant setting forth with specificity the nature of the violation, to correct promptly and diligently, at Landlord’s sole cost, the condition(s) constituting such violation, except that Tenant shall be responsible for any such corrective work to the extent the condition(s) constituting the violation are attributable to modifications (or damage, if any) in the course of Tenant’s improvements to or use of the Premises; provided, however, that Tenant’s failure to give such written notice to Landlord regarding any alleged violation within nine (9) months after the Rent Commencement Date shall give rise to a conclusive and irrebuttable presumption that Landlord has complied with all Landlord’s obligations under this paragraph. TENANT ACKNOWLEDGES THAT THE WARRANTIES AND/OR OBLIGATIONS CONTAINED IN THIS SECTION 2.3 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE PREMISES, BUILDING SYSTEMS AND EXISTING IMPROVEMENTS IN THE

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PREMISES, AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 2.3.

          (b) As set forth in the Workletter attached hereto as Exhibit B and incorporated herein by this reference (the “Workletter”), Landlord shall provide Tenant with a tenant improvement allowance in the amount of up to Eight Million Three Hundred Thirty-One Thousand Seven Hundred Eight and no/100 Dollars ($8,331,708.00) (the “Tenant Improvement Allowance”) towards the construction of Tenant Improvements by Tenant in the Premises. Tenant’s construction of such Tenant Improvements shall be governed by the provisions of Article 7 hereof and of the Workletter, and such Tenant Improvements shall be constructed in compliance with all of the provisions thereof (including, without limitation, all conditions relating to Landlord’s approval of plans and specifications), as well as the provisions of this Section 2.3. The Tenant Improvement Allowance shall not be used or useable by Tenant for any moving or relocation expenses of Tenant, or for any cost or expense associated with any moveable furniture, trade fixtures, personal property or any other item or element which, under the applicable provisions of this Lease, will not become Landlord’s property and remain with the Building upon expiration or termination of this Lease, unless (and only to the extent) otherwise expressly agreed in writing by Landlord in its sole discretion. Any portion of the Tenant Improvement Allowance which has not been claimed or drawn by Tenant as of the date that is one year after the Rent Commencement Date shall expire and shall no longer be available to Tenant thereafter. Additional conditions and procedures relating to the disbursement of the Tenant Improvement Allowance shall be as set forth in the Workletter or as otherwise reasonably prescribed in writing by Landlord. The Tenant Improvement Allowance is provided as part of the basic consideration to Tenant under this Lease and will not result in any rental adjustment or additional rent beyond the rental amounts expressly provided in Section 3.1 hereof.

          (c) Landlord warrants to Tenant that the Premises as they exist on the date of Landlord’s Completion Notice, but without regard to Tenant’s improvements therein or to the particular use for which Tenant will occupy the Premises, shall not violate any covenants or restrictions of record or any applicable law, building code, regulation or ordinance in effect on the date of Landlord’s Completion Notice. Tenant warrants to Landlord that the Tenant Improvements and any other improvements constructed by Tenant from time to time shall not violate any applicable law, building code, regulation or ordinance in effect at the time such improvements are placed in service. Without limiting the generality of the foregoing, the parties intend and acknowledge that Landlord shall be responsible for ADA and building code compliance for all improvements in the Building shell and Common Areas (including, but not limited to. existing Building access points, doors, entrances and ramps) as they exist on the date of Landlord’s Completion Notice (except to the extent, if any, that such improvements in the Building and/or Common Areas consist of or are materially affected by improvements constructed by Tenant, such as [but not limited to] any construction of additional Building doors or access points as part of the Tenant Improvements), subject to the express assignment of certain areas of responsibility to Tenant as set forth below, and that Tenant shall be responsible for ADA and building code compliance with respect to the restroom cores and other interior spaces in the Building and any other ADA and building code compliance required in connection with or as a result of improvements constructed by Tenant (provided, however, that nothing in

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this sentence is intended to make Tenant responsible for the cost of ADA compliance with respect to any existing improvements in the Building to the extent such compliance is required solely because of the dollar value or overall scope of the improvements constructed by Tenant as opposed to the particular nature of such improvements), subject to the express assignment of certain areas of responsibility to Landlord as set forth above. If it is determined that any of these warranties has been violated, then it shall be the obligation of the warranting party, after written notice from the other party, to correct the condition (s) constituting such violation promptly, at the warranting party’s sole cost and expense. TENANT ACKNOWLEDGES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, NEITHER LANDLORD NOR ANY AGENT OF LANDLORD HAS MADE ANY REPRESENTATION OR WARRANTY AS TO THE PRESENT OR FUTURE SUITABILITY OF THE CENTER OR THE PREMISES FOR THE CONDUCT OF TENANT’S BUSINESS OR PROPOSED BUSINESS THEREIN.

     2.4 Acknowledgment of Rent Commencement Date. Promptly following the Rent Commencement Date, Landlord and Tenant shall execute a written acknowledgment of the Rent Commencement Date, Termination Date and related matters, substantially in the form attached hereto as Exhibit C (with appropriate insertions), which acknowledgment shall be deemed to be incorporated herein by this reference. Notwithstanding the foregoing requirement, the failure of either party to execute such a written acknowledgment shall not affect the determination of the Rent Commencement Date, Termination Date and related matters in accordance with the provisions of this Lease.

     2.5 Holding Over. If Tenant holds possession of the Premises or any portion thereof after the term of this Lease with Landlord’s written consent, then except as otherwise specified in such consent, Tenant shall become a tenant from month to month at one hundred twenty-five percent (125%) of the minimum rental and otherwise upon the terms herein specified for the period immediately prior to such holding over and shall continue in such status until the tenancy is terminated by either party upon not less than thirty (30) days prior written notice. If Tenant holds possession of the Premises or any portion thereof after the term of this Lease without Landlord’s written consent, then Landlord in its sole discretion may elect (by written notice to Tenant) to have Tenant become a tenant either from month to month or at will, at one hundred fifty percent (150%) of the minimum rental (prorated on a daily basis for an at-will tenancy, if applicable) and otherwise upon the terms herein specified for the period immediately prior to such holding over, or may elect to pursue any and all legal remedies available to Landlord under applicable law with respect to such unconsented holding over by Tenant. Tenant shall Indemnify and hold Landlord harmless from any loss, damage, claim, liability, cost or expense (Including reasonable attorneys’ fees) resulting from any delay by Tenant in surrendering the Premises or any portion thereof, including but not limited to any claims made by a succeeding tenant by reason of such delay. Acceptance of rent by Landlord following expiration or termination of this Lease shall not constitute a renewal of this Lease.

     2.6 Option to Extend Term. Tenant shall have the option to extend the term of this Lease, at the minimum rental set forth in Section 3.1 (b) below and otherwise upon all the terms and provisions set forth herein with respect to the initial term of this Lease, for up to two (2) additional periods of five (5) years each, the first commencing upon the expiration of the initial term hereof and the second commencing upon the expiration of the first extended term hereof.

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Exercise of such option with respect to the first extended term shall be by written notice to Landlord at least nine (9) months and not more than fifteen (15) months prior to the expiration of the initial term hereof. Exercise of such option with respect to the second extended term shall be by written notice to Landlord at least nine (9) months and not more than fifteen (15) months prior to the expiration of the first extended term hereof. If Tenant is in default hereunder, beyond any applicable notice and cure periods, on the date of such notice or on the date the applicable extended term is to commence, then the exercise of the applicable option shall be of no force or effect, the extended term shall not commence and this Lease shall expire at the end of the then current term hereof (or at such earlier time as Landlord may elect pursuant to the default provisions of this Lease). If Tenant properly exercises one or both extension options under this Section, then all references in this Lease (other than in this Section 2.6) to the “term” of this Lease shall be construed to include the extension term(s) thus elected by Tenant. Except as expressly set forth in this Section 2.6, Tenant shall have no right to extend the term of this Lease beyond its prescribed term.

3. RENTAL

     3.1 Minimum Rental.

          (a) Rental Amounts. Tenant shall pay to Landlord as minimum rental for the Premises, in advance, without deduction, offset, notice or demand, on or before the Rent Commencement Date and on or before the first day of each subsequent calendar month of the initial term of this Lease, the following amounts per month (subject to adjustment under Section 3.1(c) below, if applicable):

					Monthly
Months	Sq Ft		PSF/PM		Minimum Rental
01 —   12		35,000	$	3,000	$	105,000.00
13 —   24		50,000	$	3,000	$	150,000.00
25 —   36		65,604	$	3,070	$	201,404.28
37 —   48		65,604	$	3,162	$	207,446.41
49 —   60		65,604	$	3,257	$	213,669.80
61 —   72		65,604	$	3,355	$	220,079.89
73 —   84		65,604	$	3,455	$	226,682.29
85 —   96		65,604	$	3,559	$	233,482.76
97 — 108		65,604	$	3,666	$	240,487.24
109 — 120		65,604	$	3,776	$	247,701.86
121 — 132		65,604	$	3,889	$	255,132.92

     If the obligation to pay minimum rental hereunder for the initial term or for any renewal term commences on other than the first day of a calendar month or if the initial term or any renewal term of this Lease terminates on other than the last day of a calendar month, the minimum rental for such first or last month of the applicable initial or renewal term of this Lease, as the case may be, shall be prorated based on the number of days the applicable term of this Lease is in effect during such month. If an increase in minimum rental becomes effective on a

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day other than the first day of a calendar month, the minimum rental for that month shall be the sum of the two applicable rates, each prorated for the portion of the month during which such rate is in effect.

          (b) Rental Amounts During Extended Term (s). If Tenant properly exercises its right to extend the term of this Lease pursuant to Section 2.6 hereof, then (i) the monthly minimum rental during the first twenty-four (24) months of each extended term shall be equal to one hundred percent (100%) of the monthly minimum rental payable for the last full calendar month preceding the commencement of such extended term, and (ii) the monthly minimum rental during each subsequent year of the applicable extended term shall be equal to one hundred three percent (103%) of the monthly minimum rental payable during the immediately preceding year of the extended term.

          (c) Square Footage of Premises. The Building and Premises were fully constructed prior to the date of this Lease, have been measured by Landlord’s Architect and, applying the measurement formula customarily used by Landlord to measure square footage of buildings in the Center, have been determined to contain 65,604 square feet, which measurement is final and binding on the parties, is hereby accepted by the parties for all purposes under this Lease and is not subject to remeasurement or adjustment. The square footages used in Section 3.1 (a) in calculating the monthly minimum rental for Months 1 through 24, in being less than the entire square footage of the Premises, are not meant to imply any limitation on Tenant’s right or ability to have access to and to use the entire Premises during such months and during the period from the Early Access Date through the Rent Commencement Date, and shall not affect in any way the calculation of Tenant’s Operating Cost Share under Article 5 below (which shall be based on the entire square footage of the Premises throughout the term of this Lease, beginning on the Rent Commencement Date); such reduced square footages in Section 3.1(a) merely represent a method of implementing an economic agreement between the parties with respect to the calculation of Tenant’s minimum monthly rental obligation during Months 1 through 24. If and to the extent the Tenant Improvements constructed pursuant to the Workletter (subject to Landlord’s approval, compliance with applicable laws and all other applicable conditions as set forth in the Workletter) include an exterior fenced (but not completely enclosed) area for emergency generator or other equipment-related purposes, Landlord agrees that the square footage of such exterior area shall not be considered part of the square footage of the Premises for purposes of any calculations of minimum rent or of Tenant’s Operating Cost Share under this Lease.

     3.2 Late Charge. If Tenant fails to pay when due rental or other amounts due Landlord hereunder, such unpaid amounts shall bear interest for the benefit of Landlord at a rate equal to the lesser of fifteen percent (15%) per annum or the maximum rate permitted by law, from the date due to the date of actual payment. In addition to such interest, Tenant shall pay to Landlord a late charge in an amount equal to six percent (6%) of any installment of minimum rental and any other amounts due Landlord if not paid in full on or before the fifth (5^th) day after such rental or other amount is due; provided, however, that for the first instance of late payment during any period of twelve (12) consecutive calendar months during the term of this Lease, Tenant shall not be required to pay such late charge unless Tenant has failed to pay the past-due amount within three (3) business days after Landlord has given Tenant written notice that such

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amount is past due. Tenant acknowledges that late payment by Tenant to Landlord of rental of other amounts due hereunder will cause Landlord to incur costs not contemplated by this Lease, including, without limitation, processing and accounting charges and late charges which may be imposed on Landlord by the terms of any loan relating to the Center. Tenant further acknowledges that it is extremely difficult and impractical to fix the exact amount of such costs and that the late charge set forth in this Section 3.2 represents a fair and reasonable estimate thereof. Acceptance of any late charge by Landlord shall not constitute a waiver of Tenant’s default with respect to overdue rental or other amounts, nor shall such acceptance prevent Landlord from exercising any other rights and remedies available to it. Acceptance of rent or other payments by Landlord shall not constitute a waiver of late charges or interest accrued with respect to such rent or other payments or any prior installments thereof, nor of any other defaults by Tenant, whether monetary or non-monetary in nature, remaining uncured at the time of such acceptance of rent or other payments.

4. TAXES

     4.1 Personal Property. From and after the Rent Commencement Date (or, in the case of items brought onto the Property by Tenant prior to the Rent Commencement Date, from and after the date such items are brought onto the Property by Tenant), Tenant shall be responsible for and shall pay prior to delinquency all taxes and assessments levied against or by reason of any and all alterations, additions and items existing on or in the Premises from time to time during the term of this Lease and taxed as personal property rather than as real property, including (but not limited to) all personal property, trade fixtures and other property placed by Tenant on or about the Premises. Upon request by Landlord, Tenant shall furnish Landlord with satisfactory evidence of Tenant’s payment thereof. If at any time during the term of this Lease any of said alterations, additions or personal property, whether or not belonging to Tenant, shall be taxed or assessed as part of the Center, then such tax or assessment shall be paid by Tenant to Landlord within fifteen (15) days after presentation by Landlord of copies of the tax bills in which such taxes and assessments are included (provided, however, that in the case of taxes or assessments for which Tenant is being asked to make a lump-sum payment or reimbursement under this Section 4.1 rather than monthly estimated payments as part of Operating Expenses under Article 5 hereof, Tenant shall not be required to make such lump-sum payment or reimbursement more than thirty (30) days in advance of the date on which the applicable tax bill becomes delinquent) and shall, for the purposes of this Lease, be deemed to be personal property taxes or assessments under this Section 4.1.

     4.2 Real Property. To the extent any real property taxes and assessments on the Premises are assessed directly to Tenant, Tenant shall be responsible for and shall pay prior to delinquency all such taxes and assessments levied against the Premises. Upon request by Landlord, Tenant shall furnish Landlord with satisfactory evidence of Tenant’s payment thereof. To the extent the Premises are taxed or assessed to Landlord following the Rent Commencement Date, such real property taxes and assessments shall constitute Operating Expenses (as that term is defined in Section 5.2 of this Lease) and shall be paid in accordance with the provisions of Article 5 of this Lease.

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5. OPERATING EXPENSES

     5.1 Payment of Operating Expenses.

          (a) Tenant shall pay to Landlord, at the time and in the manner hereinafter set forth, as additional rental, Tenant’s Operating Cost Share of the Operating Expenses defined in Section 5.2, subject to adjustment pursuant to Section 5.1(b) when applicable. For purposes of this Section 5.1, “Tenant’s Operating Cost Share” shall be (i) in the case of Operating Expenses that are reasonably allocable solely to the Building, one hundred percent (100%); and (ii) in the case of Operating Expenses that are determined and allocated on a Center-wide basis. nine and three-hundredths percent (9.03%).

          (b) Tenant’s Operating Cost Share as specified in Section 5.1(a) with respect to matters allocable to the entire Center is based upon an area of 65,604 square feet for the Premises and upon an aggregate area of 726,508 square feet for all of the buildings presently located in the Center. If the actual area of the Premises or of any of the buildings existing from time to time in the Center changes for any reason (including, but not limited to, modification of existing buildings, construction of new buildings in the Center, or construction of new buildings on any adjacent property owned by Landlord and operated, for common area purposes, on an integrated basis with the Center), then Tenant’s Operating Cost Share shall be adjusted proportionately to reflect the new actual areas of the Premises and/or such other buildings, as applicable, as determined in good faith by Landlord’s architect on the same basis of measurement as applied in determining the existing square footage of the Building.

     5.2 Definition of Operating Expenses.

          (a) Subject to the exclusions and provisions hereinafter contained and the allocation principles set forth in Section 5.1, the term “Operating Expenses” shall mean the total costs and expenses incurred by Landlord for management, operation and maintenance of the Building and the Center, including, without limitation, costs and expenses of (i) insurance (which may include, at Landlord’s option, environmental and seismic insurance as part of or in addition to any casualty or property insurance policy), property management landscaping, and the operation, repair and maintenance of buildings and Common Areas; (ii) all utilities and services; (iii) real and personal property taxes and assessments or substitutes therefor levied or assessed against the Center or any part thereof, including (but not limited to) any possessory interest, use, business, license or other taxes or fees, any taxes imposed directly on gross rents or services, any assessments or charges for police or fire protection, housing, transit, open space, street or sidewalk construction or maintenance or other similar services from time to time by any governmental or quasi-governmental entity, and any other new taxes on landlords in addition to taxes now in effect (excluding, however, any tax based on net income); (iv) supplies, equipment, utilities and tools used in management, operation and maintenance of the Center; (v) capital improvements to the Center or the improvements therein, amortized over the useful life of such capital improvement as reasonably determined by Landlord or its accountants, (aa) which reduce or will cause future reduction of other items of Operating Expenses for which Tenant is otherwise required to contribute or (bb) which are required by law, ordinance, regulation or order of any governmental authority (excluding, however, any such expenses incurred by Landlord in

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complying with Landlord’s obligations under Section 2.3 above) or (cc) of which Tenant has use or which benefit Tenant, and which in either event are reasonably consistent with the nature and quality of the Center as a first-class life science, office and research and development campus; and (vi) any other costs (including, but not limited to, any parking or utilities fees or surcharges not otherwise specifically addressed elsewhere in this Lease) allocable to or paid by Landlord, as owner of the Center, pursuant to any applicable laws, ordinances, regulations or orders of any governmental or quasi-governmental authority or pursuant to the terms of the Declaration (as hereinafter defined) or of any other declarations of covenants, conditions and restrictions now or hereafter affecting the Center or any other property over which Tenant has non-exclusive usage rights as contemplated in Section 1.1 (b) hereof. Operating Expenses shall not include (x) any costs attributable to the initial construction of buildings or Common Area improvements in the Center, nor (y) any costs attributable to buildings the square footage of which is not taken into account in determining Tenant’s Operating Cost Share under Section 5.1 for the applicable period, nor (z) costs incurred by Landlord in complying with Landlord’s obligations under Section 2.3 above. The distinction between items of ordinary operating maintenance and repair and items of a capital nature shall be made in accordance with generally accepted accounting principles applied on a consistent basis or in accordance with tax accounting principles, as determined in good faith by Landlord’s accountants.

          (b) Notwithstanding any other provisions of this Section 5.2, the following shall not be included within Operating Expenses: (i) rent paid to any ground lessor; (ii) the cost of constructing tenant improvements for any tenant of the Center; (iii) the costs of special services, goods or materials provided to any other tenant of the Center and not offered or made available to Tenant; (iv) repairs covered by proceeds of insurance or from funds provided by Tenant or any other tenant of the Center, or as to which any other tenant of the Center is obligated to make such repairs or to pay the cost thereof; (v) legal fees, advertising costs or other related expenses incurred by Landlord in connection with the leasing of space to individual tenants of the Center; (vi) repairs, alterations, additions, improvements or replacements needed to rectify or correct any defects in the design, materials or workmanship of the Building, the Center or the Common Areas; (vii) damage and repairs necessitated by the negligence or willful misconduct of Landlord or of Landlord’s employees, contractors or agents; (viii) executive salaries or salaries of service personnel to the extent that such personnel perform services other than in connection with the management, operation, repair or maintenance of the Building or the Center: (ix) Landlord’s general overhead expenses not related to the Building or the Center; (x) legal fees, accountants’ fees and other expenses incurred in connection with disputes with tenants or other occupants of the Center, or in connection with the enforcement of the terms of any leases with tenants or the defense of Landlord’s title to or interest in the Center or any part thereof; (xi) costs incurred due to a violation by Landlord or any other tenant of the Center of the terms and conditions of any lease; (xii) costs of any service provided to Tenant or to other occupants of the Center for which Landlord is reimbursed other than through recovery of Operating Expenses; (xiii) personal property taxes due and payable by any other tenant of the Center; and (xiv) costs incurred by Landlord pursuant to Article 13 of this Lease in connection with an event of casualty or condemnation (including, but not limited to, any applicable deductible and/or co-insurance amounts under applicable insurance policies with respect to any seismic event).

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     5.3 Determination of Operating Expenses. On or before the Rent Commencement Date and during the last month of each calendar year of the term of this Lease (“Expense Year”), or as soon thereafter as practical, Landlord shall provide Tenant notice of Landlord’s estimate of the Operating Expenses for the ensuing Expense Year or applicable portion thereof. On or before the first day of each month during the ensuing Expense Year or applicable portion thereof, beginning on the Rent Commencement Date, Tenant shall pay to Landlord Tenant’s Operating Cost Share of the portion of such estimated Operating Expenses allocable (on a prorata basis) to such month; provided, however, that if such notice is not given in the last month of an Expense Year, Tenant shall continue to pay on the basis of the prior year’s estimate, if any, until the month after such notice is given. If at any time or times it appears to Landlord that the actual Operating Expenses for an Expense Year will vary from Landlord’s previous estimate by more than five percent (5%), Landlord may, by notice to Tenant, revise its estimate for the applicable Expense Year and subsequent payments by Tenant for such Expense Year shall be based upon such revised estimate.

     5.4 Final Accounting for Expense Year.

          (a) Within ninety (90) days after the close of each Expense Year, or as soon after such 90-day period as practicable, Landlord shall deliver to Tenant a statement of Tenant’s Operating Cost Share of the Operating Expenses for such Expense Year prepared by Landlord from Landlord’s books and records. If on the basis of such statement Tenant owes an amount that is more or less than the estimated payments for such Expense Year previously made by Tenant, Tenant or Landlord, as the case maybe, shall pay the deficiency to the other party within thirty (30) days after delivery of the statement. Failure or inability of Landlord to deliver the annual statement within such ninety (90) day period shall not impair or constitute a waiver of Tenant’s obligation to pay Operating Expenses, or cause Landlord to incur any liability for damages.

          (b) At any time within three (3) months after receipt of Landlord’s annual statement of Operating Expenses as contemplated in Section 5.4(a), Tenant shall be entitled, upon reasonable written notice to Landlord and during normal business hours at Landlord’s office or such other places as Landlord shall designate, to inspect and examine those books and records of Landlord relating to the determination of Operating Expenses for the immediately preceding Expense Year covered by such annual statement or, if Tenant so elects by written notice to Landlord, to request an independent audit of such books and records. Any such independent audit of the books and records shall be conducted by a certified public accountant reasonably acceptable to both Landlord and Tenant or, if the parties are unable to agree, by a certified public accountant appointed by the Presiding Judge of the San Mateo County Superior Court upon the application of either Landlord or Tenant (with notice to the other party). In either event, such certified public accountant shall be one who is not then employed in any capacity by Landlord or Tenant or by any of their respective affiliates. The audit shall be limited to the determination of the amount of Operating Expenses for the subject Expense Year, and shall be based on generally accepted accounting principles and tax accounting principles, consistently applied. If it is determined, by mutual agreement of Landlord and Tenant or by independent audit, that the amount of Operating Expenses billed to or paid by Tenant for the applicable Expense Year was incorrect, then the appropriate party shall pay to the other party the deficiency

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or overpayment, as applicable, within thirty (30) days after the final determination of such deficiency or overpayment. All costs and expenses of the audit shall be paid by Tenant unless the audit shows that Landlord overstated Operating Expenses for the subject Expense Year by more than five percent (5%), in which case Landlord shall pay all costs and expenses of the audit. Tenant shall be deemed to have approved Landlord’s annual statement of Operating Expenses, and shall be barred from raising any claims regarding Operating Expenses for the period covered by such annual statement, except to the extent Tenant specifically identifies any objections or claims based on such annual statement, in reasonable detail, by written notice to Landlord within four (4) months after Tenant’s receipt of the applicable annual statement. To the extent Tenant provides Landlord with timely written notice of any such objections or claims, Landlord and Tenant shall cooperate reasonably and in good faith to try to resolve the objections or claims raised by Tenant, which cooperation may include the use of an independent audit initiated by Tenant as contemplated above. Each party agrees to maintain the confidentiality of the findings of any audit in accordance with the provisions of this Section 5.4.

     5.5 Proration. If the date on which Tenant’s obligation for payment of Tenant’s Operating Cost Share commences falls on a day other than the first day of an Expense Year or if this Lease terminates on a day other than the last day of an Expense Year, then the amount of Operating Expenses payable by Tenant with respect to such first or last partial Expense Year shall be prorated on the basis which the number of days during such Expense Year in which this Lease is in effect bears to 365. The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to Section 5.4 to be performed after such termination.

6. UTILITIES

     6.1 Payment. Commencing with the Early Access Date and thereafter throughout the term of this Lease (including the early possession period under Section 2.2 above), Tenant shall pay, before delinquency, all charges for water, gas, heat, light, electricity, power, sewer, telephone, alarm system, janitorial and other services or utilities supplied to or consumed in or with respect to the Premises (other than any costs for water, electricity or other services or utilities furnished with respect to the Common Areas, which costs shall be paid by Landlord and shall constitute Operating Expenses under Section 5.2 hereof), including any taxes on such services and utilities. It is the intention of the parties that all such services shall be separately metered to the Premises. In the event that any utilities or services supplied to the Premises are not separately metered, then the amount thereof shall be allocated in a reasonable, good faith and appropriate manner by Landlord between the Premises and the other buildings, premises or areas sharing such utilities or services, and the portion thereof allocable to the Building may, in Landlord’s discretion, either be included in Operating Expenses allocable to the Building under Section 5.1 hereof or be billed directly to Tenant and paid or reimbursed by Tenant within thirty (30) days after receipt of Landlord’s statement and request for payment, accompanied by reasonable supporting documentation evidencing the calculation or determination of the amount for which payment or reimbursement is requested. Notwithstanding the foregoing provisions, during any portion of the period prior to the Rent Commencement Date in which Landlord is performing repairs or construction of improvements in the Premises, (a) if Tenant is neither operating its business in the Premises nor performing any material construction of improvements in the Premises, Landlord shall bear all utilities charges for the Premises; and (b) if Tenant is

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operating its business in the Premises and/or performing any material construction of improvements in the Premises, utilities charges for the Premises shall be allocated between Landlord and Tenant on the basis of a reasonable, good faith estimate of their respective usage of such utilities.

     6.2 Interruption. There shall be no abatement of rent or other charges required to be paid hereunder and Landlord shall not be liable in damages or otherwise for interruption or failure of any service or utility furnished to or used with respect to the Premises, the Building or the Center because of accident, making of repairs, alterations or improvements, severe weather, difficulty or inability in obtaining services or supplies, labor difficulties or any other cause. Notwithstanding the foregoing provisions of this Section 6.2, however, in the event of any interruption or failure of any service or utility to the Premises that (a) is caused in whole or in material part by the active negligence or willful misconduct of Landlord or its agents, employees or contractors and (b) continues for more than three (3) business days and (c) materially impairs Tenant’s ability to use the Premises for the intended purpose hereunder, then following such three (3) business day period, Tenant’s obligations for payment of rent and other charges under this Lease shall be abated in proportion to the degree of impairment of Tenant’s use of the Premises, and such abatement shall continue until Tenant’s use of the Premises is no longer materially impaired thereby. Tenant expressly waives any benefits of any applicable existing or future law (including, but not limited to, the provisions of California Civil Code Section 1932(1)) permitting the termination of a lease due to any such interruption or failure of any service or utility, it being the intention of the parties that their respective rights in such circumstances shall be governed solely by the provisions of this Section 6.2.

7. ALTERATIONS; SIGNS

     7.1 Right to Make Alterations. Tenant shall make no alterations, additions or improvements to the Premises, other than interior non-structural alterations in the Premises costing less than (i) Seventy-Five Thousand Dollars ($75,000) for any single alteration or improvement or set of related and substantially concurrent alterations or improvements, and (ii) One Hundred Fifty Thousand Dollars ($150,000) in the aggregate during any twelve (12) month period, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. All such alterations, additions and improvements shall be completed with due diligence in a good and workmanlike manner, in compliance with plans and specifications approved in writing by Landlord and in compliance with all applicable laws, ordinances, rules and regulations, and to the extent Landlord’s consent is not otherwise required hereunder for such alterations, additions or improvements, Tenant shall give prompt written notice thereof to Landlord. Tenant shall cause any contractors engaged by Tenant for work in the Building or in the Center to maintain public liability and property damage insurance, and other customary insurance, with such terms and in such amounts as Landlord may reasonably require, naming as additional insureds Landlord and any of its partners, shareholders, property managers, project managers and lenders designated by Landlord for this purpose, and shall furnish Landlord with certificates of insurance or other evidence that such coverage is in effect. Notwithstanding any other provisions of this Section 7.1, under no circumstances shall Tenant make any structural alterations or improvements, or any changes to the roof or equipment installations on the roof, or any alterations materially affecting any building systems, without

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Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed).

     7.2 Title to Alterations. All alterations, additions and improvements installed by Tenant in, on or about the Premises, the Building or the Center (including, but not limited to, lab benches, fume hoods, clean rooms, cold rooms and other similar improvements and equipment) shall become part of the Property and shall become the property of Landlord, unless Landlord elects to require Tenant to remove the same upon the termination of this Lease; provided, however, that the foregoing shall not apply to Tenant’s movable furniture, equipment and trade fixtures, except to the extent any such items are specifically described in the parenthetical in the initial portion of this sentence and are designed to be portable or removable in nature (i.e., installable and removable without any material adverse impact on the existing improvements and Building systems in the Building), Tenant shall promptly repair any damage caused by its removal of any such furniture, equipment or trade fixtures. Notwithstanding any other provisions of this Article 7, however, (a) under no circumstances shall Tenant have any right to remove from the Premises or the Building, at the expiration or termination of this Lease, any lab benches, fume hoods, clean rooms, cold rooms or other similar improvements and equipment installed in the Building, even if such equipment and improvements were installed by Tenant (other than portable or removable clean rooms described at the end of the first sentence of this Section); (b) under no circumstances shall Tenant have any right to remove from the Premises or the Building, at the expiration or termination of this Lease, any alterations, additions, improvements or equipment acquired, constructed or installed with the use, in whole or in part, of any funds from the Tenant Improvement Allowance; (c) if Tenant requests Landlord’s written consent to any alterations, additions or improvements under Section 7.1 hereof and, in requesting such consent, asks that Landlord specify whether Landlord will require removal of such alterations, additions or improvements upon termination or expiration of this Lease, then Landlord shall not be entitled to require such removal unless Landlord specified its intention to do so at the time of granting of Landlord’s consent to the requested alterations, additions or improvements; and (d) in the case of Tenant Improvements constructed by Tenant under the Workletter, Landlord shall not be entitled to require removal upon termination or expiration of this Lease of any Tenant Improvements that Landlord has approved to be installed in the Premises in exercising Landlord’s reasonable approval rights under the Workletter of the plans and specifications for the applicable elements of such Tenant Improvements. Notwithstanding any other provisions of this Article 7, (x) it is the intention of the parties that Landlord shall be entitled to claim all tax attributes associated with alterations, additions, improvements and equipment constructed or installed by Tenant or Landlord with funds provided by Landlord pursuant to the Tenant Improvement Allowance; and (y) it is the intention of the parties that Tenant shall be entitled to claim, during the term of this Lease, all tax attributes associated with alterations, additions, improvements and equipment constructed or installed by Tenant with Tenant’s own funds (and without any payment or reimbursement by Landlord pursuant to the Tenant Improvement Allowance), despite the fact that the items described in this clause (y) are characterized in this Section 7.2 as becoming Landlord’s property upon installation, in recognition of the fact that Tenant will have installed and paid for such items, will have the right of possession of such items during the term of this Lease and will have the obligation to pay (directly or indirectly) property taxes on such items, carry insurance on such items to the extent

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provided in Article 10 hereof and bear the risk of loss with respect to such items to the extent provided in Article 13 hereof. If and to the extent it becomes necessary, in implementation of the foregoing intentions, to identify (either specifically or on a percentage basis, as may be required under applicable tax laws) which alterations, additions, improvements and equipment constructed as part of the Tenant Improvements have been funded through the Tenant Improvement Allowance and which (if any) have been constructed or installed with Tenant’s own funds, Landlord and Tenant agree to cooperate reasonably and in good faith to make such an identification by mutual agreement.

     7.3 Tenant Trade Fixtures. Subject to the third sentence of Section 7.2 and to Section 7.5, Tenant may install, remove and reinstall trade fixtures without Landlord’s prior written consent, except that installation and removal of any trade fixtures which are affixed to the Building or which affect the Building systems or the exterior or structural portions of the Building shall require Landlord’s written approval, which approval shall not be unreasonably withheld, conditioned or delayed. Subject to the provisions of Section 7.5, the foregoing shall apply to Tenant’s signs, which Tenant shall have the right to place and remove and replace (a) only with Landlord’s prior written consent as to location, size and composition, which consent shall not be unreasonably withheld, conditioned or delayed, and (b) only in compliance with all restrictions and requirements of applicable law and of any covenants, conditions and restrictions or other written agreements now or hereafter applicable to the Center. Tenant shall immediately repair any damage caused by installation and removal of trade fixtures under this Section 7.3.

     7.4 No Liens. Tenant shall at all times keep the Building and the Center free from all liens and claims of any contractors, subcontractors, materialmen, suppliers or any other parties employed either directly or indirectly by Tenant in construction work on the Building or the Center. Tenant may contest any claim of lien, but only if, prior to such contest, Tenant either (i) posts security in the amount of the claim, plus estimated costs and interest, or (ii) records a bond of a responsible corporate surety in such amount as may be required to release the lien from the Building and the Center. Tenant shall indemnify, defend and hold Landlord harmless against any and all liability, loss, damage, cost and other expenses, including, without limitation, reasonable attorneys’ fees, arising out of claims of any lien for work performed or materials or supplies furnished at the request of Tenant or persons claiming under Tenant.

     7.5 Signs. Without limiting the generality of the provisions of Section 7.3 hereof, Tenant shall have the right to install signage, subject to Landlord’s prior approval as to location, size, design and composition (which approval shall not be unreasonably withheld or delayed), subject to the established sign criteria for the Center and subject to all restrictions and requirements of applicable law and of any covenants, conditions and restrictions or other written agreements now or hereafter applicable to the Center,

8. MAINTENANCE AND REPAIRS

     8.1 Landlord’s Obligation for Maintenance. Landlord shall repair and maintain or cause to be repaired and maintained the Common Areas of the Center and the roof, exterior walls and other structural portions of the Building. The cost of all work performed by Landlord under

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this Section 8.1 shall be an Operating Expense hereunder, except to the extent such work (i) is required due to the negligence of Landlord; (ii) involves the repair or correction of a condition or defect that Landlord is required to correct pursuant to Section 2.3 hereof; (iii) is a capital expense not includible as an Operating Expense under Section 5.2 hereof, or is otherwise expressly excluded from treatment as an Operating Expense under any other applicable provision of Section 5.2 hereof; (iv) results from an event of casualty or condemnation covered by Article 13 hereof (in which event the provisions of such Article 13 shall govern the parties’ rights and obligations); or (v) is required due to the negligence or willful misconduct of Tenant or its agents, employees or invitees (in which event Tenant shall bear the full cost of such work pursuant to the indemnification provided in Section 10.6 hereof, subject to the release set forth in Section 10.4 hereof). Tenant knowingly and voluntarily waives the right to make repairs at Landlord’s expense, or to offset the cost thereof against rent, under any law, statute, regulation or ordinance now or hereafter in effect.

     8.2 Tenant’s Obligation for Maintenance.

          (a) Good Order, Condition and Repair. Except as provided in Section 8.1 hereof, and subject to the provisions of Article 13 hereof (which shall be controlling in the event of any casualty or condemnation covered by such Article 13) and of Section 2.3 hereof (which shall be controlling in the event of any repairs or corrective work covered by such Section 2.3), Tenant at its sole cost and expense shall keep and maintain in good and sanitary order, condition and repair the Premises and every part thereof, wherever located, including but not limited to the signs, interior, ceiling, electrical system, plumbing system, telephone and communications systems serving the Premises, the HVAC equipment and related mechanical systems serving the Premises (for which equipment and systems Tenant shall enter into a service contract with a person or entity designated or reasonably approved by Landlord), all doors, door checks, windows, plate glass, door fronts, exposed plumbing and sewage and other utility facilities, fixtures, lighting, wall surfaces, floor surfaces and ceiling surfaces of the Premises and all other interior repairs, foreseen and unforeseen, with respect to the Premises, as required. To the extent Landlord has any third-party warranties or service contracts on any improvements or systems in the Premises which are Tenant’s obligation to maintain during the term of this Lease, Landlord agrees to assign such warranties or service contracts to Tenant, to the extent practicable, and to use reasonable efforts to enforce for Tenant’s benefit (and at Tenant’s expense) any such warranties or service contracts which it is not practicable to assign to Tenant.

          (b) Landlord’s Remedy. If Tenant fails to make or perform promptly any repairs or maintenance which are the obligation of Tenant hereunder and such failure continues for more than ten (10) days after written notice from Landlord specifying the required repairs (except in case of emergency, in which event no such prior notice shall be required, and except that in the case of repairs or maintenance which cannot reasonably be performed within such 10-day period, the provisions of this paragraph shall apply only if Tenant fails to commence performance within such 10-day period and thereafter to pursue such performance diligently to completion), Landlord shall have the right, but shall not be required, to enter the Premises and make the repairs or perform the maintenance necessary to restore the Premises to good and sanitary order, condition and repair. Immediately on demand from Landlord, the cost of such repairs shall be due and payable by Tenant to Landlord.

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          (c) Condition upon Surrender. At the expiration or sooner termination of this Lease, Tenant shall surrender the Premises and Building and the improvements located therein, including any additions, alterations and improvements thereto (except for items which Tenant is permitted and elects to remove, or is required to remove, pursuant to the provisions of this Lease), broom clean, in good and sanitary order, condition and repair, ordinary wear and tear and casualty damage (the latter of which shall be governed by the provisions of Article 13 hereof) excepted, first, however, removing all goods and effects of Tenant and all and fixtures and items required to be removed or specified to be removed at Landlord’s election pursuant to this Lease (including, but not limited to, any such removal required as a result of an election duly made by Landlord to require such removal as contemplated in Section 7.2), and repairing any damage caused by such removal. Tenant shall not have the right to remove fixtures or equipment if Tenant is in default hereunder (beyond any applicable cure period), unless Landlord specifically waives this provision in writing. Tenant expressly waives any and all interest in any personal property and trade fixtures not removed from the Center by Tenant at the expiration or termination of this Lease, agrees that any such personal property and trade fixtures may, at Landlord’s election, be deemed to have been abandoned by Tenant, and authorizes Landlord (at its election and without prejudice to any other remedies under this Lease or under applicable law) to remove and either retain, store or dispose of such property at Tenant’s cost and expense, and Tenant waives all claims against Landlord for any damages resulting from any such removal, storage, retention or disposal.

9. USE OF PROPERTY

     9.1 Permitted Use. Subject to Sections 9.3, 9.4 and 9.6 hereof, Tenant shall use the Premises solely for a research and development, engineering, laboratory, manufacturing and assembly facility and for ancillary uses reasonably incidental to that primary use, including (but not limited to) among such ancillary uses clean rooms, administrative offices, warehousing and other lawful purposes reasonably related to or incidental to such specified uses (subject in each case to receipt of all necessary approvals from the City of Mountain View and all other governmental agencies having jurisdiction over the Premises), and for no other purpose, unless Landlord in its reasonable discretion otherwise consents in writing.

     9.2 [Intentionally Omitted.]

     9.3 No Nuisance. Tenant shall not use the Premises for or carry on or permit within the Center or any part thereof any offensive, noisy or dangerous trade, business, manufacture, occupation, odor or fumes, or any nuisance or anything against public policy, nor interfere with the rights or business of Landlord in the Building or the Center, nor commit or allow to be committed any waste in, on or about the Center. For purposes of the preceding sentence, Landlord acknowledges that the conduct of biotech, life science or manufacturing operations is not by nature inherently offensive, noisy or dangerous, but nothing in this sentence is intended to limit or impair Landlord’s right or ability to enforce the preceding sentence to the extent Tenant’s particular manner of conducting any such operations is offensive or is unreasonably noisy or dangerous. Tenant shall not do or permit anything to be done in or about the Center, nor bring nor keep anything therein, which will in any way cause the Center or any portion thereof to

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be uninsurable with respect to the insurance required by this Lease or with respect to standard fire and extended coverage insurance with vandalism, malicious mischief and riot endorsements.

     9.4 Compliance with Laws. Tenant shall not use the Premises, the Building or the Center or permit the Premises, the Building or the Center to be used in whole or in part for any purpose or use that is in violation of any applicable laws, ordinances, regulations or rules of any governmental agency or public authority. Tenant shall keep the Premises equipped with all safety appliances required by law, ordinance or insurance on the Center, or any order or regulation of any public authority, because of Tenant’s particular use of the Premises. Tenant shall procure all licenses and permits required for use of the Premises. Tenant shall use the Premises in strict accordance with all applicable ordinances, rules, laws and regulations and shall comply with all requirements of all governmental authorities now in force or which may hereafter be in force pertaining to the use of the Premises and the Center by Tenant, including, without limitation, regulations applicable to noise, water, soil and air pollution, and making such nonstructural alterations and additions thereto as may be required from time to time by such laws, ordinances, rules, regulations and requirements of governmental authorities or insurers of the Center (collectively, “Requirements”) because of Tenant’s construction of improvements in or other particular use of the Premises or the Center. Any structural alterations or additions required from time to time by applicable Requirements because of Tenant’s construction of improvements in the Premises or other particular use of the Center shall, at Landlord’s election, either (i) be made by Tenant, at Tenant’s sole cost and expense, in accordance with the procedures and standards set forth in Section 7.1 for alterations by Tenant or (ii) be made by Landlord at Tenant’s sole cost and expense, in which event Tenant shall pay to Landlord as additional rent, within ten (10) days after demand by Landlord, an amount equal to all reasonable costs incurred by Landlord in connection with such alterations or additions. The judgment of any court, or the admission by Tenant in any proceeding against Tenant, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement shall be conclusive of such violation as between Landlord and Tenant.

     9.5 Liquidation Sales. Tenant shall not conduct or permit to be conducted any auction, bankruptcy sale, liquidation sale, or going out of business sale, in, upon or about the Center, whether said auction or sale be voluntary, involuntary or pursuant to any assignment for the benefit of creditors, or pursuant to any bankruptcy or other insolvency proceeding.

     9.6 Environmental Matters.

          (a) For purposes of this Section, “hazardous substance” shall mean (i) the substances included within the definitions of the term “hazardous substance” under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. 42 U.S.C. §§ 9601 et seq., and the regulations promulgated thereunder, as amended, (ii) the substances included within the definition of “hazardous substance” under the California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code §§ 25300 et seq., and regulations promulgated thereunder, as amended, (iii) the substances included within the definition of “hazardous materials” under the Hazardous Materials Release Response Plans and Inventory Act, California Heath & Safety Code §§ 25500 et seq., and regulations promulgated thereunder, as amended, (iv) the substances included within the

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definition of “hazardous substance” under the Underground Storage of Hazardous Substances provisions set forth in California Health & Safety Code §§ 25280 et seq., and (v) petroleum or any fraction thereof; “hazardous waste” shall mean (i) any waste listed as or meeting the identified characteristics of a “hazardous waste” under the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq., and regulations promulgated pursuant thereto, as amended (collectively, “RCRA”), (ii) any waste meeting the identified characteristics of “hazardous waste,” “extremely hazardous waste” or “restricted hazardous waste” under the California Hazardous Waste Control Law, California Health & Safety Code §§ 205100 et seq., and regulations promulgated pursuant thereto, as amended (collectively, the “CHWCL”), and/or (iii) any waste meeting the identified characteristics of “medical waste” under California Health & Safety Code §§ 25015-25027.8, and regulations promulgated thereunder, as amended; “hazardous waste facility” shall mean a hazardous waste facility as defined under the CHWCL; and “pollutant” shall mean all substances defined as a “pollutant,” “pollution,” “waste,” “contamination” or “hazardous substance” under the Porter-Cologne Water Quality Control Act, California Water Code §§ 13000 et seq.

          (b) Without limiting the generality of the obligations set forth in Section 9.4 of this Lease:

          (i) Tenant shall not cause or permit any hazardous substance or hazardous waste to be brought upon, kept, stored or used in or about the Center without the prior written consent of Landlord, which consent shall not be unreasonably withheld, except that Tenant, in connection with its permitted use of the Premises and the Center as provided in Section 9.1, may keep, store and use materials that constitute hazardous substances which are customary for such permitted use, provided such hazardous substances are kept, stored and used in quantities which are customary for such permitted use and are kept, stored and used in full compliance with clauses (ii) and (iii) immediately below.

          (ii) Tenant shall comply with all applicable laws, rules, regulations, orders, permits, licenses and operating plans of any governmental authority with respect to the receipt, use, handling, generation, transportation, storage, treatment and/or disposal of hazardous substances or wastes by Tenant or its agents or employees, and Tenant will provide Landlord with copies of all permits, licenses, registrations and other similar documents that authorize Tenant to conduct any such activities in connection with its authorized use of the Premises and the Center from time to time.

          (iii) Tenant shall not (A) operate on or about the Center any facility required to be permitted or licensed as a hazardous waste facility or for which interim status as such is required, nor (B) store any hazardous wastes on or about the Center for ninety (90) days or more, nor (C) conduct any other activities on or about the Center that could result in the Center or any portion thereof being deemed to be a “hazardous waste facility” (including, but not limited to, any storage or treatment of hazardous substances or hazardous wastes which could have such a result), nor (D) store any hazardous wastes on or about the Center in violation of any federal or California laws or in violation of the terms of any federal or state licenses or permits held by Tenant.

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          (iv) Tenant shall not install any underground storage tanks on the Property without the prior written consent of Landlord and prior approval by all applicable governmental authorities. If and to the extent that Tenant obtains all such required consents and approvals and installs any underground storage tanks on the Property, Tenant shall comply with all applicable laws, rules, regulations, orders and permits relating to such underground storage tanks (including any installation. monitoring, maintenance, closure and/or removal of such tanks) as such tanks are defined in California Health & Safety Code § 25281(x), including, without limitation, complying with California Health & Safety Code §§ 25280-25299.7 and the regulations promulgated thereunder, as amended. Tenant shall furnish to Landlord copies of all registrations and permits issued to or held by Tenant from time to time for any and all underground storage tanks located on or under the Property.

          (v) If applicable, Tenant shall provide Landlord in writing the following information and/or documentation within fifteen (15) days after the Rent Commencement Date, and shall update such information at least annually, on or before each anniversary of the Rent Commencement Date, to reflect any change in or addition to the required information and/or documentation (provided, however, that in the case of the materials described in subparagraphs (B), (C) and (E) below, Tenant shall not be required to deliver copies of such materials to Landlord but shall maintain copies of such materials to such extent and for such periods as may be required by applicable law and shall permit Landlord or its representatives to inspect and copy such materials during normal business hours at any time and from time to time upon reasonable notice to Tenant):

          (A) A list of all hazardous substances, hazardous wastes and/or pollutants that Tenant receives, uses, handles, generates, transports, stores, treats or disposes of from time to time in connection with its operations in the Center.

          (B) All Material Safety Data Sheets (“MSDS’s”). if any, required to be completed with respect to operations of Tenant at the Center from time to time in accordance with Title 26, California Code of Regulations § 8-5194 or 42 U.S.C. § 11021, or any amendments thereto, and any Hazardous Materials Inventory Sheets that detail the MSDS’s.

          (C) All Hazardous Waste Manifests, if any, that Tenant is required to complete from time to time under California Health & Safety Code § 25160, any regulations promulgated thereunder, any similar successor provisions and/or any amendments to any of the foregoing, in connection with its operations in the Center,

          (D) Any Hazardous Materials Management Plan required from time to time with respect to Tenant’s operations in the Center, pursuant to California Health & Safety Code §§ 25500 et seq., any regulations promulgated thereunder, any similar successor provisions and/or any amendments to any of the foregoing.

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          (E) Any Air Toxics Emissions Inventory Plan required from time to time with respect to Tenant’s operations in the Center, pursuant to California Health & Safety Code §§ 44340 et seq., any regulations promulgated thereunder, any similar successor provisions and/or any amendments to any of the foregoing.

          (F) Any biennial Hazardous Waste Generator reports or notifications furnished by Tenant to the California Department of Toxic Substances Control or other applicable governmental authorities from time to time pursuant to California Code of Regulations Title 22. § 66262.41, any similar successor provisions and/or any amendments to any of the foregoing, in connection with Tenant’s operations in the Center.

          (G) Any Hazardous Waste Generator Reports regarding source reductions, as required from time to time pursuant to California Health & Safety Code §§ 25244.20 et seq., any regulations promulgated thereunder, any similar successor provisions and/or any amendments to any of the foregoing, in connection with Tenant’s operations in the Center.

          (H) Any Hazardous Waste Generator Reports or notifications not otherwise described in the preceding subparagraphs and required from time to time pursuant to California Health & Safety Code § 25153.6, California Code of Regulations Title 22. Division 4.5, Chapter 12, §§66262.10 et seq. (“Standards Applicable to Generators of Hazardous Waste”), any other regulations promulgated thereunder, any similar successor provisions and/or any amendments to any of the foregoing, in connection with Tenant’s operations in the Center.

          (I) All industrial wastewater discharge permits issued to or held by Tenant from time to time in connection with its operations in the Center, and all air quality management district permits issued to or held by Tenant from time to time in connection with its operations in the Center.

          (J) Copies of any other lists or inventories of hazardous substances, hazardous wastes and/or pollutants on or about the Center that Tenant is otherwise required to prepare and file from time to time with any governmental or regulatory authority.

          (vi) Tenant shall secure Landlord’s prior written approval for any proposed receipt, storage, possession, use, transfer or disposal of “radioactive materials” or “radiation,” as such materials are defined in Title 26, California Code of Regulations § 17-30100, and/or any other materials possessing the characteristics of the materials so defined, which approval Landlord may withhold in its sole and absolute discretion; provided, that such approval shall not be required for any radioactive materials (x) for which Tenant has secured prior written approval of the Nuclear Regulatory Commission and delivered to Landlord a copy of such approval (if applicable), or (y) which Tenant is authorized to use pursuant to the terms of any radioactive materials license issued by the

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State of California. Tenant, in connection with any such authorized receipt storage, possession, use, transfer or disposal of radioactive materials or radiation, shall:

          (A) Comply with all federal, state and local laws, rules, regulations, orders, licenses and permits issued to or applicable to Tenant with respect to its operations in the Center;

          (B) Maintain, to such extent and for such periods as may be required by applicable law, and permit Landlord and its representatives to inspect during normal business hours at any time and from time to time upon reasonable notice to Tenant, a list of all radioactive materials or radiation received, stored, possessed, used, transferred or disposed of by Tenant or in connection with Tenant’s operations in the Center from time to time, to the extent not already disclosed through delivery of a copy of a Nuclear Regulatory Commission approval with respect thereto as contemplated above; and

          (C) Maintain, to such extent and for such periods as may be required by applicable law, and permit Landlord or its representatives to inspect during normal business hours at any time and from time to time upon reasonable notice to Tenant, all licenses, registration materials, inspection reports, governmental orders and permits in connection with the receipt, storage, possession, use, transfer or disposal of radioactive materials or radiation by Tenant or in connection with Tenant’s operations in the Center from time to time.

          (vii) Tenant shall comply with any and all applicable laws, rules, regulations and orders of any governmental authority with respect to the release into the environment of any hazardous wastes, hazardous substances, pollutants, radiation or radioactive materials by Tenant or its agents or employees. Tenant shall give Landlord immediate verbal notice of any unauthorized release of any such hazardous wastes, hazardous substances, pollutants, radiation or radioactive materials into the environment, and shall follow such verbal notice with written notice to Landlord of such release within twenty-four (24) hours of the time at which Tenant became aware of such release.

          (viii) Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, losses (including, but not limited to, loss of rental income), damages, liabilities, costs, legal fees and expenses of any sort arising out of or relating to (A) any failure by Tenant to comply with any provisions of this Section 9.6(b), or (B) any receipt, use handling, generation, transportation, storage, treatment, release and/or disposal of any hazardous substance, hazardous waste, pollutant, radioactive material or radiation on or about the Center as a proximate result of Tenant’s use of the Center or as a result of any intentional or negligent acts or omissions of Tenant or of any agent, employee or invitee of Tenant.

          (ix) Tenant shall cooperate with Landlord in furnishing Landlord with complete information regarding Tenant’s receipt, handling, use, storage, transportation. generation, treatment and/or disposal of any hazardous substances, hazardous wastes,

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pollutants, radiation or radioactive materials in or about the Center. Upon request, but subject to Tenant’s reasonable operating and security procedures, Tenant shall grant Landlord reasonable access at reasonable times to the Premises to inspect Tenant’s receipt, handling, use, storage, transportation, generation, treatment and/or disposal of hazardous substances, hazardous wastes, pollutants, radiation and radioactive materials, without Landlord thereby being deemed guilty of any disturbance of Tenant’s use or possession or being liable to Tenant in any manner.

          (x) Notwithstanding Landlord’s rights of inspection and review under this Section 9.6(b), Landlord shall have no obligation or duty to so inspect or review, and no third party shall be entitled to rely on Landlord to conduct any sort of inspection or review by reason of the provisions of this Section 9.6(b).

          (xi) Landlord has made available for review by Tenant, prior to execution of this Lease, copies of all third-party studies and reports in Landlord’s possession regarding environmental conditions in the Building and/or the Property. Landlord has also engaged an environmental consultant, at Landlord’s sole expense, to conduct a further environmental study of the Building, evaluating the presence or absence of hazardous substances, hazardous wastes, pollutants, radiation and radioactive materials in and under the Building, and Landlord shall provide a copy of such study to Tenant when it becomes available. The purpose of this study is to provide evidence of the “baseline” condition of the Building prior to Tenant’s occupancy and use thereof, although such evidence is not intended to be conclusive or irrebuttable. Tenant shall also have the right (but not the obligation), if it so elects and at its sole expense, to conduct its own environmental study of the Building and surrounding areas of the Center prior to or at the time of Tenant’s occupancy of the Building, in which event Tenant shall provide a copy of such study to Landlord; provided that prior to any drilling, excavation or other physically invasive testing on the Building or Property in connection with any such study, Tenant or its consultant shall provide Landlord with a detailed scope of work and such work shall be subject to Landlord’s prior written approval (which approval shall not be unreasonably withheld or delayed, but may be conditioned upon compliance by Tenant and its consultant with reasonable insurance requirements, upon notice requirements prior to actual entry on the Property, and upon other reasonable and customary requirements).

          (xii) If Tenant or its employees, agents, contractors, vendors, customers or guests receive, handle, use, store, transport, generate, treat and/or dispose of any hazardous substances or wastes or radiation or radioactive materials on or about the Center at any time during the term of this Lease, then within thirty (30) days after the termination or expiration of this Lease, then (A) Tenant shall be solely responsible for obtaining, at Tenant’s sole expense, (I) any environmental tests, studies or reports required by any governmental authority for site or permit closure purposes or other similar purposes, and (II) to the extent not fully covered by any tests, studies or reports obtained under the immediately preceding clause, a further environmental study, performed by an expert reasonably satisfactory to Landlord, evaluating the presence or absence of hazardous substances, hazardous wastes, pollutants, radiation and radioactive materials on and about those portions of the Center affected by Tenant’s operations in the

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Center. Such study shall be based on a reasonable and prudent level of tests and investigations of the Center (if appropriate), which tests shall be conducted no earlier than the date of termination or expiration of this Lease. Liability for any remedial actions required or recommended on the basis of such study shall be allocated in accordance with Sections 9.4, 9.6, 10.6 and other applicable provisions of this Lease.

          (c) Landlord shall indemnify, defend and hold Tenant harmless from and against any and all claims, losses, damages, liabilities, costs, legal fees and expenses of any sort arising out of or relating to (i) the presence on the Center of any hazardous substances, hazardous wastes, pollutants, radiation or radioactive materials present on the Center as of the Rent Commencement Date (other than as a result of any intentional or negligent acts or omissions of Tenant or of any agent, employee or invitee of Tenant), and/or (ii) any unauthorized release into the environment (including, but not limited to. the Center) of any hazardous substances, hazardous wastes, pollutants, radiation or radioactive materials to the extent such release results from the negligence of or willful misconduct or omission by Landlord or its agents or employees.

          (d) The provisions of this Section 9.6 shall survive the termination of this Lease.

10. INSURANCE AND INDEMNITY

     10.1 Insurance.

          (a) Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, from and after the Early Access Date, at Tenant’s cost and expense, commercial general liability insurance to protect against liability to the public, or to any invitee of Tenant or Landlord, arising out of or related to the use of or resulting from any accident occurring in, upon or about the Premises, with limits of liability of not less than (i) Three Million Dollars ($3,000,000.00) per occurrence for bodily injury, personal injury and death, and Five Hundred Thousand Dollars ($500,000.00) per occurrence for property damage, or (ii) a combined single limit of liability of not less than Five Million Dollars ($5,000,000.00) per occurrence for bodily injury (including personal injury and death) and property damage. Such insurance shall name Landlord, its general partners, its property manager and any lender holding a deed of trust on the Center from time to time (as designated in writing by Landlord to Tenant from time to time) as additional insureds thereunder. The amount of such insurance shall not be construed to limit any liability or obligation of Tenant under this Lease. Tenant shall also procure and maintain in full force and effect at all times during the term of this Lease, at Tenant’s cost and expense, products/completed operations coverage on terms and in amounts (A) customary in Tenant’s industry for companies engaged in the marketing of products on a scale comparable to that in which Tenant is engaged from time to time and (B) mutually satisfactory to Landlord and Tenant in their respective reasonable discretion.

          (b) Landlord shall procure and maintain in full force and effect at all times during the term of this Lease, at Landlord’s cost and expense (but reimbursable as an Operating Expense under Section 5.2 hereof), commercial general liability insurance to protect against liability arising out of or related to the use of or resulting from any accident occurring in, upon or

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about the Center, with a combined single limit of liability of not less than Five Million Dollars ($5,000,000.00) per occurrence for bodily injury (including personal injury and death) and property damage.

          (c) Landlord shall procure and maintain in full force and effect at all times during the term of this Lease, at Landlord’s cost and expense (but reimbursable as an Operating Expense under Section 5.2 hereof), policies of property insurance providing protection against “all risk of direct physical loss” (as defined by and detailed in the Insurance Service Office’s Commercial Property Program “Cause of Loss—Special Form [CP1030]” or its equivalent) for the shell of the Building and for the improvements in the Common Areas of the Center, on a full replacement cost basis (with no co-insurance or, if coverage without co-insurance is not reasonably available, then on an “agreed amount” basis or with a commercially reasonable margin clause). Such insurance may include earthquake and/or environmental coverage, as part of the same policy or as a separate policy or policies, to the extent Landlord in its sole discretion elects to carry such coverage, and shall have such commercially reasonable deductibles and other terms as Landlord in its discretion determines to be appropriate. Landlord shall have no obligation to carry property damage insurance for any alterations, additions or improvements installed by Tenant in the Building or on or about the Center.

          (d) Landlord shall procure and maintain in full force and effect at all times during the term of this Lease, at Tenant’s cost and expense (chargeable, in Landlord’s discretion, either as an Operating Expense allocable 100% to Tenant or as a direct pass-through to Tenant), policies of property insurance providing protection against “all risk of direct physical loss” (as defined by and detailed in the Insurance Service Office’s Commercial Property Program “Cause of Loss—Special Form [CP1030]” or its equivalent) (i) for the tenant improvements existing in the Premises on the Early Access Date and (ii) in the case of earthquake or seismic insurance only, for Tenant Improvements constructed pursuant to the Workletter, eligible for expenditure of funds from the Tenant improvement Allowance pursuant to Section 2.3(b) above, having an aggregate initial Cost of Improvements (as defined in the Workletter) of not less than the total Tenant Improvement Allowance paid by Landlord pursuant to this Lease in connection with the construction of the Tenant Improvements, and listed on a written schedule jointly prepared and mutually approved in writing by Tenant and Landlord as provided below (but excluding in each instance Tenant’s Property as defined in paragraph (e) below, which it shall be Tenant’s responsibility to insure pursuant to such paragraph), in each instance on a full replacement cost basis (with no co-insurance or, if coverage without co-insurance is not reasonably available, then on an “agreed amount” basis or with a commercially reasonable margin clause). Such insurance may have such commercially reasonable deductibles and other terms as Landlord in its reasonable discretion determines to be appropriate. The coverage required to be maintained under this paragraph (d) may, in Landlord’s discretion, be added to or combined with Landlord’s master policy carried under paragraph (c) above. Tenant shall cooperate with Landlord in the preparation of a mutually approved initial list or schedule identifying in reasonable detail the Tenant Improvements to be insured (for earthquake or seismic purposes only) by Landlord pursuant to clause (ii) above, and Tenant shall thereafter provide to Landlord from time to time, upon request by Landlord annually or at other reasonable intervals, (x) an updated schedule of values for the existing tenant improvements described in clause (i) above and (y) an updated

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schedule of values for the Tenant Improvements to be insured by Landlord (for earthquake or seismic purposes only) pursuant to clause (ii) above (the intended purpose of such updating being in each instance to reflect any modification or removal of any such items that would have the effect of eliminating them from the scope of Landlord’s insurance obligation under clause (i) or (ii) above, as applicable, and to identify current full replacement cost values for such items), and Landlord shall have no obligation or liability to Tenant with respect to any underinsurance of existing tenant improvements or of Tenant Improvements (for earthquake or seismic purposes only), as applicable, that results from Tenant’s failure to keep Landlord informed from time to time, on a current basis, of the insurable value of such items (on a full replacement cost basis) pursuant to this paragraph. In addition, Tenant shall provide Landlord with final construction cost figures for the Tenant Improvements (or for each phase thereof, if constructed in phases), for Landlord’s use in determining appropriate insurance coverage for the Tenant Improvements to be insured by Landlord under clause (ii) above. Landlord, in its discretion, may elect from time to time to obtain appraisals, at Landlord’s sole cost and expense, of any or all alterations, additions, improvements and tenant improvements (if any) which Landlord is required to insure hereunder, but no such ordering or receipt of appraisals by Landlord shall constitute a waiver or release of Tenant’s obligations under the immediately preceding sentence.

          (e) Tenant shall procure and maintain in full force and effect at all times during the term of this Lease, from and after the Early Access Date, at Tenant’s cost and expense, policies of property insurance providing protection against “all risk of direct physical loss” (as defined by and detailed in the Insurance Service Office’s Commercial Property Program “Cause of Loss-Special Form [CP1030]” or its equivalent) for Tenant’s movable personal property, office furniture, movable equipment and trade fixtures, for the Tenant Improvements constructed by Tenant pursuant to the Workletter (except, in the case of earthquake or seismic insurance only, to the extent such insurance responsibility is allocated to Landlord pursuant to paragraph (d) above), and for all other alterations, additions and improvements placed or installed by Tenant from time to time in or about the Premises (collectively, “Tenant’s Property,” which term is not intended to imply any conclusion regarding ultimate ownership of alterations, additions and improvements that are otherwise covered by Article 7 above, but is used solely as a defined term for purposes of the specific contexts in which it is used as such in this Lease), on a full replacement cost basis (with no co-insurance or, if coverage without co-insurance is not reasonably available, then on an “agreed amount” basis or with a commercially reasonable margin clause). Such insurance may have such commercially reasonable deductibles and other terms as Tenant in its discretion determines to be appropriate, and shall name both Tenant and Landlord as insureds as their interests may appear.

          (f) During the construction of the Tenant Improvements, Tenant shall also procure and maintain in full force and effect, at its sole cost and expense, a policy of builder’s risk insurance on the Tenant Improvements, in such amounts and with such commercially reasonable deductibles as Landlord and Tenant may mutually and reasonably determine to be appropriate with respect to such insurance. Without limiting the generality of the foregoing provisions, Tenant’s builder’s risk insurance with respect to the Tenant Improvements shall in all events include earthquake insurance in an amount at least equal to the cumulative amount of the Tenant Improvement Allowance paid by Landlord from time to time in connection with the

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construction of such Tenant Improvements. Upon written request by Tenant, Landlord will cooperate with Tenant in using commercially reasonable efforts to cause the builder’s risk earthquake coverage required under the preceding sentence to be provided under Landlord’s applicable insurance policy or policies, at Tenant’s sole expense (payable by Tenant to Landlord within ten (10) days after demand therefor by Landlord, accompanied by invoices or calculations reasonably evidencing the amount of the allocable earthquake insurance premium for which payment or reimbursement is being requested), in a manner similar to Landlord’s provision of earthquake insurance on certain completed Tenant Improvements pursuant to paragraph (d) above, but to the extent it is not feasible for such coverage to be provided under Landlord’s applicable insurance policy or policies, Tenant shall remain responsible for the provision of such coverage as required under this paragraph.

     10.2 Quality of Policies and Certificates. All policies of insurance required hereunder shall be issued by responsible insurers and, in the case of policies carried or required to be carried by Tenant, shall be written as primary policies not contributing with and not in excess of any coverage that Landlord may carry. Tenant shall deliver to Landlord copies of policies or certificates of insurance showing that said policies are in effect. The coverage provided by such policies shall include the clause or endorsement referred to in Section 10.4. If Tenant fails to acquire, maintain or renew any insurance required to be maintained by it under this Article 10 or to pay the premium therefor, then Landlord, at its option and in addition to its other remedies, but without obligation so to do, may procure such insurance, and any sums expended by it to procure any such insurance on behalf of or in place of Tenant shall be repaid upon demand, with interest as provided in Section 3.2 hereof. Tenant shall give Landlord at least thirty (30) days prior written notice of any cancellation or nonrenewal of insurance required to be maintained under this Article 10, and shall obtain written undertakings from each insurer under policies required to be maintained by it to endeavor to notify all insureds thereunder at least thirty (30) days prior to cancellation of coverage.

     10.3 Workers’ Compensation; Employees. Tenant shall maintain in full force and effect during the term of this Lease workers’ compensation insurance in at least the minimum amounts required by law, covering all of Tenant’s employees working at or about the Premises. In addition, Tenant shall maintain in full force and effect during the term of this Lease employer’s liability coverage with limits of liability of not less than One Hundred Thousand Dollars ($100,000) per accident, One Hundred Thousand Dollars ($100,000) per employee for disease, and Five Hundred Thousand Dollars ($500,000) policy limit for disease.

     10.4 Waiver of Subrogation. Notwithstanding anything to the contrary contained in this Lease, to the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other with respect to (i) damage to property, (ii) damage to the Center or any part thereof, or (iii) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and claims under clauses (i)-(iii) hereof are covered, and only to the extent of such coverage, by property insurance actually carried or required to be carried hereunder by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and claims which might give rise to a right of subrogation in any insurance carrier. Each party shall procure a clause or endorsement on any property insurance

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policy denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Coverage provided by insurance maintained by Landlord or Tenant shall not be limited, reduced or diminished by virtue of the subrogation waiver herein contained.

     10.5 Increase in Premiums. Tenant shall do all acts and pay all expenses necessary to ensure that the Premises are not used for purposes prohibited by any applicable fire insurance, and that Tenant’s use of the Premises, Building and Center complies with all requirements necessary to obtain any such insurance. If Tenant uses or permits the Premises, Building or Center to be used in a manner which increases the existing rate of any insurance carried by Landlord on the Center and such use continues for longer than a reasonable period specified in any written notice from Landlord to Tenant identifying the rate increase and the factors causing the same, then Tenant shall pay the amount of the increase in premium caused thereby, and Landlord’s costs of obtaining other replacement insurance policies, including any increase in premium, within thirty (30) days after demand therefor by Landlord.

     10.6 Indemnification.

          (a) Except as otherwise expressly provided for in this Lease, Tenant shall indemnify, defend and hold Landlord and its members, partners, shareholders, officers, directors, agents, employees and contractors harmless from any and all liability for injury to or death of any person, or loss of or damage to the property of any person, and all actions, claims, demands, costs (including, without limitation, reasonable attorneys’ fees), damages or expenses of any kind arising therefrom which may be brought or made against Landlord or which Landlord may pay or incur by reason of the use, occupancy and enjoyment of the Center by Tenant or any invitees, sublessees, licensees, assignees, employees, agents or contractors of Tenant or holding under Tenant (including, but not limited to, any such matters arising out of or in connection with any early entry upon the Center by Tenant pursuant to Section 2.2 hereof) from any cause whatsoever other than negligence or willful misconduct or omission by Landlord or its agents, employees or contractors. Except as otherwise expressly provided for in this Lease, Landlord and its members, partners, shareholders, officers, directors, agents, employees and contractors shall not be liable for, and Tenant hereby waives all claims against such persons for, damages to goods, wares and merchandise in or upon the Center, or for injuries to Tenant, its agents or third persons in or upon the Center, from any cause whatsoever other than negligence or willful misconduct or omission by Landlord or its agents, employees or contractors. Tenant shall give prompt notice to Landlord of any casualty or accident in, on or about the Center.

          (b) Except as otherwise expressly provided for in this Lease, Landlord shall indemnify, defend and hold Tenant and its partners, shareholders, officers, directors, agents, employees and contractors harmless from any and all liability for injury to or death of any person, or loss of or damage to the property of any person, and all actions, claims, demands, costs (including, without limitation, reasonable attorneys’ fees), damages or expenses of any kind arising therefrom which may be brought or made against Tenant or which Tenant may pay or incur, to the extent such liabilities or other matters arise in, on or about the Center by reason of any negligence or willful misconduct or omission by Landlord or its agents (including,

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without limitation, Landlord’s Project Manager as defined in the Workletter), employees or contractors.

     10.7 Blanket Policy. Any policy required to be maintained hereunder may be maintained under a so-called “blanket policy” insuring other parties and other locations so long as the amount of insurance required to be provided hereunder is not thereby diminished. Without limiting the generality of the requirement set forth at the end of the preceding sentence, property insurance provided under a blanket policy shall provide full replacement cost coverage and liability insurance provided under a blanket policy shall include per location aggregate limits meeting or exceeding the limits required under this Article 10.

11. SUBLEASE AND ASSIGNMENT

     11.1 Assignment and Sublease of Building. Except in the case of a Permitted Transfer, Tenant shall not have the right or power to assign its interest in this Lease, or make any sublease of the Premises or any portion thereof, nor shall any interest of Tenant under this Lease be assignable involuntarily or by operation of law, without on each occasion obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Any purported sublease or assignment of Tenant’s interest in this Lease requiring but not having received Landlord’s consent thereto (to the extent such consent is required hereunder) shall be void. Without limiting the generality of the foregoing provisions. Landlord may withhold consent to any proposed subletting or assignment solely on the ground, if applicable, that the use by the proposed subtenant or assignee is reasonably likely to be incompatible with Landlord’s use of the balance of the Center, unless such proposed use is within the primary permitted uses described in Section 9.1 above. Except in the case of a Permitted Transfer, any dissolution, consolidation, merger or other reorganization of Tenant, or any sale or transfer of substantially all of the stock or assets of Tenant in a single transaction or series of related transactions, shall be deemed to be an assignment hereunder and shall be void without the prior written consent of Landlord as required above. Notwithstanding the foregoing, (i) neither an initial public offering of the common stock of Tenant nor any other sale of Tenant’s capital stock through any public securities exchange or market nor any other issuance of Tenant’s capital stock for bona fide financing purposes shall be deemed to be an assignment, subletting or transfer hereunder; and (ii) Tenant shall have the right to assign this Lease or sublet the Premises, or any portion thereof, without Landlord’s consent (but with prior or concurrent written notice by Tenant to Landlord), to any Affiliate of Tenant, or to any entity which results from a merger or consolidation involving Tenant, or to any entity which acquires substantially all of the stock or assets of Tenant as a going concern (each, a “Permitted Transfer”). For purposes of the preceding sentence, an “Affiliate” of Tenant shall mean any entity in which Tenant owns at least a fifty percent (50%) equity interest, any entity which owns at least a fifty percent (50%) equity interest in Tenant, and/or any entity which is related to Tenant by a chain of ownership interests involving at least a fifty percent (50%) equity interest at each level in the chain. Landlord shall have no right to terminate this Lease in connection with, and shall have no right to any sums or other economic consideration resulting from, any Permitted Transfer. Except as expressly set forth in this Section 11.1, however, the provisions of Section 11.2 shall remain applicable to any Permitted Transfer and the transferee under such Permitted Transfer shall be and remain subject to all of the terms and provisions of this Lease.

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     11.2 Rights of Landlord.

          (a) Consent by Landlord to one or more assignments of this Lease, or to one or more sublettings of the Premises or any portion thereof, or collection of rent by Landlord from any assignee or sublessee, shall not operate to exhaust Landlord’s rights under this Article 11, nor constitute consent to any subsequent assignment or subletting. No assignment of Tenant’s interest in this Lease and no sublease shall relieve Tenant of its obligations hereunder, notwithstanding any waiver or extension of time granted by Landlord to any assignee or sublessee, or the failure of Landlord to assert its rights against any assignee or sublessee, and regardless of whether Landlord’s consent thereto is given or required to be given hereunder. In the event of a default by any assignee, sublessee or other successor of Tenant in the performance of any of the terms or obligations of Tenant under this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against any such assignee, sublessee or other successor. In addition, Tenant immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this Lease, all rent from any subletting of all or a part of the Premises as permitted under this Lease, and Landlord, as Tenant’s assignee and as attorney-in-fact for Tenant, or any receiver for Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this Lease; except that until the occurrence (and then only during the continuance) of an event of default by Tenant, Tenant shall have the right to collect such rent and to retain all sublease profits (subject to the provisions of Section 11.2(c), below).

          (b) Upon any assignment of Tenant’s interest in this Lease for which Landlord’s consent is required under Section 11.1 hereof, Tenant shall pay to Landlord, within ten (10) days after receipt thereof by Tenant from time to time, one-half(¹/₂) of all cash sums and other economic considerations received by Tenant in connection with or as a result of such assignment, after first deducting therefrom (i) any costs incurred by Tenant for leasehold improvements (including, but not limited to, third-party architectural and space planning costs) in the Premises in connection with such assignment, amortized over the remaining term of this Lease, and (ii) any reasonable real estate commissions and/or reasonable attorneys’ fees actually incurred by Tenant in connection with such assignment.

          (c) Upon any sublease of all or any portion of the Premises for which Landlord’s consent is required under Section 11.1 hereof, Tenant shall pay to Landlord, within ten (10) days after receipt thereof by Tenant from time to time, one-half (¹/₂) of all cash sums and other economic considerations received by Tenant in connection with or as a result of such sublease, after first deducting therefrom (i) the minimum rental due hereunder for the corresponding period, prorated (on the basis of the average per-square-foot cost paid by Tenant for the Premises for the applicable period under this Lease) to reflect the size of the subleased portion of the Premises, (ii) any costs incurred by Tenant for leasehold improvements in the subleased portion of the Premises (including, but not limited to, third-party architectural and space planning costs) for the specific benefit of the sublessee in connection with such sublease, amortized over the remaining term of this Lease, and (iii) any reasonable real estate commissions and/or reasonable attorneys’ fees actually incurred by Tenant in connection with such sublease, amortized over the term of such sublease.

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12. RIGHT OF ENTRY AND QUIET ENJOYMENT

     12.1 Right of Entry. Landlord and its authorized representatives shall have the right, subject to Tenant’s reasonable operating and security procedures, to enter the Premises at any time during the term of this Lease during normal business hours and upon not less than twenty-four (24) hours prior notice, except in the case of emergency (in which event no notice shall be required and entry may be made at any time), for the purpose of inspecting and determining the condition of the Premises and Building or for any other proper purpose including, without limitation, to make repairs, replacements or improvements which Landlord may deem necessary, to show the Premises and Building to prospective purchasers, to show the Premises and Building to prospective tenants (but only during the final year of the term of this Lease), and to post notices of nonresponsibility, Landlord shall not be liable for inconvenience, annoyance, disturbance, loss of business, quiet enjoyment or other damage or loss to Tenant by reason of making any repairs or performing any work upon the Building or the Center or by reason of erecting or maintaining any protective barricades in connection with any such work, and the obligations of Tenant under this Lease shall not thereby be affected in any manner whatsoever, provided, however, Landlord shall use reasonable efforts to minimize the inconvenience to Tenant’s normal business operations caused thereby.

     12.2 Quiet Enjoyment. Landlord covenants that Tenant, upon paying the rent and performing its obligations hereunder and subject to all the terms and conditions of this Lease, shall peacefully and quietly have, hold and enjoy the Premises and the Center throughout the term of this Lease, or until this Lease is terminated as provided by this Lease.

13. CASUALTY AND TAKING

     13.1 Damage or Destruction.

          (a) If the Premises or any portion of the Building or Common Areas of the Center reasonably necessary for Tenant’s use and occupancy of the Premises is damaged or destroyed in whole or in any substantial part during the term of this Lease, Landlord shall obtain from Landlord’s architect, as soon as practicable (and in all events within forty-five (45) days) following the damage or destruction, (i) the architect’s reasonable, good faith estimate of the time within which repair and restoration of the Premises and Common Areas (if applicable) can reasonably be expected to be completed to the extent necessary to enable Tenant to resume its full business operations in the Premises without material impairment and (ii) the architect’s reasonable, good faith opinion as to whether repair and restoration to that extent will be permitted under applicable governmental laws, regulations and building codes then in effect (collectively, the “Architect’s Estimate”). If the damage or destruction materially impairs Tenant’s ability to conduct its business operations in the Premises, and if either (A) the estimated repair time specified in the Architect’s Estimate exceeds nine (9) months (or, in the case of an occurrence during the final year of the term of this Lease, sixty (60) days) or (B) the Architect’s Estimate states that repair and restoration of the affected areas to the extent necessary to enable Tenant to resume its full business operations in the Premises without material impairment will not be permitted under applicable governmental laws, regulations and building codes then in effect, then in either such event either Landlord or Tenant may terminate this Lease as of the date

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of the occurrence by giving written notice to the other party within thirty (30) days after the date of the occurrence or fifteen (15) days after delivery of the Architect’s Estimate, whichever is later. If the circumstances creating a termination right under the preceding sentence do not exist, or if such circumstances exist but neither party timely exercises its termination right, then this Lease shall remain in full force and effect and (x) Landlord, as to the Common Areas of fee Center and as to the shell of the Building and the alterations, additions and improvements that Landlord is required to insure under Section 10.1(d) above, and (y) Tenant, as to the alterations, additions and improvements that Tenant is required to insure under Section 10.1(e) above, shall respectively commence and complete, with all due diligence and as promptly as is reasonably practicable under the conditions then existing, the repair and restoration of such respective portions of the Property and Premises to a condition substantially comparable to that which existed immediately prior to the damage or destruction; provided, however, that Tenant in its discretion may elect not to repair, rebuild or replace any or all of the items which would otherwise be Tenant’s responsibility under clause (y) of this sentence to the extent such items were constructed or installed at Tenant’s sole expense and without any use of funds from the Tenant Improvement Allowance.

          (b) If this Lease is terminated pursuant to the foregoing provisions of this Section 13.1 following an occurrence which is a peril actually insured or required to be insured against pursuant to Section 10.1(c), (d) and/or (e), Landlord and Tenant agree (and any Lender shall be asked to agree) that such insurance proceeds shall be allocated between Landlord and Tenant in a manner which fairly and reasonably reflects (i) their respective ownership rights under this Lease, as of the termination or expiration of the term of this Lease, with respect to the improvements, fixtures, equipment and other items to which such insurance proceeds are attributable and (ii) in the case of insurance proceeds allocable to improvements, equipment and other items which Tenant can demonstrate were installed or constructed by Tenant solely with its own fends and without any use of the Tenant Improvement Allowance or of any other Landlord funds, the unamortized portion of the original cost of acquisition or construction of such items, assuming amortization on a straight-line basis over the initial term of this Lease (without regard to any renewal options).

          (c) From and after the date of an occurrence resulting in damage to or destruction of the Premises or of Common Areas necessary for Tenant’s use and occupancy of the Premises, and continuing until repair and restoration thereof are completed to the extent necessary to enable Tenant to resume operation of its business in the Premises without material impairment, there shall be an equitable abatement of minimum rental and of Tenant’s Operating Cost Share of Operating Expenses based upon the degree to which Tenant’s ability to conduct its business in the Premises is impaired.

          (d) Each party expressly waives the provisions of California. Civil Code Sections 1932(2), 1933(4) and any other applicable existing or future law permitting the termination of a lease agreement in the event of damage to or destruction of the leased property, it being the intention of the parties that their respective rights in such circumstances shall be governed solely by the provisions of this Article 13.

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     13.2 Condemnation.

          (a) If during the term of this Lease the Premises or any Common Areas of the Center that axe necessary for Tenant’s use and occupancy of the Premises, or any substantial part of either of them, is taken by eminent domain or by reason of any public improvement ot condemnation proceeding, or in any manner by exercise of the right of eminent domain (including any transfer in lieu of or in avoidance of an exercise of the power of eminent domain), or receives irreparable damage by reason of anything lawfully done by or under color of any public authority, then (i) this Lease shall terminate as to the entire Premises at Landlord’s election by written notice given to Tenant within thirty (30) days after the taking has occurred, and (ii) this Lease shall terminate as to the entire Premises at Tenant’s election, by written notice given to Landlord within thirty (30) days after the nature and extent of the taking have been finally determined, if the portion of the Building or Center taken is of such extent and nature as substantially to handicap, impede or permanently impair Tenant’s use of the Premises. If Tenant elects to terminate this Lease, Tenant shall also notify Landlord of the date of termination, which date shall not be earlier than thirty (30) days nor later than ninety (90) days after Tenant has notified Landlord of Tenant’s election to terminate, except that this Lease shall terminate on the date of taking if such date falls on any date before the date of termination designated by Tenant. If neither party elects to terminate this Lease as hereinabove provided, this Lease shall continue in full force and effect (except that there shall be an equitable abatement of minimum rental and of Tenant’s Operating Cost Share of Operating Expenses based upon the degree to which Tenant’s ability to conduct its business in the Premises is impaired), Landlord shall restore the improvements for which Landlord is responsible under clause (x) of Section 13.1(a) above to a complete architectural whole and a functional condition and as nearly as reasonably possible to the condition existing before the taking, and Tenant shall restore the improvements for which Tenant is responsible under clause (y) of Section 13.1(a) above to a complete architectural whole and a functional condition and as nearly as reasonably possible to the condition existing before the taking; provided, however, that Tenant in its discretion may elect not to repair, restore or replace any or all of the items which would otherwise be Tenant’s responsibility to the extent such items were constructed or installed at Tenant’s sole expense and without any use of funds from the Tenant Improvement Allowance. In connection with any such restoration, each party shall use reasonable efforts (including, without limitation, any necessary negotiation or intercession with its respective lender, if any) to ensure that any severance damages or other condemnation awards intended to provide compensation for rebuilding or restoration costs are promptly collected and made available to Landlord and Tenant in portions reasonably corresponding to the cost and scope of their respective restoration obligations, subject only to such payment controls as either party or its lender may reasonably require in order to ensure the proper application of such proceeds toward the restoration of the Building and the Center. Each party expressly waives the provisions of California Code of Civil Procedure Section 1265.130 and of any other existing or future law allowing either party to terminate (or to petition the Superior Court to terminate) a lease in the event of a partial condemnation or taking of the leased property, it being the intention of the parties that their respective rights in such circumstances shall be governed solely by the provisions of this Article 13.

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          (b) If this Lease is terminated pursuant to the foregoing provisions of this Section 13.2, or if this Lease remains in effect but any condemnation awards or other proceeds become available as compensation for the loss or destruction of the Building and/or the Center, then Landlord and Tenant agree (and any Lender shall be asked to agree) that such proceeds shall be allocated between Landlord and Tenant, respectively, in the respective proportions in which Landlord and Tenant would have shared, under Section 13.1 (b), the proceeds of any applicable insurance following damage to or destruction of the applicable improvements due to an insured casualty.

     13.3 Reservation of Compensation. Landlord reserves, and Tenant waives and assigns to Landlord, all rights to any award or compensation for damage to the Center, the improvements located therein and the leasehold estate created hereby, accruing by reason of any taking in any public improvement, condemnation or eminent domain proceeding or in any other maimer by exercise of the right of eminent domain or of anything lawfully done by public authority, except that (a) Tenant shall be entitled to pursue recovery from the applicable public authority for Tenant’s moving expenses, trade fixtures and equipment and any leasehold improvements installed by Tenant in the Premises or Building at its own sole expense, but only to the extent Tenant would have been entitled to remove such items at the expiration of the term of this Lease and then only to the extent of the then remaining unamortized value of such improvements computed on a straight-line basis over the term of this Lease, and (b) any condemnation awards or proceeds described in Section 13.2(b) shall be allocated and disbursed in accordance with the provisions of Section 13.2(b), notwithstanding any contrary provisions of this Section 13.3.

     13.4 Restoration of Improvements. In connection with any repair or restoration of improvements by either party following a casualty or taking as hereinabove set forth, the party responsible for such repair or restoration shall, to the extent possible, return such improvements to a condition substantially equal to that which existed immediately prior to the casualty or taking. To the extent such party wishes to make material modifications to such improvements, such modifications shall be subject to the prior written approval of the other party (not to be unreasonably withheld or delayed), except that no such approval shall be required for modifications that axe required by applicable governmental authorities as a condition of the repair or restoration, unless such required modifications would impair or impede Tenant’s conduct of its business in the Premises (in which case any such modifications in Landlord’s work shall require Tenant’s consent, not unreasonably withheld or delayed) or would materially and adversely affect the exterior appearance, the structural integrity or the mechanical or other operating systems of the Premises or Building (in which case any such modifications in Tenant’s work shall require Landlord’s consent, not unreasonably withheld or delayed).

14. DEFAULT

     14.1 Events of Default. The occurrence of any of the following shall constitute an event of default on the part of Tenant:

          (a) Abandonment. Abandonment of the Premises. “Abandonment” is hereby defined to include, but is not limited to, any absence by Tenant from the Premises for fifteen (15) consecutive days or more while Tenant is in default under any other provision of this

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Lease. Tenant waives any right Tenant may have to notice under Section 1951.3 of the California Civil Code, the terms of this subsection (a) being deemed such notice to Tenant as required by said Section 1951.3;

          (b) Nonpayment. Failure to pay, when due, any amount payable to Landlord hereunder, such failure continuing for a period of five (5) business days after written notice of such failure; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 et seq., as amended from time to time;

          (c) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subsection (b) hereof (including, but not limited to, any breach by Tenant of the Master Declaration or Association Documents as provided in Section 15.4 below), such failure continuing for thirty (30) days after written notice of such failure; provided, however, that if such failure is curable in nature but cannot reasonably be cured within such 30-day period, then Tenant shall not be in default if, and so long as, Tenant promptly (and in all events within such 30-day period) commences such cure and thereafter diligently pursues such cure to completion; and provided further, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 et seq., as amended from time to time;

          (d) General Assignment. A general assignment by Tenant, for the benefit of creditors;

          (e) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant’s creditors, which involuntary petition remains undischarged for a period of sixty (60) days. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant’s obligations under this Lease. Specifically, but without limiting the generality of the foregoing, such adequate assurances must include assurances that the Premises continue to be operated only for the use permitted hereunder. The provisions hereof are to assure that the basic understandings between Landlord and Tenant with respect to Tenant’s use of the Center and the benefits to Landlord therefrom are preserved, consistent with the purpose and intent of applicable bankruptcy laws;

          (f) Receivership. The employment of a receiver appointed by court order to take possession of substantially all of Tenant’s assets or the Premises, if such receivership remains undissolved for a period of thirty (30) days;

          (g) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant’s assets or the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of thirty (30) days after the levy thereof; or

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          (h) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due, the filing by Tenant of a petition seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the filing by Tenant of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant in any such proceeding or, if within thirty (30) days after the commencement of any proceeding against Tenant seeking any reorganization or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed.

     14.2 Remedies upon Tenant’s Default.

          (a) Upon the occurrence of any event of default described in Section 14.1 hereof, Landlord, in addition to and without prejudice to any other rights or remedies it may have, shall have the immediate right (subject to compliance with applicable laws) to re-enter the Premises or any part thereof and repossess the same, expelling and removing therefrom all persons and property (which property maybe stored in a public warehouse or elsewhere at the cost and risk of and for the account of Tenant), using such force as may be necessary to do so (as to which Tenant hereby waives any claim for loss or damage that may thereby occur). In addition to such re-entry, and without prejudice to any other rights or remedies it may have, Landlord shall have the right to terminate this Lease and recover from Tenant all damages incurred by Landlord as a result of Tenant’s default, as hereinafter provided. Alternatively, in lieu of such re-entry, and without prejudice to any other rights or remedies it may have, Landlord shall have the right to continue this Lease in effect and recover rent and other charges and amounts as they become due.

          (b) Even if Tenant has breached this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant’s right to possession under subsection (a) hereof and Landlord may enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a lessor under California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations), or any successor Code section. Acts of maintenance, preservation or efforts to relet the Premises or the appointment of a receiver upon application of Landlord to protect Landlord’s interests under this Lease shall not constitute a termination of Tenant’s right to possession.

          (c) If Landlord terminates this Lease pursuant to this Section 14.2, Landlord shall have all of the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor Code section, which remedies include Landlord’s right to recover from Tenant (i) the worth at the time of award of the unpaid rent and additional rent which had been earned at the time of termination, (ii) the worth at the time of award of the amount by which the unpaid rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided, (iii) the worth at the time of award of the amount by

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which the unpaid rent and additional rent fox the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, the cost of recovering possession of the Premises, expenses of reletting, including necessary repair, renovation and alteration of the Premises, reasonable attorneys’ fees, and other reasonable costs. The “worth at the time of award” of the amounts referred to in clauses (i) and (ii) above shall be computed by allowing interest at ten percent (10%) per annum from the date such amounts accrued to Landlord. The “worth at the time of award” of the amounts referred to in clause (iii) above shall be computed by discounting such amount at one percentage point above the discount rate of the Federal Reserve Bank of San Francisco at the time of award.

     14.3 Remedies Cumulative. All rights, privileges and elections or remedies of Landlord contained in this Article 14 are cumulative and not alternative to the extent permitted by law and except as otherwise provided herein.

15. SUBORDINATION, ATTORNMENT AND SALE

     15.1 Subordination to Mortgage. This Lease, and any sublease entered into by Tenant under the provisions of this Lease, shall be subject and subordinate to any ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security now or hereafter placed upon the Premises, the Building, the Center, or any of them, and the rights of any assignee of Landlord or of any ground lessor, mortgagee, trustee, beneficiary or leaseback lessor under any of the foregoing, and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, that such subordination in the case of any future ground lease, mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security placed upon the Premises, the Building, the Center, or any of them shall be conditioned on Tenant’s receipt from the ground lessor, mortgagee, trustee, beneficiary or leaseback lessor of a Non-Disturbance Agreement in a form reasonably acceptable to Tenant (i) confirming that so long as Tenant is not in material default hereunder beyond any applicable cure period (for which purpose the occurrence and continuance of any event of default under Section 14.1 hereof shall be deemed to be “material”), Tenant’s rights hereunder shall not be disturbed by such person or entity and (ii) agreeing that the benefit of such Non-Disturbance Agreement shall be transferable to any transferee under a Permitted Transfer and to any other assignee or subtenant that is acceptable to the ground lessor, mortgagee, trustee, beneficiary or leaseback lessor at the time of transfer. If any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or assignee elects to have this Lease be an encumbrance upon the Center prior to the lien of its mortgage, deed of trust, ground lease or leaseback lease or other security arrangement and gives notice thereof to Tenant, this Lease shall be deemed prior thereto, whether this Lease is dated prior or subsequent to the date thereof or the date of recording thereof. Tenant and any sublessee, shall execute such documents as may reasonably be requested by any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the subordination herein set forth, subject to the conditions set forth above, or to make this Lease prior to the lien of any mortgage, deed of trust, ground lease, leaseback lease or other security, arrangement as the case maybe. Upon any default by Landlord

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in the performance of its obligations under any mortgage, deed of trust, ground lease, leaseback lease or assignment, Tenant (and any sublessee) shall, notwithstanding any subordination hereunder, attorn to the mortgagee, trustee, beneficiary, ground lessor, leaseback lessor or assignee thereunder upon demand and become the tenant of the successor in interest to Landlord, at the option of such successor in interest, and shall execute and deliver any instrument or instruments confirming the attornment herein provided for. Landlord represents and warrants to Tenant that as of the Lease Commencement Date, there is no ground lessor, mortgagee, trustee, beneficiary or leaseback lessor holding any title to or interest in the Property or any portion thereof.

     15.2 Sale of Landlord’s Interest. Upon sale, transfer or assignment of Landlord’s entire interest in the Building and the Center, Landlord shall be relieved of its obligations hereunder with respect to liabilities accruing from and after the date of such sale, transfer or assignment.

     15.3 Estoppel Certificates. Tenant or Landlord (the “responding party”), as applicable, shall at any time and from time to time, within ten (10) business days after written request by the other party (the “requesting party”), execute, acknowledge and deliver to the requesting party a certificate in writing staring: (i) that this Lease is unmodified and in full force and effect, or if there have been any modifications, that this Lease is in full force and effect as modified and stating the date and the nature of each modification; (ii) the date to which rental and all other sums payable hereunder have been paid; (iii) that the requesting party is not in default in the performance of any of its obligations under this Lease, that the certifying party has given no notice of default to the requesting party and that no event has occurred which, but for the expiration of the applicable time period, would constitute an event of default hereunder, or if the responding party alleges that any such default, notice or event has occurred, specifying the same in reasonable detail; and (iv) such other matters as may reasonably be requested by the requesting party or by any institutional lender, mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or prospective purchaser of the Center, or prospective sublessee or assignee of this Lease. Any such certificate provided under this Section 15.3 may be relied upon by any lender, mortgagee, trustee, beneficiary, assignee or successor in interest to the requesting party, by any prospective purchaser, by any purchaser on foreclosure or sale, by any grantee under a deed in lieu of foreclosure of any mortgage or deed of trust on the Property, by any subtenant or assignee, or by any other third party. Failure to execute and return within the required time any estoppel certificate requested hereunder, if such failure continues for five (5) days after a second written request by the requesting party for such estoppel certificate, shall be deemed to be an admission of the truth of the matters set forth in the form of certificate submitted to the responding party for execution.

     15.4 Subordination to CC&R’s. This Lease, and any permitted sublease entered into by Tenant under the provisions of this Lease, and the interests in real property conveyed hereby and thereby shall be subject and subordinate (a) to any declarations of covenants, conditions and restrictions or other recorded restrictions affecting the Center or any portion thereof from time to time, provided that the terms of such declarations or restrictions are reasonable (or, to the extent they are not reasonable, are mandated by applicable law), do not materially impair Tenant’s ability to conduct the uses permitted hereunder on the Premises and in the Center, and do not

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discriminate against Tenant relative to other similarly situated tenants occupying the portion(s) of the Center covered by such declarations or restrictions, and (b) to the Declaration of Covenants, Conditions and Restrictions of Shoreline Technology Park, Mountain View, California, dated October 24, 1986 and recorded on October 24, 1986 as Instrument No. 8997310, Book J895, Page 456, Official Records of Santa Clara County, as the same may be amended from time to time (the “Declaration”), the provisions of which Declaration are an integral part of this Lease. Tenant agrees to execute, upon request by Landlord, any documents reasonably required from time to time to evidence the foregoing subordination. Notwithstanding the foregoing, Tenant shall not be bound by any modification to the Declaration subsequent to the Lease Commencement Date unless such modification satisfies the requirements of clause (a) above.

     15.5 Mortgagee Protection. If, following a default by Landlord under any mortgage, deed of trust, ground lease, leaseback lease or other security arrangement covering the Building, the Center, or any portion of them, the Building and/or the Center, as applicable, is acquired by the mortgagee, beneficiary, master lessor or other secured party, or by any other successor owner, pursuant to a foreclosure, trustee’s sale, sheriff’s sale, lease termination or other similar procedure (or deed in lieu thereof), then any such person or entity so acquiring the Building and/or the Center shall not be:

          (a) liable for any act or omission of a prior landlord or owner of the Center (including, but not limited to, Landlord);

          (b) subject to any offsets or defenses that Tenant may have against any prior landlord or owner of the Center (including, but not limited to, Landlord);

          (c) bound by any rent or additional rent that Tenant may have paid in advance to any prior landlord or owner of the Center (including, but not limited to, Landlord) for a period in excess of one month, or by any security deposit, cleaning deposit or other prepaid charge that Tenant may have paid in advance to any prior landlord or owner (including, but not limited to, Landlord), except to the extent such deposit or prepaid amount has been expressly turned over to or credited to the successor owner thus acquiring the Center;

          (d) liable for any warranties or representations of any nature whatsoever, whether pursuant to this Lease or otherwise, by any prior landlord or owner of the Center (including, but not limited to, Landlord) with respect to the use, construction, zoning, compliance with laws, title, habitability, fitness for purpose or possession, or physical condition (including, without limitation, environmental matters) of the Building or the Center; or

          (e) liable to Tenant in any amount beyond the interest of such mortgagee, beneficiary, master lessor or other secured party or successor owner in the Center as it exists from time to time, it being the intent of this provision that Tenant shall look solely to the interest of any such, mortgagee, beneficiary, master lessor or other secured party or successor owner in the Center for the payment and discharge of the landlord’s obligations under this Lease and that such mortgagee, beneficiary, master lessor or other secured party or successor owner shall have no separate personal liability for any such obligations.

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16. SECURITY

     16.1 Deposit.

          (a) Cash Security Deposit. Within ten (10) days after the Lease Commencement Date, Tenant shall deposit with Landlord the sum of Four Hundred Thousand and No/100 Dollars ($400,000.00), which sum, subject to and including any adjustment thereto pursuant to Section 16.1(c) below (as so adjusted, if applicable, the “Security Deposit”) shall be held by Landlord as security for the faithful performance of all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the term hereof. If Tenant defaults (beyond any applicable cure period) with respect to any provision of this Lease, including, without limitation, the provisions relating to the payment of rental and other sums due hereunder, Landlord shall have the right, but shall not be required, to use, apply or retain such portion of the Security Deposit as is sufficient for the payment of rental or any other amount which Landlord may spend or become obligated to spend by reason of Tenant’s default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) business days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount and Tenant’s failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep any deposit under this Section separate from Landlord’s general funds, and Tenant shall not be entitled to interest thereon. Provided that no uncured event of default by Tenant then exists under this Lease, the Security Deposit and the Letter of Credit as defined below (if applicable), or any balance thereof, shall be returned to Tenant or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder (unless alternative instructions have been presented to Landlord in a writing signed by both Tenant and such assignee), at the expiration of the term of this Lease and after Tenant has vacated the Property. In the event of termination of Landlord’s interest in this Lease, Landlord shall transfer all deposits then held by Landlord under this Section to Landlord’s successor in interest, whereupon Tenant agrees to release Landlord from all liability for the return of such deposit or the accounting thereof.

          (b) Letter of Credit. As an alternative to the cash Security Deposit described in Section 16.1(a), Tenant may instead deliver to Landlord, within ten (10) days after the Lease Commencement Date, an irrevocable standby letter of credit (the “Letter of Credit”) issued in favor of Landlord by a federally insured commercial bank or trust company approved in writing by Landlord (which approval shall not be unreasonably withheld, and for which purpose Landlord hereby agrees in advance that Silicon Valley Bank is an approved issuer for the Letter of Credit), in form and substance reasonably satisfactory to Landlord, to be held by Landlord as security for the faithful performance of all the obligations of Tenant under this Lease, subject to the following terms and conditions:

          (i) The amount of the Letter of Credit shall be Four Hundred Thousand and No/100 Dollars ($400,000.00), subject to and including any adjustment thereto pursuant to the provisions of Section 16.1(c) below (as so adjusted, if applicable, the “Required Amount”), and Tenant shall maintain the Letter of Credit in the Required Amount in full force and effect throughout the term of this Lease (including any

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extensions thereof) and until thirty (30) days after the expiration of the term of this Lease, unless Tenant elects at any time to replace the Letter of Credit with a full cash Security Deposit in compliance with Section 16.1(a). The Letter of Credit may be for an initial one-year term, with automatic renewal provisions, provided that Landlord shall be given at least thirty (30) days prior written notice if the Letter of Credit will not be renewed as of any otherwise applicable renewal date and shall be entitled to draw against the expiring Letter of Credit if a replacement Letter of Credit is not furnished to Landlord at least twenty (20) days prior to the scheduled expiration date, as provided in Section 16.1(b)(iii)(A) below. The Letter of Credit must provide that it is transferable to any successor in interest to Landlord under this Lease, and any transfer fees and other related costs and expenses payable in connection with any such transfer shall be borne solely by Tenant.

          (ii) Landlord shall be entitled (but shall not be required) to draw against the Letter of Credit and receive and retain the proceeds thereof upon any default (beyond any applicable cure period) by Tenant in the payment of any rent or other amounts required to be paid by Tenant under this Lease, or upon the occurrence of any other event of default (beyond any applicable cure period) under this Lease, by presenting to the issuer a written statement by Landlord that Landlord is entitled to draw the requested amount under the Letter of Credit pursuant to the terms of this Lease. The amount of the draw shall not exceed the amount of the payments (if any) as to which Tenant is then in default and/or the amount reasonably necessary to cure any non-monetary events of default by Tenant, and shall be applied by Landlord to the cure of the applicable default(s). Following any partial draw under this paragraph (ii), if Tenant fully cures all outstanding defaults and provides Landlord with a new Letter of Credit in the full Required Amount under this Section 16.1, Landlord shall surrender and return to Tenant, within ten (10) days after Tenant’s satisfaction of the foregoing conditions, the Letter of Credit under which the partial draw was made.

          (iii) Landlord shall also be entitled (but shall not be required) to draw against the Letter of Credit in full and to receive the entire proceeds thereof under either of the following circumstances:

          (A) If the Letter of Credit will expire as of a date prior to the date thirty (30) days after the expiration of the term of this Lease and Tenant fails to provide to Landlord an extension or replacement of such Letter of Credit, in at least the minimum Required Amount, at least twenty (20) days prior to the scheduled expiration date of the Letter of Credit; or

          (B) If, as a result of a draw against the Letter of Credit by Landlord or for any other reason, the amount of the Letter of Credit falls below the minimum Required Amount and Tenant has failed to cause the Letter of Credit to be restored to at least the minimum Required Amount within ten (10) business days after written demand by Landlord or, in lieu thereof, has failed to put up cash in an amount equal to the amount required to be restored (which cash,

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if put up by Tenant, shall be retained by Landlord as a cash security deposit in accordance with Section 16.1(a) hereof).

          (iv) If Landlord draws against the Letter of Credit in any of the circumstances described in subparagraph (iii) above, Landlord may use, apply and/or retain the amount drawn for the cure of any then existing defaults under this Lease. Any amount drawn that is not immediately so used or applied by Landlord shall be retained by Landlord as a cash Security Deposit, subject to and in accordance with the provisions of Section 16.1(a).

          (v) Any actual or purported withdrawal, rescission, termination or revocation of the Letter of Credit by the issuer thereof prior to the expiration of the term of this Lease (except when replaced prior to the effectiveness of such withdrawal, rescission, termination or revocation by a replacement Letter of Credit as contemplated in Section 16.1(b)(iii)(A) hereof) shall be a material breach of this Lease.

          (vi) The Letter of Credit shall provide that it is governed by the International Standby Practices (ISP98), ICC Publication No. 590.

          (c) Adjustment of Security Deposit. If on the third (3rd) anniversary of the Rent Commencement Date there is no uncured event of default by Tenant under this Lease, and no event which, if remaining uncured after notice and/or passage of time, would constitute an event of default by Tenant under this Lease, then effective as of the third (3rd) anniversary of the Rent Commencement Date, the required amount of the Security Deposit under Section 16.1(a) above and the Required Amount for purposes of the Letter of Credit (if any) under Section 16.1(b) above shall each be reduced to Two Hundred Thousand and No/100 Dollars ($200,000.00). If Landlord is holding a Letter of Credit in a larger amount at the time any such reduction becomes effective, Landlord agrees to cooperate reasonably with Tenant and the issuer in surrendering such Letter of Credit upon Landlord’s receipt of a replacement Letter of Credit in not less than the adjusted minimum amount required pursuant to this paragraph.

17. MISCELLANEOUS

     17.1 Notices. All notices, consents, waivers and other communications which this Lease requires or permits either party to give to the other shall be in writing and shall be deemed given when delivered personally (including delivery by private same-day or overnight courier or express delivery service) or by telecopier with mechanical confirmation of transmission, effective upon personal delivery to or refusal of delivery by the recipient (in the case of personal delivery by any of the means described above) or upon telecopier transmission during normal business hours at the recipient’s office (in the case of telecopier transmission, with any transmission outside of normal business hours being effective as of the beginning of the first business day commencing after the time of actual transmission) to the parties at their respective addresses as follows:

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To Tenant:	(until the Rent Commencement Date)
	Alexza Pharmaceuticals, Inc.
	1020 East Meadow Circle
	Palo Alto, CA 94303
	Attn: August J. Moretti, CFO
	Telecopier: (650) 687-3999
	(after the Rent Commencement Date)
	Alexza Pharmaceuticals, Inc.
	2091 Stierlin Court
	Mountain View, CA 94043
	Attn: August J. Moretti, CFO
	Telecopier: (408)                     [to be determined]
with a copy to:	K. William Neuman, Esq.
	Heller Ehrman LLP
	333 Bush Street, Suite 3000
	San Francisco, CA 94104
	Telecopier: (415) 772-2064
To Landlord:	Britannia Hacienda VIII LLC
	c/o Slough Estates USA Inc.
	444 North Michigan Avenue, Suite 3230
	Chicago, IL 60611
	Attn: Randy Rohner
	Telecopier: (312) 755-0717
with a copy to:	Britannia Management Services, Inc.
	555 Twelfth Street, Suite 1650
	Oakland, CA 94607
	Attn: Magdalena Shushan
	Telecopier: (510) 763-6262
and a copy to:	Folger Levin & Kahn llp
	Embarcadero Center West
	275 Battery Street, 23rd Floor
	San Francisco, CA 94111
	Attn: Donald E. Kelley, Jr.
	Telecopier: (415) 986-2827

or to such other address(es) as may be contained in a notice of address change given by either party to the other pursuant to this Section, effective no earlier than fifteen (15) days after delivery of such notice to the receiving party. Rental payments and other sums required by this Lease to be paid by Tenant shall be delivered to Landlord in care of Britannia Management Services, Inc., 555 Twelfth Street, Suite 1650, Oakland, CA 94607, or at such other address as

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Landlord may from time to time specify in writing to Tenant, and shall be deemed to be paid only upon actual receipt.

     17.2 Successors and Assigns. The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the original Landlord named herein and each successive Landlord under this Lease shall be liable only for obligations accruing during the period of its ownership of the Center, and any liability for obligations accruing after termination of such ownership shall terminate as of the date of such termination of ownership and shall pass to the successor lessor.

     17.3 No Waiver. The failure of either party to seek redress for violation, or to insist upon the strict performance, of any covenant or condition of this Lease shall not be deemed a waiver of such violation, or prevent a subsequent act which would originally have constituted a violation from having all the force and effect of an original violation.

     17.4 Severability. If any provision of this Lease or the application thereof is held to be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each of the provisions of this Lease shall be valid and enforceable, unless enforcement of this Lease as so invalidated would be unreasonable or grossly inequitable under all the circumstances or would materially frustrate the purposes of this Lease.

     17.5 Litigation Between Parties. In the event of any litigation or other dispute resolution proceedings between the parties hereto arising out of or in connection with this Lease, the prevailing party shall be reimbursed for all reasonable costs, including, but not limited to, reasonable accountants’ fees and attorneys’ fees, incurred in connection with such proceedings (including, but not limited to, any appellate proceedings relating thereto) or in connection with the enforcement of any judgment or award rendered in such proceedings. “Prevailing party” within the meaning of this Section shall include, without limitation, a party who dismisses an action for recovery hereunder in exchange for payment of the sums allegedly due, performance of covenants allegedly breached or consideration substantially equal to the relief sought in the action.

     17.6 Surrender. A voluntary or other surrender of this Lease by Tenant, or a mutual termination thereof between Landlord and Tenant, shall not result in a merger but shall, at the option of Landlord, operate either as an assignment to Landlord of any and all existing subleases and subtenancies, or a termination of all or any existing subleases and subtenancies. This provision shall be contained in any and all assignments or subleases made pursuant to this Lease.

     17.7 Interpretation. The provisions of this Lease shall be construed as a whole, according to their common meaning, and not strictly for or against Landlord or Tenant. The captions preceding the text of each Section and subsection hereof are included only for convenience of reference and shall be disregarded in the construction or interpretation of this Lease.

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     17.8 Entire Agreement. This written Lease, together with the exhibits hereto, contains all the representations and the entire understanding between the parties hereto with respect to the subject matter hereof. Any prior correspondence, memoranda or agreements are replaced in total by this Lease and the exhibits hereto. This Lease may be modified only by an agreement in writing signed by each of the parties.

     17.9 Governing Law. This Lease and all exhibits hereto shall be construed and interpreted in accordance with and be governed by all the provisions of the laws of the State of California.

     17.10 No Partnership. The relationship between Landlord and Tenant is solely that of a lessor and lessee. Nothing contained in this Lease shall be construed as creating any type or manner of partnership, joint venture or joint enterprise with or between Landlord and Tenant.

     17.11 Financial Information. From time to time Tenant shall promptly provide directly to prospective lenders and purchasers of the Center designated by Landlord such financial information pertaining to the financial status of Tenant as Landlord may reasonably request; provided, Tenant shall be permitted to provide such financial information in a manner which Tenant deems reasonably necessary to protect the confidentiality of such information. In addition, from time to time, Tenant shall provide Landlord with such financial information pertaining to the financial status of Tenant as Landlord may reasonably request. Landlord agrees that all financial information supplied to Landlord by Tenant shall be treated as confidential material, and shall not be disseminated to any party or entity (including any entity affiliated with Landlord) without Tenant’s prior written consent, except that Landlord shall be entitled to provide such information, subject to reasonable precautions to protect the confidential nature thereof, (i) to Landlord’s partners and professional advisors, solely to use in connection with Landlord’s execution and enforcement of this Lease, and (ii) to prospective lenders and/or purchasers of the Center, solely for use in connection with their bona fide consideration of a proposed financing or purchase of the Center, provided that such prospective lenders and/or purchasers are not then engaged in businesses directly competitive with the business then being conducted by Tenant. For purposes of this Section, without limiting the generality of the obligations provided herein, it shall be deemed reasonable for Landlord to request copies of Tenant’s most recent audited annual financial statements, or, if audited statements have not been prepared, unaudited financial statements for Tenant’s most recent fiscal year, accompanied by a certificate of Tenant’s chief financial officer that such financial statements fairly present Tenant’s financial condition as of the date(s) indicated. Notwithstanding any other provisions of this Section 17.11, during any period in which Tenant has outstanding a class of publicly traded securities and is filing with the Securities and Exchange Commission, on a regular basis, Forms 10Q and 10K and any other periodic filings required under the Securities Exchange Act of 1934, as amended, it shall constitute sufficient compliance under this Section 17.11 for Tenant to furnish Landlord with copies of such periodic filings substantially concurrently with the filing thereof with the Securities and Exchange Commission.

          Landlord and Tenant recognize the need of Tenant to maintain the confidentiality of information regarding its financial status and the need of Landlord to be informed of, and to provide to prospective lenders and purchasers of the Center financial information pertaining to,

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Tenant’s financial status. Landlord and Tenant agree to cooperate with each other in achieving these needs within the context of the obligations set forth in this Section.

     17.12 Costs. If Tenant requests the consent of Landlord under any provision of this Lease for any act that Tenant proposes to do hereunder, including, without limitation, assignment or subletting of the Premises, Tenant shall, as a condition to doing any such act and the receipt of such consent, reimburse Landlord promptly for any and all reasonable costs and expenses incurred by Landlord in connection therewith, including, without limitation, reasonable attorneys’ fees.

     17.13 Time. Time is of the essence of this Lease, and of every term and condition hereof.

     17.14 Rules and Regulations. Tenant shall observe, comply with and obey, and shall cause its employees, agents and, to the best of Tenant’s ability, invitees to observe, comply with and obey such reasonable rules and regulations for the safety, care, cleanliness, order and use of the Building and the Center as Landlord may promulgate and deliver to Tenant from time to time, provided that such rules and regulations are reasonable (or, to the extent they are not reasonable, are mandated by applicable law), do not materially impair Tenant’s ability to conduct the uses permitted hereunder on the Premises and in the Center, and do not discriminate against Tenant relative to other similarly situated tenants occupying portions of the Center.

     17.15 Brokers. Landlord agrees to pay a brokerage commission in connection with the consummation of this Lease (a) to Landlord’s broker, CB Richard Ellis, Inc., and (b) to Tenant’s broker, CRESA Partners, each in accordance with a separate written agreement. Each party represents and warrants that no other broker participated in the consummation of this Lease and agrees to indemnify, defend and hold the other party harmless against any liability, cost or expense, including, without limitation, reasonable attorneys’ fees, arising out of any claims for brokerage commissions or other similar compensation in connection with any conversations, prior negotiations or other dealings by the indemnifying party with any other broker.

     17.16 Memorandum of Lease. At any time during the term of this Lease, either party, at its sole expense, shall be entitled to record a memorandum of this Lease and, if either party so requests, both parties agree to cooperate in the preparation, execution, acknowledgment and recordation of such document in reasonable form. Tenant expressly requests that such a memorandum be prepared and recorded promptly following the Lease Commencement Date, and Landlord agrees to cooperate in such preparation and recording. If such a memorandum of lease is recorded, then upon expiration or termination of this Lease, Tenant agrees promptly to execute, acknowledge and deliver to Landlord, upon written request by Landlord, a Termination of Memorandum of Lease in such form as Landlord may reasonably request, for the purpose of terminating any continuing effect of the previously recorded memorandum of lease as a cloud upon title to the Property.

     17.17 Corporate Authority. Each party to this Lease represents and warrants that the person signing this Lease on behalf of such respective party is fully authorized to do so and, by so doing, to bind such party.

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     17.18 Execution and Delivery. Submission of this Lease for examination or signature by Tenant does not constitute an agreement or reservation of or option for lease of the Premises. This instrument shall not be effective or binding upon either party, as a lease or otherwise, until executed and delivered by both Landlord and Tenant. This Lease may be executed in one or more counterparts and by separate parties on separate counterparts, but each such counterpart shall constitute an original and all such counterparts together shall constitute one and the same instrument.

     17.19 Survival. Without limiting survival provisions which would otherwise be implied or construed under applicable law, the provisions of Sections 2.5, 5.4, 7.2, 7.3, 7.4, 8.2, 9.6,10.6, 16.1(a), 17.5 and 17.16 hereof shall survive the termination of this Lease with respect to matters occurring prior to the expiration of this Lease.

     17.20 Parking. Landlord agrees that the Common Areas, taken as a whole, shall include parking in amounts sufficient to satisfy the minimum parking requirements of the City of Mountain View applicable to the Center from time to time; that Tenant shall have the nonexclusive and non-reserved use of approximately 3.2 automobile parking stalls per 1,000 rentable square feet of space in the Premises; and that there shall be no additional cost or charge to Tenant for the nonexclusive use of such parking by Tenant and its employees and invitees.

[signature page follows]

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     IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first set forth above.

		“Landlord”		“Tenant”
BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company			ALEXZA PHARMACEUTICALS, INC., a Delaware corporation
By:	Slough Estates USA Inc., Its		By:	/s/ August J. Moretti
	Operations Manager and Member		Name:	August J. Moretti
			Title:	CFO
	By:	/s/ Jonathan M. Bergschneider
		Jonathan M. Bergschneider	By:
		Senior Vice President	Name:
			Title:

The undersigned entities, being all of the fee owners (as tenants in common) of the Center and the Property, hereby acknowledge, confirm and agree that: (i) they approve and accept the terms of the foregoing Lease; (ii) Britannia Hacienda VIII, LLC is authorized to enter into the Lease and to perform all of the obligations of Landlord thereunder; and (iii) in the event they or any of them succeed to the right, title and interest of Landlord under the Lease, in consideration of and conditional upon attornment by Tenant or by any permitted assignee of Tenant’s interest under the Lease as contemplated in the final sentence of Section 15.1 of the Lease, they will not disturb the rights or occupancy of Tenant or of such permitted assignee, as applicable, so long as Tenant or such permitted assignee, as applicable, is not in material default under the Lease beyond any applicable cure periods (for which purpose the occurrence and continuance of any event of default under Section 14.1 of the Lease shall be deemed to be “material”).

Slough CDEC II, LLC, a Delaware limited liability company
By:	/s/ Jonathan M. Bergschneider Jonathan M. Bergschneider, Secretary
Slough CDEC III, LLC, a Delaware limited liability company
By:	/s/ Jonathan M. Bergschneider Jonathan M. Bergschneider, Secretary
Slough CDEC IV, LLC, a Delaware limited liability company
By:	/s/ Jonathan M. Bergschneider Jonathan M. Bergschneider, Secretary

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EXHIBITS

EXHIBIT A-1	Site Plan (The Center)
EXHIBIT A-2	Building Plan
EXHIBIT B	Workletter
EXHIBIT C	Form of Acknowledgment of Rent Commencement Date
EXHIBIT D	Existing Tenant Rights

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EXHIBIT A-l

SITE PLAN (THE CENTER)

[See attached two (2) pages.]

EXHIBIT A-l TO LEASE

Site Plan
EXHIBIT A-1 (page 1 of 2) Shoreline Technology Party
MOUNTAIN VIEW, CALIFORNIA

Site Plan
EXHIBIT A-1 (page 2 of 2) Shoreline Technology Party
MOUNTAIN VIEW, CALIFORNIA

EXHIBIT A-2

BUILDING PLAN

[See attached one (1) page.]

EXHIBIT A-2 TO LEASE

Building Plan
EXHIBIT A-2 Shoreline Technology Park
MOUNTAIN VIEW, CALIFORNIA

EXHIBIT B

WORKLETTER

     This Workletter (“Workletter”) constitutes part of the Lease dated as of August 25, 2006 (the “Lease”) between BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company (“Landlord”), and ALEXZA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”). The terms of this Workletter are incorporated in the Lease for all purposes.

1. Defined Terms. As used in this Workletter. the following capitalized terms have the following meanings:

     (a) Approved Plans: Plans and specifications prepared by the Architect for the Tenant Improvements and approved by Landlord in accordance with Paragraph 2 of this Workletter, subject to further modification from time to time to the extent provided in and in accordance with such Paragraph 2.

     (b) Architect: The Architect for the Tenant Improvements shall be selected by Tenant with the written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.

     (c) Cost of Improvement: See definition in Paragraph 2(b) hereof.

     (d) Final Working Drawings: See definition in Paragraph 2(a) hereof.

     (e) General Contractor: The General Contractor for the Tenant Improvements shall be selected by Tenant with the written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed, as contemplated in Paragraph 4(a) hereof.

     (f) Project Manager. Project Management Advisors, Inc., or any other project manager designated by Landlord in its sole discretion from time to time by written notice to Tenant to act in an oversight and coordinating capacity on behalf of Landlord, as contemplated in Paragraph 2(d) below, in connection with the design and construction of the Tenant Improvements.

     (g) Tenant Improvements: The improvements to or within the Premises as shown on the Approved Plans from time to time and to be constructed by Tenant pursuant to the Lease and this Workletter. The Tenant Improvements may also include an exterior fenced (but not completely enclosed) area for emergency generator or other equipment-related purposes, subject to Landlord’s approval of the Approved Plans therefor, to compliance with applicable laws and to all other applicable conditions as set forth in the Workletter, provided that the construction and operation of such exterior fenced area does not increase the required number of parking spaces or the required parking ratios for the Center.

     (h) Capitalized terms not otherwise defined in this Workletter shall have the definitions set forth in the Lease.

2. Plans, Cost of Improvements and Construction. Landlord and Tenant shall comply with the procedures set forth in this Paragraph 2 in preparing, delivering and approving matters relating to the Tenant Improvements.

     (a) Approved Plans and Working Drawings for Tenant’s Work. Tenant shall promptly and diligently cause to be prepared and delivered to Landlord for approval (which approval shall not be unreasonably withheld, conditioned or delayed by Landlord) a space plan and outline specifications for the Tenant Improvements that Tenant wishes to construct in the Premises (the “Schematic Plans”). Following mutual approval of the Schematic Plans. Tenant shall then promptly and diligently cause to be prepared and delivered to Landlord for approval (which approval shall not be unreasonably withheld, conditioned or delayed by Landlord) final working drawings and specifications for the Tenant Improvements, including any applicable life safety, mechanical and electrical working drawings and final architectural drawings (collectively, the “Final Working Drawings”). The Final Working Drawings shall substantially conform to the approved Schematic Plans. Landlord shall either approve the Final Working Drawings or set forth in writing with particularity any changes necessary to bring the Final Working Drawings into substantial conformity with the approved Schematic Plans or into a form which will be acceptable to Landlord. Upon approval of the Final Working Drawings by Landlord and Tenant, the Final Working Drawings shall constitute the “Approved Plans”, superseding (to the extent of any inconsistencies) any inconsistent features of the previously approved Schematic Plans. After Approved plans are available, Tenant may submit the same to the appropriate governmental authorities for all applicable building permits. Tenant hereby agrees that neither Landlord nor Landlord’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant’s responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy and, if applicable, shall submit plans and timely complete all of Landlord’s Work under Section 2.3 of the Lease as reasonably required to allow Tenant to obtain a permit or certificate of occupancy. Prior to commencing construction of the Tenant Improvements, Tenant shall provide Landlord with a copy of all required permits.

     (b) Cost of Improvements. “Cost of Improvement” shall mean, with respect to any item or component for which a cost must be determined in order to allocate such cost, or an increase in such cost, to Landlord and/or Tenant pursuant to this Workletter, the sum of the following (unless otherwise agreed in writing by Landlord and Tenant with respect to any specific item or component or any category of items or components): (i) all sums paid to contractors or subcontractors for labor and materials furnished in connection with construction of such item or component; (ii) all costs, expenses, payments, fees and charges (other than penalties) paid or incurred to or at the direction of any city, county or other governmental or quasi-governmental authority or agency which are required to be paid in order to obtain all necessary governmental permits, licenses, inspections and approvals relating to construction of such item or component; (iii) engineering and architectural fees for services rendered in connection with the design and construction of such item or component (including, but not limited to, the Architect for such item or component and an electrical engineer, mechanical engineer and civil engineer, if applicable); (iv) sales and use taxes; (v) testing and inspection costs; (vi) the cost of power, water and other utility facilities and the cost of collection and removal of debris required in connection with construction of such item or component; and

B - 2

(vii) all other “hard” and “soft” costs incurred in the construction of such item or component in accordance with the Approved Plans and this Workletter.

     (c) Changes. If Tenant at any time desires to make any changes, alterations or additions to the Approved Plans, such changes, alterations or additions shall be subject to approval by Landlord in the same manner as the original Approved Plans as provided above; provided, however, that Landlord shall respond to any such request by Tenant within ten (10) days after submission thereof by Tenant, and Landlord’s failure to respond within the required time shall be deemed to constitute Landlord’s approval of the requested change.

     (d) Project Management. Unless and until revoked by Landlord by written notice delivered to Tenant, Landlord hereby (i) delegates to Project Manager the authority to exercise all approval rights and other rights and powers of Landlord under this Workletter with respect to the design and construction of the Tenant Improvements, and (ii) requests that Tenant work with Project Manager with respect to any logistical or other coordination matters arising in the course of construction of the Tenant Improvements, including (but not limited to) reviewing and processing Tenant’s requests for disbursement of the Tenant Improvement Allowance, monitoring Tenant’s and Landlord’s compliance with their respective obligations under this Workletter and under the Lease with respect to the design and construction of the Tenant Improvements, and addressing any coordination issues that may arise from any concurrent performance of Landlord’s Work under Section 2.3 of the Lease and Tenant’s construction of the Tenant Improvements. Tenant acknowledges the foregoing delegation and request, and agrees to cooperate reasonably with Project Manager as Landlord’s representative pursuant to such delegation and request. As between Landlord and Tenant, however, Landlord shall be bound by and be fully responsible for all acts and omissions of Project Manager and for the performance of all of Landlord’s obligations under the Lease and this Workletter, notwithstanding such delegation of authority to Project Manager. Notwithstanding the preceding sentence, neither Landlord’s delegation of authority to Project Manager nor Project Manager’s performance of the functions and responsibilities contemplated in this paragraph shall cause Landlord or Project Manager to incur any obligations or responsibilities for the design, construction or delivery of the Tenant Improvements, except to the extent of the specific obligations and responsibilities expressly set forth in the Lease and in this Workletter. All fees and charges of Project Manager for services rendered to or on behalf of Landlord under this Workletter shall be at Landlord’s sole expense.

3. Payment of Costs. Except as otherwise expressly provided in this Workletter or by mutual written agreement of Landlord and Tenant, the Cost of Improvement of the Tenant Improvements shall be paid or reimbursed by Landlord up to a maximum contribution by Landlord equal to Eight Million Three Hundred Thirty-One Thousand Seven Hundred Eight and no/100 Dollars ($8,331,708.00) (the “Tenant Improvement Allowance”), less any reduction in or charge against such sums pursuant to any applicable provisions of the Lease or of this Workletter. Tenant shall be responsible, at its sole cost and expense, for payment of the entire Cost of Improvements of the Tenant Improvements in the Premises in excess of the Tenant Improvement Allowance or such portion thereof as Tenant elects to use (if any such excess occurs), including (but not limited to) any costs or cost increases incurred as a result of unavoidable delays, governmental requirements or unanticipated conditions, but Tenant shall be entitled to utilize the entire Tenant Improvement Allowance (or so much thereof as Tenant elects

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to use) for the Tenant Improvements prior to being required to expend any of Tenant’s own funds on an unreimbursed basis for the Tenant Improvements (except to the extent any costs are incurred which are not eligible for payment or reimbursement out of the Tenant Improvement Allowance under the express provisions governing the Tenant Improvement Allowance, including, without limitation, the express restrictions set forth below in this paragraph). The funding of the Tenant Improvement Allowance (or so much thereof as Tenant elects to use) shall be made on a monthly basis or at other convenient Intervals mutually approved by Landlord and Tenant, and in all other respects shall be based on such commercially reasonable disbursement conditions and procedures as Landlord, Project Manager and Landlord’s lender (if any) may reasonably prescribe (which conditions may include, without limitation, delivery of invoices, architect’s certifications and/or other evidence reasonably satisfactory to Landlord or Project Manager that expenses have been incurred for the design and construction of alterations and improvements for which the Tenant Improvement Allowance is eligible to be expended or applied, and delivery of conditional or unconditional lien releases from all parties performing the applicable work). An example of Landlord’s standard “Invoicing Instructions” is attached hereto as Schedule B-l and incorporated herein by this reference, but Landlord reserves the right to modify or supplement such instructions in a commercially reasonable manner as provided in the preceding sentence. Notwithstanding the foregoing provisions, (i) under no circumstances shall the Tenant Improvement Allowance or any portion thereof be used or useable for any moving or relocation expenses of Tenant, or for any Cost of Improvement (or any other cost or expense) associated with any moveable furniture, trade fixtures, personal property or any other item or element which, under the applicable provisions of the Lease, will not become Landlord’s property and remain with the Building upon expiration or termination of the Lease, unless (and only to the extent) otherwise expressly agreed in writing by Landlord in its sole discretion, and (ii) any portion of the Tenant Improvement Allowance which has not been claimed or drawn by Tenant as of the date that is one year after the Rent Commencement Date shall expire and shall no longer be available to Tenant thereafter. The Tenant Improvement Allowance is provided as part of the basic consideration to Tenant under the Lease and will not result in any rental adjustment or additional rent beyond the rental amounts expressly provided in Section 3.1 of the Lease.

4. Tenant’s Work. Tenant shall construct and install the Tenant Improvements in the Premises substantially in accordance with the Approved Plans. Tenant’s construction of the Tenant Improvements shall be performed in accordance with, and shall in all respects be subject to, the terms and conditions of the Lease (to the extent not inconsistent with this Workletter), and shall also be subject to the following conditions:

     (a) Contractor Requirements. The general contractor engaged by Tenant for construction of the Tenant Improvements, and any subcontractors, shall be duly licensed in California and shall be subject to Landlord’s prior written approval (in accordance with and to the extent provided in Paragraph 1 (e) above). Tenant shall engage only union contractors for the construction of the Tenant Improvements and for the installation of Tenant’s fixtures and equipment in the Building, and shall require all such contractors engaged by Tenant, and all of their subcontractors, to use only union labor on or in connection with such work, except to the extent Landlord determines, in its reasonable discretion, that the use of non-union labor would not create a material risk of labor disputes, picketing or work interruptions at the Center, in

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which event Landlord shall, to that extent, waive such union labor requirement at Tenant’s request.

     (b) Costs and Expenses of Tenant Improvements. Subject to Landlord’s payment or reimbursement obligations under Paragraph 3 hereof with respect to Landlord’s share of the Cost of Improvements for the Tenant Improvements, Tenant shall promptly pay all costs and expenses arising out of the design and construction of the Tenant Improvements (including the costs of permits) and shall furnish Landlord with evidence of payment on request. Tenant shall provide Landlord with ten (10) days prior written notice before commencing any construction activities on the Property. Upon completion of construction of the Tenant Improvements, Tenant shall deliver to Landlord a release and unconditional lien waiver executed by each contractor, subcontractor and materialman involved in the design or construction of the Tenant Improvements.

     (c) Tenant’s Indemnification. Tenant shall indemnify, defend (with counsel reasonably satisfactory to Landlord) and hold Landlord harmless from all suits, claims, actions, losses, costs and expenses (including, but not limited to, claims for workers’ compensation, attorneys’ fees and costs) based on personal injury or property damage or contract claims (including, but not limited to, claims for breach of warranty) arising from the design and construction of the Tenant Improvements from any cause whatsoever other than negligence or willful misconduct or omission by Landlord or its agents, employees or contractors. Tenant shall repair or replace (or, at Landlord’s election, reimburse Landlord for the cost of repairing or replacing) any portion of the buildings or other existing improvements on the Property and/or any of Landlord’s real or personal property or equipment that is damaged, lost or destroyed in the course of or in connection with the construction of the Tenant Improvements, except to the extent (i) any such damage, loss or destruction is caused by negligence or willful misconduct or omission by Landlord or its agents, employees or contractors, or (ii) any demolition or removal of existing improvements is explicitly contemplated in the Approved Plans as approved by Landlord.

     (d) Insurance. With respect to the construction of the Tenant Improvements, Tenant’s contractors shall obtain and provide to Landlord certificates evidencing workers’ compensation, employer’s liability, public liability and property damage insurance in amounts and forms and with companies reasonably satisfactory to Landlord, and Tenant shall provide to Landlord certificates evidencing Tenant’s compliance with the insurance requirements of Article 10 of the Lease (except to the extent any such requirements, such as the products/completed operations coverage described in the final sentence of Section 10.1(a) of the Lease, by their terms are clearly relevant only after Tenant’s commencement of business operations on the Premises). In addition, to the extent Landlord or Project Manager advises Tenant of any specific insurance requirements that are commercially reasonable and customary during a “course of construction” period (such as, but not limited to, designation of specified “additional insureds” who would not ordinarily be required to be named in that capacity during the Lease term under Article 10 of the Lease), Tenant shall comply with and/or cause its contractors (as applicable) to comply with such additional requirements.

     (e) Rules and Regulations. Tenant and Tenant’s contractors shall comply with any rules, regulations and requirements that Landlord, Project Manager or Landlord’s property

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manager or general contractor (if any) may reasonably impose with respect to the construction of the Tenant Improvements. Tenant’s agreement with Tenant’s contractors shall require each contractor to provide reasonable and customary daily cleanup of the construction area to the extent that such cleanup is necessitated by the performance of such contractor’s activities in connection with the construction of the Tenant Improvements and to the extent that such cleanup is reasonably practical under the circumstances.

     (f) Risk of Loss. All materials, work, installations and decorations of any nature brought onto or installed in the Building, by or at the direction of Tenant or in connection with the construction of the Tenant Improvements, prior to the Rent Commencement Date shall be at Tenant’s risk, and neither Landlord nor any party acting on Landlord’s behalf shall be responsible for any damage, loss or destruction thereof.

     (g) Condition of Tenant’s Work. All work performed by Tenant shall be performed in a good and workmanlike manner, shall be free from defects in design, materials and workmanship, and shall be completed in compliance with the Approved Plans in all material respects and in compliance with all applicable governmental laws, ordinances, codes and regulations in force at the time such work is completed. Without limiting the generality of the foregoing, Tenant shall be responsible (i) for obtaining all permits and approvals necessary for the construction of the Tenant Improvements, and (ii) for compliance of all Tenant Improvements with the requirements of the ADA and all similar or related requirements under federal, state or local laws pertaining to access by persons with disabilities.

     (h) As-Built Drawings. At the conclusion of construction, Tenant shall cause the Architect and General Contractor (A) to update the Approved Drawings as necessary to reflect all changes made to the Approved Drawings during the course of construction, (B) to certify to the best of their knowledge that the “record-set” of as-built drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises.

5. No Agency. Nothing contained in this Workletter shall make or constitute Tenant as the agent of Landlord.

6. Survival. Without limiting any survival provisions which would otherwise be implied or construed under applicable law, the provisions of Paragraph 4(c) of this Workletter shall survive the termination of the Lease with respect to matters occurring prior to expiration of the Lease.

7. Miscellaneous. All references in this Workletter to a number of days shall be construed to refer to calendar days, unless otherwise specified herein. If any item requiring approval by Landlord is disapproved by Landlord in a timely manner, the procedure for preparation and approval of that item shall be repeated.

[rest of page intentionally left blank]

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     IN WITNESS WHEREOF, the parties have executed this Workletter concurrently with and as of the date of the Lease.

		“Landlord”		“Tenant”
BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company			ALEXZA PHARMACEUTICALS, INC., a Delaware corporation
By:	Slough Estates USA Inc., Its
	Operations Manager and Member		By:	/s/ [ILLEGIBLE]
			Its:	CFO
	By:	/s/ Jonathan M. Bergschneider
		Jonathan M. Bergschneider	By:
		Senior Vice President	Its:

Attachment: Schedule B-l (Sample Invoicing Instructions)

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Schedule B-l

Sample Invoicing Instructions

TI ALLOWANCE DISBURSEMENT INSTRUCTIONS

1. Tenant shall assemble a package of applicable vendor invoices eligible for Tenant Allowance distribution per the requirements of the lease Workletter. This package should contain:

• a cover letter

• an invoice summary that clearly indicates the vendor, the invoice number(s), the invoice date(s), the amounts due, and a reference to the TI project at                     .

• copies of the invoices, bearing the written approval of Tenant

2. Tenant shall send 2 copies of the entire package for processing to:

Project Management Advisors, Inc.
400 Oyster Point Blvd., Suite 336
South San Francisco, CA 94080
Attn: Bernard Baker

3.	Invoice packages must be received by PMA not later than the 5th of the month in order to be included in the monthly payment request to Slough Estates. Packages received after the 5th of the month wiil be included in the following month’s payment request.
4.	The Owner will make every attempt to issue the Tenant Improvement Allowance disbursement by the end of the month for those packages received by PMA on or before the 5th of the month.
5.	All invoices must be submitted with the following attachments:

• Conditional Waiver of Lien covering the amount being invoiced.

• Unconditional Waiver of Lien covering payment of the prior month’s invoice.

• Copies of receipts (i.e. reimbursable expenses, subcontractor invoices).

• Subcontractor waiver(s), if applicable.

• General contractor shall submit (2) original wet signature invoices/application for payment,

     signed and notarized

     Construction Invoices shall have:

- Architect’s signature (when appropriate)

- Tenant’s signature

Invoices submitted without proper Lien Waiver documentation will not be included in the payment request.

Schedule B-l to Workletter

     EXHIBIT C

      ACKNOWLEDGMENT OF RENT COMMENCEMENT DATE

     This Acknowledgment is executed as of                                        , 200                , by BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company (“Landlord”), and ALEXZA PHARMACEUTICALS, INC., a Delaware corporation (“Tenant”), pursuant to Section 2.4 of the Lease dated August 25, 2006 between Landlord and Tenant (the “Lease”) covering premises located at 2091 Stierlin Court, Mountain View, CA 94043 (the “Premises”).

     Landlord and Tenant hereby acknowledge and agree as follows:

     1. The Rent Commencement Date under the Lease is                                         , 200               .
     2. The termination date under the Lease shall be                                         , 200                    , subject to any applicable provisions of the Lease for extension or early termination thereof.

     3. The square footage of the Premises is 65,604 square feet.

     4. Tenant accepts the Premises, subject only to Landlord’s warranties, representations and obligations expressly set forth in Section 2.3 of the Lease.

     This Acknowledgment is executed as of the date first set forth above.

	“Landlord”		“Tenant”
BRITANNIA HACIENDA VIII LLC, a Delaware limited liability company		ALEXZA PHARMACEUTICALS, INC., a Delaware corporation
By:	Slough Estates USA Inc., Its
	Operations Manager and Member	By:
		Its:
By:
	Jonathan M. Bergschneider	By:
	Senior Vice President	Its:

EXHIBIT C TO LEASE

     EXHIBIT D

     EXISTING TENANT RIGHTS

1. Boston Scientific Corp.:
Tenant of 2011 Stierlin Court
Holds first offer right with 5-day response period on 2091 Stierlin Court building (the

Premises), which right has already expired or been waived prior to Lease
Commencement Date

Lease expires 2/28/2011, subject to one 5-year renewal option

2. FoxHollow Technologies, Inc.
Tenant of 2081 Stierlin Court

Holds first refusal right with 10-business-day response period on 2091 Stierlin Court

building (the Premises), which right has already expired or been waived prior to
Lease Commencement Date

Lease expires 12/31/2016, subject to two 5-year renewal options

3. Actel Corp.:

Tenant of 2061 Stierlin Court
Holds first offer right with 10-day response period on 2071 Stierlin Court building (one

of the First Refusal Buildings)

Lease expires 1/31/2014, subject to two 5-year renewal options

EXHIBIT D TO LEASE

EX-10.25

Exhibit 10.25

2006 Performance Bonus Program.

On June 1, 2006, the Board of Directors (the “Board”) of Alexza Pharmaceuticals, Inc. (the “Company”), based upon the approval and recommendation of the Compensation Committee (the “Committee”), approved the adoption of the 2006 Performance Bonus Program (the “Bonus Program”) for the Company’s employees, including its executive officers. The Bonus Program was adopted to attract, motivate and retain the Company’s employees.

In order to be eligible for participation in the Bonus Program, an employee must be employed by the Company for at least six months (i.e. a start date before July 1, 2006) and still be employed at the end of 2006. Employees employed more than six months, but less than one year, are eligible to receive a pro-rated bonus payout. The annual cash bonuses and stock option awards, if any, for all employees, including executive officers, are calculated in accordance with a formula that takes into account base salary and accomplishment of specified corporate, departmental and individual goals. The Board determines the achievement of the corporate goals and the Company’s management team determines the achievement of departmental and individual goals. The relative weighting of the components of the goals, the allocation of awards between cash bonuses and stock option awards, and the percentage of base salary used to determine bonus eligibility vary by the levels of employee, with the bonuses of executive officers being weighted toward achievement of corporate goals, stock option awards and a higher percentage of base salary. Stock option awards are valued based on a Black Scholes calculation of the option award value. Payment of bonuses pursuant to the Bonus Program are based on the achievement of the following corporate goals: (i) completion of the Company’s initial public offering; (ii) certain corporate development goals; (iii) achievement of certain commercial manufacturing goals; (iv) achievement of certain clinical trial advancement goals; and (v) corporate/financial goals relating to achievement of certain financial measures.

The Company expects that the cash and stock bonuses payable for fiscal year 2006, if any, will be calculated in the manner set forth above and will vary depending on the extent to which actual performance meets, exceeds, or falls short of the specified corporate goals and attainment of individual and departmental goals. In addition, the Company’s management team, the Committee and the Board retain the discretion to (i) increase, reduce or eliminate the cash and stock option bonuses that otherwise might be payable to all employees or any individual based on actual performance as compared to pre-established goals, and (ii) structure future or additional bonus and equity incentives in a manner that they believe will appropriately motivate and reward the Company’s employees, including the Company’s executive officers.

EX-10.26

Exhibit 10.26

[*] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

PURCHASE OPTION AGREEMENT

by and among

ALEXZA PHARMACEUTICALS, INC.,

SYMPHONY ALLEGRO HOLDINGS LLC

and

SYMPHONY ALLEGRO, INC.

Dated as of December 1, 2006

TABLE OF CONTENTS

		Page
Section 1.	Grant of Purchase Option		2
Section 2.	Exercise of Purchase Option		3
Section 2A.	Change of Control Put Option; Obligations		7
Section 2B.	Related Product Payments		8
Section 3.	Alexza Representations, Warranties and Covenants		9
Section 4.	Holdings Representations, Warranties and Covenants		12
Section 5.	Symphony Allegro Representations, Warranties and Covenants		15
Section 6.	Notice of Material Event		24
Section 7.	Assignment; Transfers; Legend		24
Section 8.	Costs and Expenses; Payments		25
Section 9.	Expiration; Termination of Agreement		25
Section 10.	Survival; Indemnification		26
Section 11.	No Petition		29
Section 12.	Third-Party Beneficiary		29
Section 13.	Notices		29
Section 14.	Governing Law; Consent to Jurisdiction and Service of Process		30
Section 15.	WAIVER OF JURY TRIAL		31
Section 16.	Entire Agreement		31
Section 17.	Amendment; Successors; Counterparts		31
Section 18.	Specific Performance		32
Section 19.	Severability		32
Section 20.	Tax Reporting		32

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

i

Annex A	Certain Definitions
Exhibit 1	Purchase Exercise Notice
Exhibit 2	Form of Opinion of Cooley Godward Kronish LLP

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

ii

PURCHASE OPTION AGREEMENT

     This PURCHASE OPTION AGREEMENT (this “Agreement”) is entered into as of December 1, 2006 (the “Closing Date”), by and among ALEXZA PHARMACEUTICALS, INC., a Delaware corporation (“Alexza”), SYMPHONY ALLEGRO HOLDINGS LLC, a Delaware limited liability company (“Holdings”), and SYMPHONY ALLEGRO, INC., a Delaware corporation (“Symphony Allegro”). Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in Annex A attached hereto.

PRELIMINARY STATEMENT

     WHEREAS, Alexza and Holdings have entered into a Technology License Agreement pursuant to which Alexza has granted Holdings an exclusive license (the “License”) to the use of certain intellectual property related to the Programs owned or controlled by Alexza;

     WHEREAS, contemporaneously with the execution of this Agreement, Alexza, Holdings and Symphony Allegro are entering into a Novated and Restated Technology License Agreement, pursuant to which, among other things, Holdings will assign by way of novation the License to Symphony Allegro;

     WHEREAS, Alexza and Holdings have entered into a Research and Development Agreement pursuant to which Alexza has agreed, among other things, to perform, on behalf of Holdings, research and development of the Programs;

     WHEREAS, contemporaneously with the execution of this Agreement, Alexza, Holdings and Symphony Allegro are entering into an Amended and Restated Research and Development Agreement, pursuant to which, among other things, Holdings will assign its rights and obligations under the Research and Development Agreement to Symphony Allegro;

     WHEREAS, contemporaneously with the execution of this Agreement, in order to fund such research and development, institutional investors are committing to invest $50,000,000 in Holdings (the “Financing”) in exchange for membership interests in Holdings and for warrants (the “Warrants”) to purchase up to a total of 2 million shares of Alexza Common Stock, to be initially issued to Holdings, and Holdings will agree to contribute the proceeds of the Financing to Symphony Allegro;

     WHEREAS, Holdings desires, in consideration for the Warrants, to grant Alexza an option to purchase all of the Common Stock of Symphony Allegro and any other Equity Securities issued by Symphony Allegro (together, the “Symphony Allegro Equity Securities”) owned, or hereinafter acquired, by Holdings on the terms described in this Agreement; and

     WHEREAS, Symphony Allegro and Holdings have determined that it is in each of its best interest to perform and comply with certain agreements and covenants relating to each of its ongoing operations contained in this Agreement;

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto (the “Parties”) agree as follows:

          Section 1. Grant of Purchase Option

               (a) Holdings hereby grants to Alexza an exclusive option (the “Purchase Option”) to purchase all, but not less than all, of the outstanding Symphony Allegro Equity Securities owned or hereinafter acquired by Holdings, in accordance with the terms of this Agreement.

               (b) Symphony Allegro hereby covenants and agrees that all Symphony Allegro Equity Securities issued by Symphony Allegro at any time prior to the expiration of the Term (including to Holdings on, prior to, or after the date hereof or to any other Person at any time whatsoever, in all cases prior to the expiration of the Term) shall be subject to a purchase option on the same terms as the Purchase Option (except as provided by the immediately following sentence) and all of the other terms and conditions of this Agreement without any additional action on the part of Alexza or Holdings. Further, to the extent Symphony Allegro shall issue any Symphony Allegro Equity Securities (including any issuance in respect of a transfer of Symphony Allegro Equity Securities by any holder thereof, including Holdings) after the date hereof to any Person (including Holdings) (any issuance of such Symphony Allegro Equity Securities being subject to the prior written consent of Alexza as set forth in Sections 5(c) and 7(b) hereof, as applicable), Symphony Allegro hereby covenants and agrees that it shall cause such Symphony Allegro Equity Securities to be subject to the Purchase Option without the payment of, or any obligation to pay, any additional consideration in respect of such Symphony Allegro Equity Securities by Alexza, Symphony Allegro or any Symphony Allegro Subsidiary to the Person(s) acquiring such subsequently issued Symphony Allegro Equity Securities, the Parties acknowledging and agreeing that the sole consideration payable by Alexza pursuant to this Agreement for all of the outstanding Symphony Allegro Equity Securities now or hereinafter owned by any Person shall be the Purchase Price (as defined in Section 2(b) hereof).

               (c) Alexza’s right to exercise the Purchase Option granted hereby is subject to the following conditions:

                    (i) The Purchase Option may only be exercised for the purchase of all, and not less than all, of the Symphony Allegro Equity Securities;

                    (ii) The Purchase Option may only be exercised a single time;

                    (iii) Except as expressly provided in Sections 1(c)(iv) and (v), the Purchase Option may be exercised only during the period (the “Purchase Option Period”) commencing on and including December 1, 2007 (the “Purchase Option Commencement Date”) and ending on and including the earlier of (x) December 1, 2010 (the “Final Termination Date”), and (y) the [ * ] calendar day (such [ * ] calendar day, the

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2

“Funds Termination Date”) immediately following the first date (each, a “Balance Sheet Deficiency Date”) on which a notice of an impending Funds Termination Date (a “Funds Termination Notice”) is delivered to Alexza by Holdings or Symphony Allegro in accordance with Section 13 hereof, accompanied by an internally prepared, unaudited, balance sheet of Symphony Allegro (prepared in accordance with GAAP) stating that the working capital of Symphony Allegro is less than the Balance Sheet Deficiency Threshold at such time (any such event, a “Balance Sheet Deficiency”);

                    (iv) In the event that Alexza has agreed to share the costs of additional research pursuant to the Research Cost Sharing and Extension Agreement, the Purchase Option Period shall be determined in accordance with the Research Cost Sharing and Extension Agreement (for the avoidance of doubt, amounts transferred by Alexza pursuant to the Research Cost Sharing and Extension Agreement shall not be included in any calculation of the Purchase Price hereunder); and

                    (v) In the event that Symphony Allegro terminates the Amended and Restated Research and Development Agreement pursuant to Section 17.2 thereof, Alexza shall have [ * ] to notify Holdings of its exercise of the Purchase Option under the terms of this Agreement. Such exercise of the Purchase Option by Alexza may occur prior to the Purchase Option Commencement Date (an “Early Purchase Option Exercise”).

          Section 2. Exercise of Purchase Option

               (a) Exercise Notice. Alexza may exercise the Purchase Option only by delivery of a notice in the form attached hereto as Exhibit 1 (the “Purchase Option Exercise Notice”) during the Purchase Option Period. The Purchase Option Exercise Notice shall be delivered on a Business Day to Holdings and Symphony Allegro and shall be irrevocable once delivered. The date on which the Purchase Option Exercise Notice is first delivered to Holdings and Symphony Allegro is referred to as the “Purchase Option Exercise Date.” The Purchase Option Exercise Notice shall contain (1) an estimated date for the settlement of the Purchase Option (the “Purchase Option Closing”), which date shall be estimated in accordance with this Section 2(a), (2) the Purchase Price, determined in accordance with Section 2(b) hereof, and (3) if Alexza intends to pay part of the Purchase Price in Alexza Common Stock, notice of such intent, the number of shares to be transferred at such purchase price, the valuation thereof and the percentage such portion bears to (A) the Purchase Price, and (B) the total amount of Alexza Common Stock then issued and outstanding (which shall be no greater percentages than are permitted under Section 2(c)). Such notice and election shall be irrevocable once delivered. If, during the period following the delivery of the Purchase Option Exercise Notice, the working capital held by Symphony Allegro is less than or equal to the Balance Sheet Deficiency Threshold, then Symphony Allegro shall cease payment of any amounts owed to Alexza in respect of its activities pursuant to the Amended and Restated Research and Development Agreement, but shall continue to pay amounts owed to all other Persons. All cash and cash equivalents on Symphony Allegro’s balance sheet on the date of the Purchase Option Closing (the “Purchase Option

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

3

Closing Date”) are to remain with Symphony Allegro. The Purchase Option Closing Date shall be determined as follows:

                    (i) If Alexza elects to pay the entire Purchase Price in cash, the Purchase Option Closing Date shall be the date that is the later of: (A) [ * ] following the Purchase Option Exercise Date; and (B) [ * ] following the date that Alexza receives all necessary Government Approvals related to its HSR Filings; provided, however that unless Holdings receives from Alexza an opinion from nationally recognized anti-trust counsel (which opinion is acceptable in form and substance to Holdings) to the effect that no HSR Filings are required, Alexza and Holdings shall make all necessary HSR Filings within [ * ] following the Purchase Option Exercise Date and shall promptly and diligently pursue the related regulatory process, including without limitation, responding to any second request from the Federal Trade Commission or the Department of Justice, as applicable; and provided, further that (1) if there is no second request from the Federal Trade Commission or the Department of Justice, as applicable, with respect to Alexza’s or Holdings’ HSR Filings, then in no event shall the Purchase Option Closing Date be more than [ * ] following the Purchase Option Exercise Date, and (2) if there is a second request from the Federal Trade Commission or the Department of Justice, as applicable, with respect to Alexza’s or Holdings’ HSR Filings, then in no event shall the Purchase Option Closing Date be more than [ * ] following the date upon which the later of Alexza or Holdings delivers documents pursuant to such second request. If Alexza shall fail to make such cash payment on the Purchase Option Closing Date within the applicable time period set forth above, then in addition to any other rights that Holdings shall have hereunder, this Agreement shall terminate and Alexza shall relinquish all rights hereunder to purchase the Symphony Allegro Equity Securities; or

                    (ii) If Alexza elects to pay a portion of the Purchase Price in Alexza Common Stock (subject to the limitations set forth herein and in the Registration Rights Agreement), the Purchase Option Closing Date shall be the date that is the later of:

               (A) [ * ] following the Purchase Option Exercise Date;

               (B) [ * ] following the Effective Registration Date of such Alexza Common Stock; provided, that Alexza shall file the Registration Statement contemplated by Section 3(b)(i) within (x) [ * ] after the Purchase Option Exercise Date if Alexza is eligible to use Form S-3 under the Securities Act (or any successor form), or (y) [ * ] after the Purchase Option Exercise Date if Alexza is not eligible to use Form S-3 under the Securities Act (or any successor form); and

               (C) [ * ] following the date that Alexza receives the necessary Government Approvals related to its HSR Filings (if any) related to the exercise of the Purchase Option; provided, however, that Alexza and Holdings shall make all necessary HSR Filings within [ * ] following the Purchase Option

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Exercise Date and shall promptly and diligently pursue the related regulatory process consistent with the provisos in clause (i) above;

provided, further, that Alexza shall use commercially reasonable efforts to have such Registration Statement declared effective by the SEC as promptly as possible following the filing of the Registration Statement. Alexza shall use commercially reasonable efforts to maintain the effectiveness of any such Registration Statement for a period of two (2) years following the SEC’s declaration. In the event that such Registration Statement is not declared effective within [ * ] of the Purchase Option Exercise Date, Alexza shall immediately pay the full Purchase Price in cash with such Purchase Price determination based on the Purchase Price effective in the applicable quarter in which such immediate cash payment is required to be made by Alexza (in which event the Purchase Option Closing Date shall be the date upon which such cash payment is made by Alexza). If Alexza shall fail to make such immediate cash payment, then in addition to any other rights or remedies that Holdings shall have arising from such breach, this Agreement shall terminate and Alexza shall relinquish all rights hereunder to purchase the Symphony Allegro Equity Securities.

               (b) Purchase Price Upon Option Exercise. Upon exercise of the Purchase Option and as complete and full consideration for the sale to Alexza by Holdings of its Symphony Allegro Equity Securities (and for the Symphony Allegro Equity Securities of any other Person), Alexza shall pay the “Quarterly Price” set forth on Schedule I hereto for the applicable quarter following the Closing Date in which the Purchase Option Closing Date actually occurs, [ * ], (ii) any amount paid by Alexza for the Symphony Allegro Equity Securities of any other Person and (iii) [ * ]. In the event of the Early Purchase Option Exercise, pursuant to Section 1(c)(v) hereof, the “Purchase Price” shall be an amount equal to the amount set forth on Schedule I applicable to the Quarterly Price for the 5th Quarter, [ * ]; (B) any amount paid by Alexza for the Symphony Allegro Equity Securities of any other Person; [ * ].

               (c) Form of Payment. Subject to Sections 2(a) and 2(e), the Purchase Price may be paid in cash or in a combination of cash and Alexza Common Stock, at the sole discretion of Alexza; provided, that in no event may the value of Alexza Common Stock (determined in accordance with Section 2(e) hereof) delivered in connection with the exercise of the Purchase Option constitute more than either (x) [ * ] of the total consideration to be tendered for payment of the Purchase Option Exercise Price, calculated using the Alexza Common Stock Valuation (as defined herein) procedure, or (y) [ * ] of all the Alexza Common Stock issued and outstanding immediately preceding the Purchase Option Closing Date.

               (d) Surrender of Symphony Allegro Equity Securities; Symphony Allegro Board. Subject to the terms and conditions of this Agreement, on the Purchase Option Closing Date, Holdings shall surrender to Alexza its certificates representing its Symphony Allegro Equity Securities, and shall convey good title to such Symphony Allegro Equity Securities, free from any Encumbrances and from any and all restrictions that any sale, assignment or other transfer of such Symphony Allegro Equity Securities be consented to or approved by any Person. On or prior to the Purchase

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Option Closing Date, Holdings shall remove all directors serving on the Symphony Allegro Board, other than the Alexza Director (as defined in Section 4(b)(iv) hereof), as of the Purchase Option Closing Date. Furthermore, Holdings shall use commercially reasonable efforts to deliver to Alexza, promptly after the Purchase Option Closing Date, any certificates representing Symphony Allegro Equity Securities which were not surrendered to Alexza on the Purchase Option Closing Date.

               (e) Valuation of Alexza Stock. In the event that Alexza elects to pay part of the Purchase Price through the delivery to Holdings of Alexza Common Stock, the value per share thereof (the “Alexza Common Stock Valuation”) shall equal the average closing price of Alexza Common Stock, as reported by the NASDAQ Global Market, or other national exchange that is the primary exchange on which Alexza Common Stock is listed, for the [ * ] immediately preceding (but not including) the second trading day prior to the Purchase Option Exercise Date. If Alexza Common Stock is not traded on a national exchange or the NASDAQ Global Market, then Alexza shall be obligated to pay the Purchase Price solely in cash on the Purchase Option Closing Date. Alexza shall calculate the Alexza Common Stock Valuation in accordance with this Section 2(e), subject to review and confirmation by Holdings.

               (f) Government Approvals. On or prior to the Purchase Option Closing Date, each of Alexza, Symphony Allegro and Holdings shall have taken all necessary action to cause all Governmental Approvals with respect to such Party (including, without limitation, the preparing and filing of any pre-merger notification and report forms required under the HSR Filings required to be in effect in connection with the transactions contemplated by this Agreement to be in effect; provided, however, that with respect to Government Approvals required by a Governmental Authority other than the United States federal government and its various branches and agencies, the Parties’ obligations under this Section 2(f) shall be limited to causing to be in effect only those Government Approvals, the failure of which to be in effect would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on any of the Parties. Each of Symphony Allegro and Alexza shall pay its own costs associated with taking such action. Symphony Allegro shall pay any costs of Holdings associated with obtaining Government Approvals required in connection with the exercise of the Purchase Option. All other costs and expenses of Holdings shall be paid by Holdings pursuant to Section 8(b) hereof, including any costs arising from any error in Holdings’ initial valuation of its investment in Symphony Allegro.

               (g) Transfer of Title. Transfer of title to Alexza of all of the Symphony Allegro Equity Securities shall be deemed to occur automatically on the Purchase Option Closing Date, subject to the payment by Alexza on such date of the Purchase Price and its performance of its other obligations herein required to be performed under Sections 2(e) and (f), and under the Registration Rights Agreement, as applicable, on or prior to the Purchase Option Closing Date to the reasonable satisfaction of Holdings, and thereafter Symphony Allegro shall treat Alexza as the sole holder of all Symphony Allegro Equity Securities, notwithstanding the failure of Holdings to tender certificates representing such shares to Alexza in accordance with Section 2(d) hereof.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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After the Purchase Option Closing Date, Holdings shall have no rights in connection with such Symphony Allegro Equity Securities other than the right to receive the Purchase Price; provided, however, that nothing in this Section 2(g) shall affect the survivability of any indemnification provision in this Agreement upon termination of this Agreement.

               (h) Consents and Authorizations. On or prior to the Purchase Option Closing Date, Alexza shall have obtained all consents and authorizations necessary from stockholders and/or its board of directors for the consummation of the exercise and closing of the Purchase Option, as may be required under the organizational documents of Alexza, any prior stockholders or board resolution, any stock exchange or similar rules or any applicable law; provided, however, that with respect to consents or authorizations required by a Governmental Authority other than the United States federal government and its various branches and agencies, the Parties’ obligations under this Section 2(h) shall be limited to obtaining only those consents and authorizations, the failure of which to be obtained would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on any of the Parties.

          Section 2A. Change of Control Put Option; Obligations

               (i) Holdings has an exclusive option (the “Change of Control Put Option”) to put 100% of the Symphony Allegro Equity Securities to Alexza, an acquiror or the Surviving Entity, as applicable, which may be exercised if, following a Change of Control with respect to Alexza, the Surviving Entity breaches a material obligation of any Operative Document or any other document delivered by the Surviving Entity in connection with such Change of Control and such breach continues unremedied for a period of [ * ] after Holdings has delivered written notice thereof to such successor entity. Alexza shall, and if and as applicable, cause the Surviving Entity to, (i) subject to the terms of the Confidentiality Agreement and any confidentiality agreement entered into in connection with a Change of Control, provide notice to Holdings of a Change of Control no less than [ * ] prior to the execution of a definitive agreement committing Alexza to a Change of Control, (ii) subject to the terms of the Confidentiality Agreement and any confidentiality agreement entered into in connection with a Change of Control, use commercially reasonable efforts to provide Holdings reasonable access to the senior executive officers, as available, who have responsibility for commercial or research and development activities of the acquiror or the Surviving Entity, as applicable, prior to the Change of Control to discuss in good faith and reasonable detail the Surviving Entity’s ongoing operations, (iii) execute and deliver to Symphony Allegro and Holdings instruments, in form and substance reasonably acceptable to Symphony Allegro and Holdings, whereby the Surviving Entity expressly assumes all of the obligations of Alexza hereunder and under each other Operative Document to which Alexza is a party, (iv) provide to Symphony Allegro and Holdings an opinion of nationally recognized outside counsel (in customary form and subject to customary assumptions and qualifications) to the effect that (A) the instruments referred to in clause (iii) above are valid and binding obligations of such Surviving Entity, enforceable in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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generally or general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity, and (B) such Change of Control does not violate any material term of the Operative Documents, and (v) ensure that all material applications and filings have been made to, and all material consents have been received from, the FDA, and any applicable foreign equivalent thereof, necessary for the Surviving Entity to satisfy all of its material obligations under the Operative Documents, except to the extent that failure to make such applications or filings or receive such consents would not reasonably be expected to have a material adverse effect on the Programs or Symphony Allegro’s rights under the Operative Documents.

               (j) Holdings may exercise the Change of Control Put Option only by delivery of written notice (the “Change of Control Put Option Exercise Notice”) during the Purchase Option Period. The Change of Control Put Option Exercise Notice shall be delivered on a Business Day to the successor entity to Alexza and Symphony Allegro, and shall thereafter be deemed for all purposes under the terms of this Agreement to be a Purchase Option Exercise Notice by Alexza (in accordance with the provisions of Section 2 hereof) as of the date such notice is delivered (such date to be deemed for all purposes under the terms of this Agreement as the Purchase Option Exercise Date). The Purchase Price with respect to such an exercise of the Change of Control Put Option shall be the Purchase Price otherwise applicable (under Section 2(b) hereof) to the Purchase Option Closing Date selected by Alexza following Alexza’s receipt of the Change of Control Put Option Exercise Notice. In the event Holdings exercises the Change of Control Put Option and such sale is consummated, Holdings shall have no further rights or claims against the successor entity in respect of such breach; provided, that notwithstanding the foregoing, Holdings shall maintain and does not release any rights or claims against the Surviving Entity that are unrelated to such breach, including rights or claims whereby Holdings is otherwise entitled to reimbursement or indemnification under any of the Operative Documents or any other document delivered by the Surviving Entity in connection with such Change of Control.

          Section 2B. Related Product Payments

               (a) AZ-004 Related Products. If Alexza does not exercise the Purchase Option prior to its expiration or termination under the terms of this Agreement and (i) Alexza enters into any agreement or arrangement with any third party with respect to the development and/or commercialization of an AZ-004 Related Product (defined below) (an “AZ-004 Related Product Agreement”), and (ii) if the AZ-004 Program has not been discontinued and (iii) if the AZ-004 Related Product has commenced IND-Enabling GLP Inhalation Toxicology Studies for the same, or substantially the same, indication or indications that are being pursued at such time for AZ-004: then, Alexza shall be obligated to make the following payments to Symphony Allegro: (x) on the date of the expiration or termination of the Purchase Option (“Termination Date”), an amount equal to 50% of any upfront, milestone, royalty, profit sharing, or similar payments received by

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Alexza under any such AZ-004 Related Product Agreement prior to the Termination Date and (y) at any time and from time to time thereafter, an amount equal to 50% of any upfront, milestone, royalty, profit sharing or similar payments received by Alexza under any such AZ-004 Related Product Agreement within ten (10) Business Days of receipt by Alexza of such payment. For the purposes of this Section 2B, “AZ-004 Related Product” means a therapeutic product comprised of an active ingredient which is an antipsychotic drug, other than prochlorperazine ,(typical or atypical) delivered by means of the Staccato Technology.

               (b) AZ-002 Related Products. If Alexza does not exercise the Purchase Option prior to its expiration or termination under the terms of this Agreement and (i) Alexza enters into any agreement or arrangement with any third party with respect to the development and/or commercialization of an AZ-002 Related Product (defined below) (an “AZ-002 Related Product Agreement”), and (ii) if the AZ-002 Program has not been discontinued and (iii) if the AZ-002 Related Product has commenced IND-Enabling GLP Inhalation Toxicology Studies for the same, or substantially the same, indication or indications that are being pursued at such time for AZ-002: then, Alexza shall be obligated to make the following payments to Symphony Allegro: (x) on the Termination Date, an amount equal to 50% of any upfront, milestone, royalty, profit sharing or similar payments received by Alexza under any such AZ-002 Related Product Agreement prior to the Termination Date and (y) at any time and from time to time thereafter, an amount equal to 50% of any upfront, milestone, royalty, profit sharing or similar payments received by Alexza under any such AZ-002 Related Product Agreement within ten (10) Business Days of receipt by Alexza of such payment. For purposes of this Section 2B, “AZ-002 Related Product” means a therapeutic product comprised of an active ingredient which is a benzodiazepine delivered by means of the Staccato Technology.

               (c) The aggregate of all payments pursuant to this Section 2B is not to exceed the Quarterly Price in effect during the 16th quarter following the Closing Date as set forth on Schedule 1.

          Section 3. Alexza Representations, Warranties and Covenants

               (a) As of the date hereof, Alexza hereby represents and warrants, and, except to the extent that any of the following representations and warranties are limited to the date of this Agreement or otherwise limited, on the Purchase Option Closing Date, shall be deemed to have represented and warranted, to Holdings and Symphony Allegro that:

                    (i) Organization. Alexza is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.

                    (ii) Authority and Validity. Alexza has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Alexza of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action required on the part of Alexza, and no other proceedings on the part of Alexza are necessary to authorize this Agreement or for Alexza to perform its obligations under this

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Agreement. This Agreement constitutes the lawful, valid and legally binding obligation of Alexza, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

                    (iii) No Violation or Conflict. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not (A) violate, conflict with or result in the breach of any provision of the Organizational Documents of Alexza, (B) as of the date of this Agreement, and as of the Purchase Option Closing Date if Alexza elects to pay part of the Purchase Price through the delivery of Alexza Common Stock (a “Partial Stock Payment”), conflict with or violate any law or Governmental Order applicable to Alexza or any of its assets, properties or businesses, or (C) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Alexza, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Alexza is a party except, in the case of clauses (B) and (C), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

                    (iv) Governmental Consents and Approvals. Other than any HSR Filings which, if the Purchase Option is exercised by Alexza and if such HSR Filings are required pursuant to Section 2(a)(i) hereof, will be obtained on or prior to the Purchase Option Closing Date, the execution, delivery and performance of this Agreement by Alexza do not, and the consummation of the transactions contemplated hereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

                    (v) Litigation. As of (A) the date of this Agreement, except as disclosed in any Alexza Public Filings available as of the date hereof, and (B) the Purchase Option Closing Date if Alexza elects to make a Partial Stock Payment, there are no actions by or against Alexza pending before any Governmental Authority or, to the knowledge of Alexza, threatened to be brought by or before any Governmental Authority, that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza. There are no pending or, to the knowledge of Alexza, threatened actions, to which Alexza is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. As of the date of this

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Agreement, and as of the Purchase Option Closing Date if Alexza elects to make a Partial Stock Payment, Alexza is not subject to any Governmental Order (nor, to the knowledge of Alexza, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

               (b) Alexza hereby covenants and agrees with Holdings as follows:

                    (i) Immediately prior to the Purchase Option Closing Date, Alexza shall have sufficient amounts of cash and, if applicable, sufficient authorized but unissued, freely transferable and nonassessable Alexza Common Stock available, to satisfy the portion of the Purchase Price to be paid in cash or Alexza Common Stock pursuant to Sections 2(b) and 2(c); provided, that if the Purchase Option Closing Date does not occur within (A) [ * ] if no HSR Filings are required or (B) [ * ] if HSR Filings are required, in each case following the Purchase Option Exercise Date and pursuant to Section 2(a) hereof, Alexza shall provide Holdings with evidence of firm commitments from third parties with the wherewithal to pay, or other guaranty of payment, which is reasonably acceptable to Holdings, for that portion of the Purchase Price to be paid in cash. In the event that Alexza elects to satisfy any portion of the Purchase Price in Alexza Common Stock (A) Alexza shall have, not later than the Purchase Option Closing Date, a Registration Statement declared effective by the Securities and Exchange Commission for the resale of any such shares of Alexza Common Stock to be delivered in partial satisfaction of the Purchase Price, accompanied by evidence reasonably acceptable to Holdings that such Alexza Common Stock has been approved for listing on the NASDAQ Global Market or such other national market on which the Alexza Common Stock is then listed, and (B) Alexza shall deliver to Holdings on or before the Purchase Option Closing Date, a legal opinion from Cooley Godward Kronish LLP, counsel to Alexza, or such other counsel as Alexza and Holdings shall mutually agree, which opinion shall be, in form and substance, reasonably acceptable to Holdings and shall contain, with respect to the Alexza Common Stock to be used as partial payment of the Purchase Price, substantially the same opinions rendered by counsel to Alexza in paragraphs 5, 7 and 8 of the opinion delivered to Holdings on the Closing Date, along with customary assumptions and limitations.

                    (ii) If Alexza elects to satisfy any portion of the Purchase Price in Alexza Common Stock, Alexza, on the Purchase Option Closing Date, shall convey good and marketable title to such Alexza Common Stock, free from any Encumbrances and any and all other restrictions that any issuance, sale, assignment or other transfer of such Alexza Common Stock be consented to or approved by any Person.

                    (iii) Upon the expiration of the Purchase Option or the termination of this Agreement pursuant to Section 9 hereof, or as soon thereafter as is practical, Alexza shall (A) in accordance with and pursuant to Sections 2.7 and 2.8 of the Novated and Restated Technology License Agreement, deliver to Symphony Allegro all Regulatory Files and Tangible Materials, and (B) in accordance with and pursuant to

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Section 2.11 of the Novated and Restated Technology License Agreement, provide and supply, or cause to be provided and supplied, finished dosage form of Products.

                    (iv) In the event that Alexza exercises the Purchase Option, then Alexza shall maintain the separate corporate existence of Symphony Allegro for a minimum of one (1) year following such exercise, unless such maintenance would have a Material Adverse Effect on Alexza or any of its Affiliates.

          Section 4. Holdings Representations, Warranties and Covenants

               (a) As of the date hereof, Holdings hereby represents and warrants, and, except to the extent that any of the following representations and warranties are limited to the date of this Agreement or otherwise limited, on the Purchase Option Closing Date, shall be deemed to have represented and warranted, to Alexza and Symphony Allegro that:

                    (i) Organization. Holdings is a limited liability company, duly formed, validly existing and in good standing under the laws of the State of Delaware.

                    (ii) Authority and Validity. Holdings has all requisite limited liability company power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Holdings of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action required on the part of Holdings, and no other proceedings on the part of Holdings are necessary to authorize this Agreement or for Holdings to perform its obligations under this Agreement. This Agreement constitutes the lawful, valid and legally binding obligation of Holdings, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

                    (iii) No Violation or Conflict. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not (A) violate, conflict with or result in the breach of any provision of the Organizational Documents of Holdings, (B) as of the date of this Agreement, conflict with or violate any law or Governmental Order applicable to Holdings or any of its assets, properties or businesses, or (C) as of the date of this Agreement, conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Holdings, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Holdings is a party except, in the case of clauses (B) and (C), to the extent that such conflicts, breaches,

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

12

defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

                    (iv) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Holdings do not, and the consummation of the transactions contemplated hereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

                    (v) Litigation. As of the date of this Agreement, there are no actions by or against Holdings pending before any Governmental Authority or, to the knowledge of Holdings, threatened to be brought by or before any Governmental Authority, that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings. There are no pending or, to the knowledge of Holdings, threatened actions to which Holdings is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. As of the date of this Agreement, Holdings is not subject to any Governmental Order (nor, to the knowledge of Holdings, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

                    (vi) Stock Ownership. All of Symphony Allegro’s issued and outstanding Symphony Allegro Equity Securities are owned beneficially and of record by Holdings, free and clear of any and all encumbrances.

                    (vii) Interim Operations. Holdings was formed solely for the purpose of engaging in the transactions contemplated by the Operative Documents, has engaged in no other business activities and has conducted its operations only as contemplated by the Operative Documents.

                    (viii) Accredited Investor.

                    (A) Holdings is and will remain at all relevant times an Accredited Investor.

                    (B) Holdings has relied completely on the advice of, or has consulted with or has had the opportunity to consult with, its own personal tax, investment, legal or other advisors and has not relied on Alexza or any of its Affiliates for advice related to any offer and sale of Alexza Common Stock in connection with the Purchase Option. Holdings has reviewed the Investment Overview and is aware of the risks disclosed therein. Holdings acknowledges that it has had a reasonable opportunity to conduct its own due

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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diligence with respect to the Products, the Programs, Symphony Allegro, Alexza and the transactions contemplated by the Operative Documents.

                    (C) Holdings is able to bear the economic risk of such investment for an indefinite period and to afford a complete loss thereof.

                    (D) Holdings agrees that the Alexza Common Stock may not be resold (A) without registration thereof under the Securities Act (unless an exemption from such registration is available), or (B) in violation of any law.

                    (E) No person or entity acting on behalf of, or under the authority of, Holdings is or will be entitled to any broker’s, finder’s, or similar fees or commission payable by Alexza or any of its Affiliates.

               (b) Holdings hereby covenants and agrees with Alexza as follows:

                    (i) Contribution to Symphony Allegro. On or prior to the Stock Payment Date, Holdings shall, pursuant to the Subscription Agreement, contribute proceeds from the Financing of $50,000,000 to Symphony Allegro, Inc.

                    (ii) Encumbrance. Holdings will not, and will not permit any of its Subsidiaries to, create, assume or suffer to exist any Encumbrance on any of its Symphony Allegro Equity Securities except with the prior written consent of Alexza.

                    (iii) Transfer and Amendment. Commencing upon the date hereof and ending upon the earlier to occur of (x) the Purchase Option Closing Date, (y) the unexercised expiration of the Purchase Option Period, and (z) the termination of this Agreement pursuant to Section 9 (such period, the “Term”), the manager of Holdings shall not (A) transfer, or permit the transfer of, any Membership Interest without the prior written consent of Alexza or (B) amend, or permit the amendment of, any provisions relating to the transfer of Membership Interests, as set forth in Section 7.02 of the Holdings LLC Agreement, to the extent such amendment would adversely affect Alexza’s right of consent set forth in Sections 7.02(b)(i) and 7.02(c) of the Holdings LLC Agreement.

                    (iv) Symphony Allegro Directors. During the Term, Holdings agrees to vote all of its Symphony Allegro Equity Securities (or to exercise its right with respect to such Symphony Allegro Equity Securities to consent to action in writing without a meeting) in favor of, as applicable, the election, removal and replacement of one director of the Symphony Allegro Board, and any successor thereto, designated by Alexza (the “Alexza Director”) as directed by Alexza. In furtherance and not in limitation of the foregoing, Holdings hereby grants to Alexza an irrevocable proxy, with respect to all Symphony Allegro Equity Securities now owned or hereafter acquired by Holdings, to vote such Symphony Allegro Equity Securities or to exercise the right to

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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consent to action in writing without a meeting with respect to such Symphony Allegro Equity Securities, such irrevocable proxy to be exercised solely for the limited purpose of electing, removing and replacing the Alexza Director in the event of the failure or refusal of Holdings to elect, remove or replace such Alexza Director, as directed by Alexza. Additionally, Holdings agrees, during the Term, to elect two (2) independent directors (of the four (4) directors of Symphony Allegro not chosen by Holdings at the direction of Alexza), and any successors thereto, as shall be selected by mutual agreement of Alexza and Holdings.

                    (v) Symphony Allegro Board. During the Term, Holdings shall not vote any of its Symphony Allegro Equity Securities (or exercise its rights with respect to such Symphony Allegro Equity Securities by written consent without a meeting) to increase the size of the Symphony Allegro Board to more than five (5) members without the prior written consent of Alexza.

                    (vi) Symphony Allegro Charter. During the Term, Holdings shall not approve or permit any amendment to Article IV, Paragraphs (1) and (3); Article VI; Article VII; Article X; Article XI or Article XIII of the Symphony Allegro Charter without the prior written consent of Alexza.

          Section 5. Symphony Allegro Representations, Warranties and Covenants

               (a) As of the date hereof, Symphony Allegro hereby represents and warrants, and, except to the extent that any of the following representations and warranties are limited to the date of this Agreement or otherwise limited, on the Purchase Option Closing Date, shall be deemed to have represented and warranted, to Alexza and Holdings that:

                    (i) Organization. Symphony Allegro is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.

                    (ii) Authority and Validity. Symphony Allegro has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Symphony Allegro of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action required on the part of Symphony Allegro, and no other proceedings on the part of Symphony Allegro are necessary to authorize this Agreement or for Symphony Allegro to perform its obligations under this Agreement. This Agreement constitutes the lawful, valid and legally binding obligation of Symphony Allegro, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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                    (iii) No Violation or Conflict. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not (A) violate, conflict with or result in the breach of any provision of the Organizational Documents of Symphony Allegro, (B) conflict with or violate any law or Governmental Order applicable to Symphony Allegro or any of its assets, properties or businesses, or (C) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Symphony Allegro, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Symphony Allegro is a party except, in the case of clauses (B) and (C), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

                    (iv) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Symphony Allegro do not, and the consummation of the transactions contemplated hereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

                    (v) Litigation. There are no actions by or against Symphony Allegro pending before any Governmental Authority or, to the knowledge of Symphony Allegro, threatened to be brought by or before any Governmental Authority that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro. There are no pending or, to the knowledge of Symphony Allegro, threatened actions to which Symphony Allegro is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. Symphony Allegro is not subject to any Governmental Order (nor, to the knowledge of Symphony Allegro, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

                    (vi) Capitalization. Holdings is the beneficial and record owner of all issued and outstanding Symphony Allegro Equity Securities. No shares of Symphony Allegro capital stock are held in treasury by Symphony Allegro or any Symphony Allegro Subsidiary. All of the issued and outstanding Symphony Allegro Equity Securities (A) have been duly authorized and validly issued and are fully paid and nonassessable, (B) were issued in compliance with all applicable state and federal securities laws, and (C) were not issued in violation of any preemptive rights or rights of first refusal. No preemptive rights or rights of first refusal exist with respect to any

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Symphony Allegro Equity Securities and no such rights will arise by virtue of or in connection with the transactions contemplated hereby (other than for the Purchase Option). Other than the Purchase Option, there are no outstanding options, warrants, call rights, commitments or agreements of any character to acquire any Symphony Allegro Equity Securities. There are no outstanding stock appreciation, phantom stock, profit participation or other similar rights with respect to Symphony Allegro. Symphony Allegro is not obligated to redeem or otherwise acquire any of its outstanding Symphony Allegro Equity Securities.

                    (vii) Interim Operations. Symphony Allegro was formed solely for the purpose of engaging in the transactions contemplated by the Operative Documents, has engaged in no other business activities and has conducted its operations only as contemplated by the Operative Documents.

                    (viii) Investment Company. Symphony Allegro is not, and after giving effect to the transactions contemplated by the Operative Documents will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

               (b) Symphony Allegro covenants and agrees that:

                    (i) Symphony Allegro will comply with all laws, ordinances or governmental rules or regulations to which it is subject and will obtain and maintain in effect all licenses, certificates, permits, franchises and other Governmental Approvals necessary to the ownership of its properties or to the conduct of its business, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other Governmental Approvals would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

                    (ii) Symphony Allegro will file (or cause to be filed) all material tax returns required to be filed by it and pay all taxes shown to be due and payable on such returns and all other taxes imposed on it or its assets to the extent such taxes have become due and payable and before they have become delinquent and shall pay all claims for which sums have become due and payable that have or might become attached to the assets of Symphony Allegro; provided, that Symphony Allegro need not file any such tax returns or pay any such tax or claims if (A) the amount, applicability or validity thereof is contested by Symphony Allegro on a timely basis in good faith and in appropriate proceedings, and Symphony Allegro has established adequate reserves therefor in accordance with GAAP on the books of Symphony Allegro or (B) the failure to file such tax returns or the nonpayment of such taxes and assessments, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

                    (iii) Symphony Allegro will at all times preserve and keep in full force and effect its corporate existence.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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                    (iv) Symphony Allegro will keep complete, proper and separate books of record and account, including a record of all costs and expenses incurred, all charges made, all credits made and received, and all income derived in connection with the operation of the business of Symphony Allegro, all in accordance with GAAP (which GAAP shall be conformed to those used by Alexza to the extent practicable), in each case to the extent necessary to enable Symphony Allegro to comply with the periodic reporting requirements of this Agreement, and will promptly notify Alexza if it adopts or changes any accounting principle pursuant to a change in GAAP or applicable Law.

                    (v) Symphony Allegro will perform and observe in all material respects all of the terms and provisions of each Operative Document to be performed or observed by it, maintain each such Operative Document to which it is a party, promptly enforce in all material respects each such Operative Document in accordance with its terms, take all such action to such end as may be from time to time reasonably requested by Holdings or Alexza and make to each other party to each such Operative Document such demands and requests for information and reports or for action as Symphony Allegro is entitled to make under such Operative Document.

                    (vi) Symphony Allegro shall permit the representatives of Holdings (including Holdings’ members and their respective representatives), each Symphony Fund and Alexza, at each of their own expense and upon reasonable prior notice to Symphony Allegro, to visit the principal executive office of Symphony Allegro, to discuss the affairs, finances and accounts of Symphony Allegro with Symphony Allegro’s officers and (with the consent of Symphony Allegro, which consent will not be unreasonably withheld) its Auditors, all at such reasonable times and as often as may be reasonably requested in writing.

                    (vii) Symphony Allegro shall permit each Symphony Fund, at its own expense and upon reasonable prior notice to Symphony Allegro, to inspect and copy Symphony Allegro’s books and records and inspect Symphony Allegro’s properties at reasonable times.

                    (viii) Symphony Allegro shall allow Alexza or its designated representatives to have reasonable visitation and inspection rights with regard to the Programs and materials, documents and other information relating thereto.

                    (ix) Symphony Allegro shall permit each Symphony Fund to consult with and advise the management of Symphony Allegro on matters relating to the research and development of the Programs in order to develop the Product in accordance with the terms or provisions of the Amended and Restated Research and Development Agreement.

                    (x) On the Purchase Option Closing Date, or as soon thereafter as is practical, Symphony Allegro shall deliver to Alexza all materials, documents, files and other information relating to the Programs (or, where necessary, copies thereof).

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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                    (xi) During the Term, Alexza shall have the right to consent to any increase in the size of the Symphony Allegro Board to more than five (5) directors.

                    (xii) During the Term, Alexza shall have the right to designate, remove and replace one (1) director of the Symphony Allegro Board, including any successor thereto, as contemplated by Section 4(b)(iv).

                    (xiii) Symphony Allegro shall indemnify the directors and officers of Symphony Allegro against liability incurred by reason of the fact that such Person is or was a director or officer of Symphony Allegro, as permitted by Article VII of the Symphony Allegro Charter and Section 9.01 of the Symphony Allegro By-laws, as set forth in, and on the terms of, the Indemnification Agreement and the RRD Services Agreement, respectively.

                    (xiv) During the Term, Symphony Allegro shall comply with, and cause any Persons acting for it to comply with, the terms of the Investment Policy with respect to the investment of any funds held by it.

                    (xv) On or prior to the Purchase Option Closing Date, Symphony Allegro shall pay for a non-cancelable run-off insurance policy, for a period of six (6) years after the Purchase Option Closing Date to provide insurance coverage for events, acts or omissions occurring on or prior to the Purchase Option Closing Date for all persons who were directors or officers of Symphony Allegro on or prior to the Purchase Option Closing Date.

               (c) Symphony Allegro covenants and agrees that, until the expiration of the Term, it shall not, and shall cause its Subsidiaries (if any) not to, without Alexza’s prior written consent (such consent, in the case of clause (x) below, not to be unreasonably withheld):

                    (i) issue any Symphony Allegro Equity Securities or any Equity Securities of any Subsidiary thereof (other than any issuances of Equity Securities by Symphony Allegro made in accordance with Section 1(b) hereof to Holdings so long as Symphony Allegro is a wholly owned subsidiary of Holdings, or by a Subsidiary of Symphony Allegro to Symphony Allegro or to another wholly owned Subsidiary of Symphony Allegro); provided, however, that in any event any such Symphony Allegro Equity Securities shall be issued subject to the Purchase Option;

                    (ii) redeem, repurchase or otherwise acquire, directly or indirectly, any Symphony Allegro Equity Securities or the Equity Securities of any Subsidiary of Symphony Allegro;

                    (iii) create, incur, assume or permit to exist (A) any Encumbrance over or on any of its assets, other than (x) statutory liens or (y) liens created in the ordinary course of Symphony Allegro’s business securing obligations valued at less than [ * ] in the aggregate principal amount at any one time outstanding

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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(unless the Development Committee shall authorize the existence of ordinary course liens securing obligations valued at greater than [ * ]), or (B) Debt other than any Debt incurred pursuant to the Operative Documents and the Development Budget (including payables incurred in the ordinary course of business) (“Excepted Debt”); provided, however, that the aggregate outstanding principal amount of all Excepted Debt for borrowed money (including the amount of Debt secured by any Encumbrances permitted pursuant to clause (A)) shall not exceed [ * ] at any time;

                    (iv) declare or pay dividends or other distributions on any Symphony Allegro Equity Securities other than any dividend declared from the proceeds of (x) the exercise of a Discontinuation Option, or (y) a sale or license of a discontinued Program to a third party, in each case in respect of which Symphony Allegro shall be entitled to pay (subject to the existence of lawfully available funds) a dividend equal to the net amount (such net amount calculated as the gross proceeds received less amounts required to be paid in respect of any and all corporate taxes owed by Symphony Allegro as a result of the receipt of such gross amounts) of such Discontinuation Price or the amounts received from such third party, as the case may be;

                    (v) enter into any transaction of merger or consolidation, or liquidate, wind up or dissolve itself, or convey, transfer, license, lease or otherwise dispose of all, or a material portion of, its properties, assets or business;

                    (vi) other than in respect of the Programs, engage in the development of products for any other company or engage or participate in the development of products or engage in any other material line of business;

                    (vii) other than entering into, and performing its obligations under, the Operative Documents and participating in the Programs, engage in any action that negates or is inconsistent with any rights of Alexza set forth herein;

                    (viii) (A) other than as contemplated by the RRD Services Agreement and Section 6.2 of the Amended and Restated Research and Development Agreement, hire, retain or contract for the services of, any employees until the termination of such agreements, or (B) appoint, dismiss or change any RRD Investment Personnel;

                    (ix) incur any financial commitments in respect of the development of the Programs other than those set forth in the Development Plan and the Development Budget, or those approved by the Development Committee and, if so required by the terms of Paragraph 11 of the Development Committee Charter, the Symphony Allegro Board in accordance with the Operative Documents;

                    (x) other than any transaction contemplated by the Operative Documents, enter into or engage in any Conflict Transactions without the prior approval of a majority of the Disinterested Directors of the Symphony Allegro Board; or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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                    (xi) waive, alter, modify, amend or supplement in any manner whatsoever any material terms and conditions of the RRD Services Agreement, the Subscription Agreement, the Research Cost Sharing and Extension Agreement, or Articles 4 and 6 of the Amended and Restated Research and Development Agreement, except in compliance with the terms of the Operative Documents.

               (d) Symphony Allegro covenants and agrees to deliver, cause to be delivered, and provide access thereto, to each other Party, each Symphony Fund, and such Auditors as Alexza may designate, so long as such Auditors shall (x) be subject to confidentiality requirements at least as stringent as the Confidentiality Agreement or (y) be an Alexza Accounting Advisor retained pursuant to an agreement which incorporates confidentiality provisions substantially the same as the ones incorporated in the agreements in effect between Alexza and such Accounting Advisors as of the Closing Date:

                    (i) upon request, copies of the then current Development Plan for each quarter, on or before March 31, June 30, September 30, and December 31 of each year;

                    (ii) upon request, copies of the then current Development Budget for each quarter, including a report setting forth in reasonable detail the projected expenditures by Symphony Allegro pursuant to the Development Budget, on or before March 31, June 30, September 30, and December 31 of each year;

                    (iii) prior to the close of each fiscal year, Symphony Allegro shall cause the Manager to seek to obtain from the Symphony Allegro Auditors schedules of certain financial information to be provided to Alexza’s Auditors in connection with the Symphony Allegro Auditors’ audit of Symphony Allegro. Within [ * ] after the close of each fiscal year, Symphony Allegro (or the Manager acting on its behalf) will provide Alexza’s Auditors with the Client Schedules. If the Symphony Allegro Auditors deliver the Client Schedules after the end of the fiscal year, Symphony Allegro (or the Manager acting on its behalf) will provide the completed Client Schedules to Alexza’s Auditors within [ * ] of such receipt. Following Alexza’s Auditors’ review of the Client Schedules, Symphony Allegro, or RRD on behalf of Symphony Allegro, will promptly provide Alexza’s Auditors with any reasonably requested back-up information related to the Client Schedules.

                    (iv) prior to the close of each fiscal year, Alexza’s Chief Financial Officer, the Symphony Allegro Auditors, Alexza’s Auditors and Symphony Allegro (or the Manager acting on its behalf) shall agree to a completion schedule that will include (A) the provision by Symphony Allegro to Alexza of the financial information reasonably necessary for Alexza to consolidate the financial results of Symphony Allegro and (B) the following financial statements, including the related notes thereto, audited and certified by the Symphony Allegro Auditors: (1) a balance sheet of Symphony Allegro as of the close of such fiscal year, (2) a statement of net income for such fiscal year, and (3) a statement of cash flows for such fiscal year. Such audited annual financial statements shall set forth in comparative form the figures for the

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and Symphony Allegro (or the Manager acting on its behalf) shall, to the extent that Symphony Allegro (or the Manager acting on its behalf), using commercially reasonable means, can procure such an opinion, be accompanied by an opinion thereon of the Symphony Allegro Auditors to the effect that such financial statements present fairly, in all material respects, the financial position of Symphony Allegro and its results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances;

                    (v) within [ * ] following each calendar month and upon receipt from Alexza of its monthly invoice to Symphony Allegro, current accrued monthly vendor expenses and prepaid expenses, Symphony Allegro (or the Manager acting on its behalf) will provide to Alexza: (A) the unaudited balance sheet of Symphony Allegro for the previous calendar month; (B) the unaudited statement of net income for such previous calendar month; (C) the trial balance schedule for such previous calendar month; and (D) related account reconciliations for such previous calendar month (collectively, “Unaudited Financial Information”);

                    (vi) within [ * ] following its filing, a copy of each income tax return so filed by Symphony Allegro with any foreign, federal, state or local taxing authority (including all supporting schedules thereto);

                    (vii) any other documents, materials or other information pertaining to the Programs or Symphony Allegro as Alexza may reasonably request, including preliminary financial information;

                    (viii) promptly, and in any event within [ * ] of receipt thereof, copies of any notice to Symphony Allegro from any federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that would reasonably be expected to have a Material Adverse Effect on Symphony Allegro;

                    (ix) promptly upon receipt thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting Symphony Allegro;

                    (x) promptly upon receipt thereof, copies of any other notices, requests, reports, financial statements and other information and documents received by Symphony Allegro under or pursuant to any other Operative Document, including, without limitation, any notices of breach or termination of any subcontracts or licenses entered into or permitted pursuant to the Operative Documents; and

                    (xi) with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

22

properties of Symphony Allegro or relating to the ability of Symphony Allegro to perform its obligations hereunder and under the Operative Documents as from time to time may be reasonably requested by Alexza and/or Holdings;

provided, that neither Symphony Allegro, nor the Manager acting on behalf of Symphony Allegro, shall have any liability to Alexza for the failure to deliver financial documents or other materials hereunder, if such failure was caused by a failure of Alexza to provide, in a timely manner, data required to prepare such financial documents or other materials to Symphony Alexza in a timely manner.

               (e) Symphony Allegro will use commercially reasonable efforts, at its own expense (as set forth in the Management Budget), to cooperate with Alexza in meeting Alexza’s government compliance, disclosure, and financial reporting obligations, including without limitation under the Sarbanes-Oxley Act of 2002, as amended, and any rules and regulations promulgated thereunder, and under FASB Interpretation No. 46 (Revised). Without limiting the foregoing, Symphony Allegro further covenants, until the completion of all the reporting, accounting and other obligations set forth therein with respect to the fiscal year in which this Agreement shall terminate, expire and end, that (w) the principal executive officer and the principal financial officer of Symphony Allegro, or persons performing similar functions, shall provide certifications to Alexza corresponding to those required with respect to public companies for which a class of securities is registered under the Securities Exchange Act (“Public Companies”) under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended; (x) Symphony Allegro shall maintain a system of disclosure controls and internal controls (as defined under the Exchange Act) and conduct quarterly and annual evaluations of the effectiveness of such controls as required under the Exchange Act for Public Companies; (y) Symphony Allegro shall provide to Alexza an attestation report of its Auditors with respect to Symphony Allegro management’s assessment of Symphony Allegro’s internal controls as required under the Exchange Act for Public Companies; and (z) Symphony Allegro will maintain, or cause to have maintained, such sufficient evidentiary support for management’s assessment of the effectiveness of Symphony Allegro’s internal controls as required under the Exchange Act for Public Companies.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          Section 6. Notice of Material Event. Each Party covenants and agrees that, upon its acquiring Knowledge of any breach by it of any representation, warranty, covenant or any other term or condition of this Agreement or acquiring Knowledge of a material event or development that is, or is reasonably expected to be, adverse to the other Party with respect to any Program or the transactions contemplated hereby, such Party shall promptly notify the other Party in writing within three (3) Business Days of acquiring such Knowledge; provided, that the failure to provide such notice shall not impair or otherwise be deemed a waiver of any rights any Party may have arising from such breach, material event or development and that notice under this Section 6 shall not in itself constitute notice of any breach of any of the Operative Documents, unless explicitly stated in such notice.

          Section 7. Assignment; Transfers; Legend

               (a) Assignment by Alexza and Symphony Allegro. Neither Alexza nor Symphony Allegro may assign, delegate, transfer, sell or otherwise dispose of (collectively, “Transfer”), in whole or in part, any or all of their rights or obligations hereunder to any Person (a “Transferee”) without the prior written approval of each of the other Parties; provided, however, that Alexza, without the prior approval of each of the other Parties, acting in accordance with Section 2A of this Agreement, may make such Transfer to any Person which acquires all or substantially all of Alexza’s assets or business (or assets or business related to the Programs) or which is the surviving or resulting Person in a merger, consolidation or other reorganization with Alexza. In no event shall such assignment alter the definition of “Alexza Common Stock” except as a result of the surviving or resulting “parent” entity in a merger being other than Alexza, in which case any reference to Alexza Common Stock shall be deemed to instead reference the common stock, if any, of the surviving or resulting entity.

               (b) Assignment and Transfers by Holdings. Prior to the expiration of the Term, Holdings may not Transfer, in whole or in part, any or all of its Symphony Allegro Equity Securities or any or all of its rights or obligations hereunder to any Person (other than Alexza) without the prior written consent of Alexza. In addition, any Transfer of Symphony Allegro Equity Securities by Holdings or any other Person to any Person other than Alexza shall be conditioned upon, and no effect shall be given to any such Transfer unless such transferee shall agree in writing in form and substance satisfactory to Alexza to be bound by all of the terms and conditions hereunder, including the Purchase Option, as if such transferee were originally designated as “Holdings” hereunder.

               (c) Legend. Any certificates evidencing Symphony Allegro Equity Securities shall bear a legend in substantially the following form:

THE SECURITIES OF SYMPHONY ALLEGRO, INC., EVIDENCED HEREBY ARE SUBJECT TO AN OPTION, HELD BY ALEXZA, AS DESCRIBED IN A PURCHASE OPTION AGREEMENT (THE

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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“PURCHASE OPTION AGREEMENT”) DATED AS OF DECEMBER 1, 2006, BY AND AMONG ALEXZA PHARMACEUTICALS, INC., AND THE OTHER PARTIES THERETO, TO PURCHASE SUCH SECURITIES AT A PURCHASE PRICE DETERMINED PURSUANT TO SECTION 2 OF THE PURCHASE OPTION AGREEMENT, EXERCISABLE BY WRITTEN NOTICE AT ANY TIME DURING THE PERIOD SET FORTH THEREIN. COPIES OF THE PURCHASE OPTION AGREEMENT ARE AVAILABLE AT THE PRINCIPAL PLACE OF BUSINESS OF SYMPHONY ALLEGRO, INC. AT 7361 CALHOUN PLACE, SUITE 325, ROCKVILLE, MARYLAND 20855, AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST WITHOUT COST.

          Section 8. Costs and Expenses; Payments.

                (a)        Symphony Allegro Costs and Expenses. Symphony Allegro shall pay any of its ongoing legal expenses with respect to the transactions described in the Operative Documents from the funds allocated for such purpose in the Management Budget.

                (b)        Costs and Expenses of the Purchase Option. Except as otherwise specified in Section 2(f) hereof, each Party shall pay its own costs and expenses incurred in connection with the exercise of the Purchase Option.

                (c)        Payments to Holdings. Payment of the Purchase Price, plus any costs and expenses payable by Symphony Allegro under Section 2(f) hereof, shall be made to the account of Holdings contemporaneously with or prior to the payout of the Purchase Price on the Purchase Option Closing Date no later than 1:00 pm (New York time).

          Section 9.  Expiration; Termination of Agreement.

                (a)     Termination.

                     (i) This Agreement shall terminate upon the mutual written consent of all of the Parties.

                    (ii) Subject to Sections 1(c)(v) and 2A hereof, which shall survive termination of this Agreement under this Section 9(a)(ii), each of Holdings and Symphony Allegro may terminate this Agreement in the event that Symphony Allegro terminates the Amended and Restated Research and Development Agreement in accordance with its terms.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          Section 10. Survival; Indemnification.

               (a) Survival of Representations and Warranties; Expiration of Certain Covenants.

                    (i) The representations and warranties of the Parties contained in this Agreement shall survive for a period of one year from the making of such representations, except for representations and warranties contained in Sections 3(a)(i) and (ii), 4(a)(i) and (ii) and 5(a)(i) and (ii) hereof which shall survive indefinitely. The liability of the Parties related to their respective representations and warranties hereunder shall not be reduced by any investigation made at any time by or on behalf of Holdings, Symphony Allegro or Alexza, as applicable.

                    (ii) For the avoidance of doubt, the covenants and agreements set forth in Sections 4(b), 5(b)(i), 5(b)(v), 5(b)(vii)-(ix), 5(b)(xi)-(xiv), 5(c), 5(d)(i), 5(d)(ii) and 5(d)(viii)-(xi) shall, upon the expiration of the Term, expire and end without any further obligation by Symphony Allegro or Holdings thereunder.

                    (iii) For the avoidance of doubt, the covenants and agreements set forth in Sections 5(b)(ii)-(iv), 5(b)(vi), 5(b)(x), 5(d)(iii)-(vii) and 5(e) shall, upon the completion of all the reporting, accounting and other obligations set forth therein with respect to the fiscal year in which this Agreement shall terminate, expire and end without any further obligation by Symphony Allegro or Holdings thereunder.

               (b) Indemnification. To the greatest extent permitted by applicable law, Alexza shall indemnify and hold harmless Holdings and Symphony Allegro and Holdings shall indemnify and hold harmless Alexza, and each of their respective Affiliates, officers, directors, employees, agents, partners, members, successors, assigns, representatives of, and each Person, if any (including any officers, directors, employees, agents, partners, members of such Person) who controls Holdings, Symphony Allegro and Alexza, as applicable, within the meaning of the Securities Act or the Exchange Act, (each, an “Indemnified Party”), from and against any and all actions, causes of action, suits, claims, losses, costs, interest, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (hereinafter, a “Loss”), incurred by any Indemnified Party to the extent resulting from, arising out of, or relating to: (i) in the case of Alexza being the Indemnifying Party, (A) any breach of any representation or warranty made by Alexza herein or in Section 5.1 of the Novated and Restated Technology License Agreement, or (B) any breach of any covenant, agreement or obligation of Alexza contained herein, and (ii) in the case of Holdings being the Indemnifying Party, (A) any breach of any representation or warranty made by Holdings or Symphony Allegro herein, or (B) any breach of any covenant, agreement or obligation of Holdings or Symphony Allegro contained herein. To the extent that the foregoing undertaking by Alexza or Holdings may be unenforceable for any reason, such Party shall make the maximum contribution to the payment and satisfaction of any Loss that is permissible under applicable law.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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               (c) Notice of Claims. Any Indemnified Party that proposes to assert a right to be indemnified under this Section 10 shall notify Alexza or Holdings, as applicable (the “Indemnifying Party”), promptly after receipt of notice of commencement of any action, suit or proceeding against such Indemnified Party (an “Indemnified Proceeding”) in respect of which a claim is to be made under this Section 10, or the incurrence or realization of any Loss in respect of which a claim is to be made under this Section 10, of the commencement of such Indemnified Proceeding or of such incurrence or realization, enclosing a copy of all relevant documents, including all papers served and claims made, but the omission to so notify the applicable Indemnifying Party promptly of any such Indemnified Proceeding or incurrence or realization shall not relieve (x) such Indemnifying Party from any liability that it may have to such Indemnified Party under this Section 10 or otherwise, except, as to such Indemnifying Party’s liability under this Section 10, to the extent, but only to the extent, that such Indemnifying Party shall have been prejudiced by such omission, or (y) any other indemnitor from liability that it may have to any Indemnified Party under the Operative Documents.

               (d) Defense of Proceedings. In case any Indemnified Proceeding shall be brought against any Indemnified Party, it shall notify the applicable Indemnifying Party of the commencement thereof as provided in Section 10(c), and such Indemnifying Party shall be entitled to participate in, and provided such Indemnified Proceeding involves a claim solely for money damages and does not seek an injunction or other equitable relief against the Indemnified Party and is not a criminal or regulatory action, to assume the defense of, such Indemnified Proceeding with counsel reasonably satisfactory to such Indemnified Party. After notice from such Indemnifying Party to such Indemnified Party of such Indemnifying Party’s election so to assume the defense thereof and the failure by such Indemnified Party to object to such counsel within ten (10) Business Days following its receipt of such notice, such Indemnifying Party shall not be liable to such Indemnified Party for legal or other expenses related to such Indemnified Proceedings incurred after such notice of election to assume such defense except as provided below and except for the reasonable costs of investigating, monitoring or cooperating in such defense subsequently incurred by such Indemnified Party reasonably necessary in connection with the defense thereof. Such Indemnified Party shall have the right to employ its counsel in any such Indemnified Proceeding, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless:

                    (i) the employment of counsel by such Indemnified Party at the expense of the applicable Indemnifying Party has been authorized in writing by such Indemnifying Party;

                    (ii) such Indemnified Party shall have reasonably concluded in its good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between the applicable Indemnifying Party and such Indemnified Party in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims,

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

27

or causes of action available to such Indemnified Party (it being agreed that in any case referred to in this clause (ii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

                    (iii) the applicable Indemnifying Party shall not have employed counsel reasonably acceptable to the Indemnified Party, to assume the defense of such Indemnified Proceeding within a reasonable time after notice of the commencement thereof; provided, however, that (A) this clause (iii) shall not be deemed to constitute a waiver of any conflict of interest that may arise with respect to any such counsel, and (B) an Indemnified Party may not invoke this clause (iii) if such Indemnified Party failed to timely object to such counsel pursuant to the first paragraph of this Section 10(d) above (it being agreed that in any case referred to in this clause (iii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); or

                    (iv) any counsel employed by the applicable Indemnifying Party shall fail to timely commence or reasonably conduct the defense of such Indemnified Proceeding and such failure has prejudiced (or is in immediate danger of prejudicing) the outcome of such Indemnified Proceeding (it being agreed that in any case referred to in this clause (iv) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

in each of which cases the fees and expenses of counsel for such Indemnified Party shall be at the expense of such Indemnifying Party. Only one counsel shall be retained by all Indemnified Parties with respect to any Indemnified Proceeding, unless counsel for any Indemnified Party reasonably concludes in good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between such Indemnified Party and one or more other Indemnified Parties in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes or action available to such Indemnified Party.

               (e) Settlement. Without the prior written consent of such Indemnified Party, such Indemnifying Party shall not settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding, unless such settlement, compromise, consent or related judgment (i) includes an unconditional release of such Indemnified Party from all liability for Losses arising out of such claim, action, investigation, suit or other legal proceeding, (ii) provides for the payment of money damages as the sole relief for the claimant (whether at law or in equity), (iii) involves no admission of fact adverse to the Indemnified Party or finding or admission of any violation of law or the rights of any Person by the Indemnified Party, and (iv) is not in the nature of a criminal or regulatory action. No Indemnified Party shall settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding (A) in respect of which any payment would result hereunder or under any other Operative Document, (B) which includes an injunction that will adversely affect any Indemnifying Party, (C) which involves an admission of fact adverse to the Indemnifying Party or a finding or admission of any violation of law or the

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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rights of any Person by the Indemnifying Party, or (D) which is in the nature of a criminal or regulatory action, without the prior written consent of the Indemnifying Party, such consent not to be unreasonably conditioned, withheld or delayed.

          Section 11. No Petition. Each of Alexza and Holdings covenants and agrees that, prior to the date which is one year and one day after the expiration of the Purchase Option Period, it will not institute or join in the institution of any bankruptcy, insolvency, reorganization or similar proceeding against Symphony Allegro. The provisions of this Section 11 shall survive the termination of this Agreement.

          Section 12. Third-Party Beneficiary. Each of the Parties agrees that each Symphony Fund shall be a third-party beneficiary of this Agreement.

Section 13. Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing addressed to the Party at its address set forth below and shall be deemed given (i) when delivered to the Party personally, (ii) if sent to the Party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 13), when the transmitting Party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving Party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail, when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by a return receipt:

          Alexza:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn:August J. Moretti
Facsimile: (650) 687-3999

          with a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Facsimile: (650) 849-7400

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          Symphony Allegro:

Symphony Allegro, Inc.
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn:Frank L. Hurley, Ph.D.
Facsimile: (301) 762-6154

          Holdings:

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn:Robert L. Smith, Jr.
Facsimile: (301) 762-6154

          with copies to:

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn:Mark Kessel
Facsimile: (212) 632-5401

and

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

or to such other address as such Party may from time to time specify by notice given in the manner provided herein to each other Party entitled to receive notice hereunder.

          Section 14. Governing Law; Consent to Jurisdiction and Service of Process.

                    (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York; except to the extent that this Agreement pertains to the internal governance of Symphony Allegro or Holdings, and to such extent this Agreement shall be governed and construed in accordance with the laws of the State of Delaware.

                    (b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court and Delaware State court or federal court of the United States of America

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

30

sitting in The City of New York, Borough of Manhattan or Wilmington, Delaware, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court, any such Delaware State court or, to the fullest extent permitted by law, in such federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Party may otherwise have to bring any action or proceeding relating to this Agreement.

                    (c) Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court, or any Delaware State or federal court. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereby consents to service of process by mail.

          Section 15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

          Section 16. Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments hereto) constitutes the entire agreement between the Parties with respect to the matters covered hereby and supersedes all prior and contemporaneous agreements, correspondence, discussion, and understanding with respect to such matters between the Parties, excluding the Operative Documents.

          Section 17. Amendment; Successors; Counterparts.

               (a) The terms of this Agreement shall not be altered, modified, amended, waived or supplemented in any manner whatsoever except by a written instrument signed by each of the Parties.

               (b) Except as set forth in Section 12, nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any Person, other than the Parties, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the Parties and their successors and permitted assigns.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

31

               (c) This Agreement may be executed in one or more counterparts, each of which, when executed, shall be deemed an original but all of which, taken together, shall constitute one and the same Agreement.

          Section 18. Specific Performance. The Parties acknowledge that irreparable damage would result if this Agreement were not specifically enforced, and they therefore agree that the rights and obligations of the Parties under this Agreement may be enforced by a decree of specific performance issued by a court of competent jurisdiction. Such a remedy shall, however, not be exclusive, and shall be in addition to any other remedies which any Party may have under this Agreement or otherwise. The Parties further acknowledge and agree that a decree of specific performance may not be an available remedy in all circumstances.

          Section 19. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

          Section 20. Tax Reporting. The Parties acknowledge and agree that, for all federal and state income tax purposes:

               (a) (i) Holdings shall be treated as the owner of all the Equity Securities of Symphony Allegro prior to the consummation of the Purchase Option; (ii) the Purchase Option shall be treated as an option to acquire all the Equity Securities of Symphony Allegro; (iii) the Warrants shall be treated as option premium payable in respect of the grant of the Purchase Option; and (iv) Symphony Allegro shall be treated as the owner of all the Licensed Intellectual Property and shall be entitled to all deductions claimed under Section 174 of the Code in respect of the Licensed Intellectual Property to the extent of the amounts funded by Symphony Allegro (which, for the avoidance of doubt, shall not preclude Alexza from claiming deductions under Section 174 of the Code to which Alexza is otherwise entitled); and

               (b) No Party shall take any tax position inconsistent with any position described in Section 20(a) above, except (i) in the event of a “determination” (as defined in Section 1313 of the Code) to the contrary, or (ii) in the event either of the Parties receives an opinion of counsel to the effect that there is no reasonable basis in law for such a position or that a tax return cannot be prepared based on such a position without being subject to substantial understatement penalties; provided, however, that in the case of Alexza, such counsel shall be reasonably satisfactory to Holdings.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

32

{SIGNATURES FOLLOW ON NEXT PAGE}

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

33

     IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written.

ALEXZA PHARMACEUTICALS, INC.
By:	/s/ August J. Moretti
	Name:	August J. Moretti
	Title:	Senior Vice President and Chief Financial Officer
SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P.,
	its Manager
By:	Symphony Capital GP, L.P.,
	its member
By:	Symphony GP, LLC,
	its member
By:	/s/ Mark Kessel
	Name:	Mark Kessel
	Title:	Managing Member
SYMPHONY ALLEGRO, INC.
By:	/s/ Neil J. Sandler
	Name:	Neil J. Sandler
	Title:	Chairman of the Board

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCHEDULE I

PURCHASE PRICE TABLE

Quarter Following	First Date of		Quarterly Price (in
the Closing Date	Quarter	Last Date of Quarter	millions)
[ * ]

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCH-1

ANNEX A

CERTAIN DEFINITIONS

{See attached.}

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-1

CERTAIN DEFINITIONS

     “$” means United States dollars.

     “Accredited Investor” has the meaning set forth in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.

     “Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq.

     “Ad Hoc Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Additional Party” has the meaning set forth in Section 14 of the Confidentiality Agreement.

     “Additional Regulatory Filings” means such Governmental Approvals as required to be made under any law applicable to the purchase of the Symphony Allegro Equity Securities under the Purchase Option Agreement.

     “Adjusted Capital Account Deficit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Affected Member” has the meaning set forth in Section 27 of the Investors LLC Agreement.

     “Affiliate” means, with respect to any Person (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any officer, director, general partner, member or trustee of such Person, or (iii) any Person who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, managers, general partners, or persons exercising similar authority with respect to such Person or entities.

     “Alexza” means Alexza Pharmaceuticals, Inc., a Delaware corporation.

     “Alexza Accounting Advisor” means Ernst & Young LLP.

     “Alexza Common Stock” means the common stock, par value $0.0001 per share, of Alexza.

     “Alexza Common Stock Valuation” has the meaning set forth in Section 2(e) of the Purchase Option Agreement.

     “Alexza Obligations” has the meaning set forth in Section 6.1(a) of the Amended

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-2

and Restated Research and Development Agreement.

     “Alexza Personnel” has the meaning set forth in Section 8.4 of the Amended and Restated Research and Development Agreement.

     “Alexza Public Filings” means all publicly available filings made by Alexza with the SEC.

     “Alexza Subcontractor” means a third party that has entered into a Subcontracting Agreement with Alexza.

     “Allegro Relevant Infringement” means an infringement, misappropriation, illegal use or misuse of the Licensed Patent Rights or other Licensed Intellectual Property due to the manufacture, use, sale or importation of a pharmaceutical product or device that delivers Alprazolam (provided that Alexza has not exercised a Discontinuation Option for the AZ-002 Program) or Loxapine (provided that Alexza has not exercised a Discontinuation Option for the AZ-004 Program), as applicable.

     “Alprazolam” means: (a) alprazolam and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Amended and Restated Research and Development Agreement” means the Amended and Restated Research and Development Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Asset Value” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Auditors” means an independent certified public accounting firm of recognized national standing.

     “AZ-002 Product” means a pharmaceutical product in which Alprazolam is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-002 Program” means the development, manufacture and/or use of any AZ-002 Product in accordance with the Development Plan.

     “AZ-004 Product” means a pharmaceutical product in which Loxapine is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-004 Program” means the development, manufacture and/or use of any AZ-004 Product in accordance with the Development Plan.

     “Balance Sheet Deficiency” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Balance Sheet Deficiency Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-3

     “Balance Sheet Deficiency Threshold” shall have the meaning set forth in Section 2(b) of the Research Cost Sharing and Extension Agreement.

     “Bankruptcy Code” means the United States Bankruptcy Code.

     “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York or the City of San Francisco are authorized or required by law to remain closed.

     “Capital Contributions” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

     “Cash Available for Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Chair” has the meaning set forth in Paragraph 4 of Annex B to the Amended and Restated Research and Development Agreement.

     “Change of Control” means and includes the occurrence of any of the following events, but specifically excludes (i) acquisitions of capital stock directly from Alexza for cash, whether in a public or private offering, (ii) sales of capital stock by stockholders of Alexza, and (iii) acquisitions of capital stock by or from any employee benefit plan or related trust:

     (a) the merger, reorganization or consolidation of Alexza into or with another corporation or legal entity in which Alexza’s stockholders holding the right to vote with respect to matters generally immediately preceding such merger, reorganization or consolidation, own less than fifty percent (50%) of the voting securities of the surviving entity; or

     (b) the sale of all or substantially all of Alexza’s assets or business.

     “Change of Control Put Option” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Change of Control Put Option Exercise Notice” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Class A Member” means a holder of a Class A Membership Interest.

     “Class A Membership Interest” means a Class A Membership Interest in Holdings.

     “Class B Member” means a holder of a Class B Membership Interest.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-4

     “Class B Membership Interest” means a Class B Membership Interest in Holdings.

     “Class C Member” means a holder of a Class C Membership Interest.

     “Class C Membership Interest” means a Class C Membership Interest in Holdings.

     “Class D Member” means a holder of a Class D Membership Interest.

     “Class D Membership Interest” means a Class D Membership Interest in Holdings.

     “Client Schedules” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Clinical Budget Component” has the meaning set forth in Section 4.1 of the Amended and Restated Research and Development Agreement.

     “Clinical Trial Material” means Product and placebo for administration to animals for pre-clinical testing or to humans for clinical testing.

     “Closing Date” means any time after the close of business in New York on December 1, 2006.

     “CMC” means the chemistry, manufacturing and controls documentation as required for filings with a Regulatory Authority relating to the manufacturing, production and testing of drug products.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Committed Capital” means $50,000,000.00.

     “Common Stock” means the common stock, par value $0.01 per share, of Symphony Allegro.

     “Company Expenses” has the meaning set forth in Section 5.09 of the Holdings LLC Agreement.

     “Company Property” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Confidential Information” has the meaning set forth in Section 2 of the Confidentiality Agreement.

     “Confidentiality Agreement” means the Confidentiality Agreement, dated as of the Closing Date, among Symphony Allegro, Holdings, Alexza, SCP, SSP, Investors, Symphony Capital and RRD, as such agreement may be amended or amended and restated from time to time.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-5

     “Conflict Transaction” has the meaning set forth in Article X of the Symphony Allegro Charter.

     “Control” means, with respect to any material, information or intellectual property right, that a Party owns or has a license to such item or right, and has the ability to grant the other Party access, a license or a sublicense (as applicable) in or to such item or right as provided in the Operative Documents without violating the terms of any agreement or other arrangement with any third party.

     “Cross Program Expenses” are: (i) the Management Fee plus the Development Fee pursuant to Section 6(a) of the RRD Services Agreement; (ii) actual expenses associated with RRD carrying out its duties related to creating and maintaining the books of account, records, financial statements and audit and tax preparation for Symphony Allegro pursuant to Section 5 of the RRD Services Agreement; and (iii) actual expenses for insurance procured for Symphony Allegro pursuant to Section 1(a)(xi) of the RRD Services Agreement, reasonable legal expenses incurred on behalf of Symphony Allegro, and travel and miscellaneous out of pocket expenses of the Symphony Allegro Board, all as and to the extent reimbursable to RRD pursuant to Section 6(b) of the RRD Services Agreement.

     “Current Products” has the meaning set forth in Section 5.1(g) of thef Novated and Restated Technology License Agreement.

     “Debt” of any Person means, without duplication:

     (a) all indebtedness of such Person for borrowed money,

     (b) all obligations of such Person for the deferred purchase price of property or services (other than any portion of any trade payable obligation that shall not have remained unpaid for 91 days or more from the later of (A) the original due date of such portion and (B) the customary payment date in the industry and relevant market for such portion),

     (c) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments,

     (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (whether or not the rights and remedies of the seller or lender under such agreement in an event of default are limited to repossession or sale of such property),

     (e) all Capitalized Leases to which such Person is a party,

     (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities,

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person,

     (h) the net amount of all financial obligations of such Person in respect of Hedge Agreements,

     (i) the net amount of all other financial obligations of such Person under any contract or other agreement to which such Person is a party,

     (j) all Debt of other Persons of the type described in clauses (a) through (i) above guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and

     (k) all Debt of the type described in clauses (a) through (i) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned or held or used under lease or license by such Person, even though such Person has not assumed or become liable for payment of such Debt.

     “Development Budget” means the budget (comprised of the Management Budget Component and the Clinical Budget Component) for the implementation of the Development Plan (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Committee” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Charter” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Member” has the meaning set forth in Paragraph 1 of Annex B to the Amended and Restated Research and Development Agreement.

     “Development Plan” means the development plan covering all the Programs (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Product” means an AZ-002 Product or an AZ-004 Product that is administered in a clinical trial performed pursuant to the Development Plan.

     “Development Services” has the meaning set forth in Section 1(b) of the RRD Services Agreement.

     “Development Subcontracting Agreement” means a Subcontracting Agreement that is directly related to one or both of the Programs and is not a Manufacturing Subcontracting Agreement.

     “Director(s)” means the Persons identified as such in the Preliminary Statement of the Indemnification Agreement (including such Persons as may become parties thereto after the date hereof).

     “Disclosing Party” has the meaning set forth in Section 4 of the Confidentiality Agreement.

     “Discontinuation Option” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Option Closing Date” means the date of expiration of the Discontinuation Option pursuant to Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Price” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinued Program” has the meaning set forth in Section 2.10 of the Novated and Restated Technology License Agreement.

     “Disinterested Directors” has the meaning set forth in Article IX of the Symphony Allegro Charter.

     “Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Drug Master Files” means all Regulatory Files with respect to the manufacture or design of a Product, including without limitation drug master files, design history files and similar files.

     “Early Purchase Option Exercise” has the meaning set forth in Section 1(c)(v) of the Purchase Option Agreement.

     “Effective Registration Date” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Encumbrance” means (i) any security interest, pledge, mortgage, lien (statutory or other), charge or option to purchase, lease or otherwise acquire any interest, (ii) any adverse claim, restriction, covenant, title defect, hypothecation, assignment, deposit arrangement, license or other encumbrance of any kind, preference or priority, or (iii) any other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement).

     “Equity Securities” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

     “ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.

     “Excepted Debt” has the meaning set forth in Section 5(c)(iii) of the Purchase Option Agreement.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Existing Confidentiality Agreement” has the meaning set forth in Section 2(a) of the Confidentiality Agreement.

     “Exiting Product” means, with respect to a particular Program, any Development Product that was administered in a clinical trial pursuant to the Development Plan at any time prior to (a) the termination of the Discontinuation Option with respect to such Program without exercise by Licensor or (b) the expiration or termination of the Purchase Option without exercise by Licensor, whichever comes first.

     “Extension Funding” has the meaning set forth in Section 2 of the Research Cost Sharing and Extension Agreement.

     “External Directors” means, at any time, up to two (2) Persons elected to the Symphony Allegro Board after the Closing Date (who shall be neither employees of Symphony Capital nor of Alexza) in accordance with the Symphony Allegro Charter, the Symphony Allegro By-laws and Section 4(b)(iv) of the Purchase Option Agreement.

     “FDA” means the United States Food and Drug Administration or its successor agency in the United States.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “FDA Sponsor” has the meaning set forth in Section 5.1 of the Amended and Restated Research and Development Agreement.

     “Final Termination Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Financial Audits” has the meaning set forth in Section 6.7 of the Amended and Restated Research and Development Agreement.

     “Financing” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

     “Fiscal Year” has the meaning set forth in each Operative Document in which it appears.

     “Form S-3” means the Registration Statement on Form S-3 as defined under the Securities Act.

     “FTE” means the time and effort of one or more qualified scientists working on the AZ-002 Program or the AZ-004 Program that is equivalent to 1850 hours per year devoted exclusively to the Programs by one (1) full-time employee. The portion of an FTE year devoted by any one scientist to the Programs shall be determined by dividing the number of hours during any twelve (12) month period devoted by such scientist to one or both Programs by 1850 hours, not to exceed 1.0 in any case.

     “Funds Termination Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Funds Termination Notice” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time.

     “Governmental Approvals” means authorizations, consents, orders, declarations or approvals of, or filings with, or terminations or expirations of waiting periods imposed by any Governmental Authority.

     “Governmental Authority” means any United States or non-United States federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

     “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

     “Hedge Agreement” means any interest rate swap, cap or collar agreement, interest rate future or option contract, currency swap agreement, currency future or option contract or other similar hedging agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Holdings” means Symphony Allegro Holdings LLC, a Delaware limited liability company.

     “Holdings Claims” has the meaning set forth in Section 5.01 of the Warrant Purchase Agreement.

     “Holdings LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of Holdings dated as of the Closing Date.

     “HSR Filings” means the pre-merger notification and report forms required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “IND” means an Investigational New Drug Application, as described in 21 U.S.C. § 355(i)(1) and 21 C.F.R. § 312 in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

     “Indemnification Agreement” means the Indemnification Agreement among Symphony Allegro and the Directors named therein, dated as of the Closing Date, as such agreement may be amended or amended and restated from time to time.

     “Indemnified Party” has the meaning set forth in each Operative Document in which it appears.

     “Indemnified Proceeding” has the meaning set forth in each Operative Document in which it appears.

     “Indemnifying Party” has the meaning set forth in each Operative Document in which it appears.

     “IND-Enabling GLP Inhalation Toxicology Studies” means the pharmacokinetic and toxicology studies required for filing an IND.

     “Initial Development Budget” means the initial development budget prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Development Plan” means the initial development plan prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Holdings LLC Agreement” means the Agreement of Limited Liability Company of Holdings, dated October 24, 2006.

     “Initial Investors LLC Agreement” means the Agreement of Limited Liability Company of Investors, dated October 24, 2006.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Initial LLC Member” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Interest Certificate” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Investment Company Act” means the Investment Company Act of 1940, as amended.

     “Investment Overview” means the investment overview describing the transactions entered into pursuant to the Operative Documents.

     “Investment Policy” has the meaning set forth in Section 1(a)(vi) of the RRD Services Agreement.

     “Investors” means Symphony Allegro Investors LLC.

     “Investors LLC Agreement” means the Amended and Restated Agreement of Limited Liability Company of Investors dated as of the Closing Date.

     “IRS” means the U.S. Internal Revenue Service.

     “Key Personnel” means those Alexza Personnel listed on Schedule 6.5 to the Amended and Restated Research and Development Agreement, as such schedule may be updated from time to time by mutual agreement of the parties to the Amended and Restated Research and Development Agreement.

     “Know-How” means findings, discoveries, inventions, know-how, information, results and data of any type whatsoever, including without limitation, technical information, techniques, results of experimentation and testing, diagnostic and prognostic assays, specifications, databases, manufacturing processes or protocols, any and all laboratory, research, pharmacological, toxicological, analytical, quality control, pre-clinical and clinical data.

     “Knowledge” of Alexza, Symphony Allegro or Holdings, as the case may be, means the actual (and not imputed) knowledge of the executive officers or managing member of such Person without the duty of inquiry or investigation.

     “Law” means any law, statute, treaty, constitution, regulation, rule, ordinance, order or Governmental Approval, or other governmental restriction, requirement or determination, of or by any Governmental Authority.

     “License” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

     “Licensed Intellectual Property” means the Licensed Patent Rights and the Licensed Know-How.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Licensed Know-How” means any and all Know-How that is Controlled by Licensor on or after the Closing Date and prior to the unexercised expiration or termination of the Purchase Option that:

     (a) is necessary or useful to practice the inventions claimed in the Licensed Patent Rights; or

     (b) is a Symphony Allegro Enhancement;

     provided, however, that Licensed Know-How shall not include any Licensed Patent Rights or any Know-How for the manufacture of a Product, including Know-How associated with Product quality control or stability testing.

     “Licensed Patent Rights” means any and all patents and patent applications Controlled by Licensor that:

     (a) are listed on Annex D of the Novated and Restated Technology License Agreement;

     (b) are reissues, continuations, divisionals, continuations-in-part, reexaminations, renewals, substitutes, extensions or foreign counterparts of the patents and patent applications described in (a) and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Know-How conceived and reduced to practice prior to such expiration or termination;

     (c) contain a claim that covers an invention disclosed in an invention disclosure listed on Annex D of the Novated and Restated Technology License Agreement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such invention;

     (d) contain a claim that covers a Symphony Allegro Enhancement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such Symphony Allegro Enhancement; or

     (e) contain a claim that covers a Development Product or the manufacture or use thereof and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Development Product-related Know-How conceived and reduced to practice prior to such expiration or termination.

     “Licensor” means Alexza.

     “Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Liquidating Event” has the meaning set forth in Section 8.01 of the Holdings LLC Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “LLC Agreements” means the Initial Holdings LLC Agreement, the Holdings LLC Agreement, the Initial Investors LLC Agreement and the Investors LLC Agreement.

     “Loss” has the meaning set forth in each Operative Document in which it appears.

     “Loxapine” means: (a) loxapine and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Management Fee” has the meaning set forth in Section 6(a) of the RRD Services Agreement.

     “Management Services” has the meaning set forth in Section 1(a) of the RRD Services Agreement.

     “Manager” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, RRD in its capacity as manager of Symphony Allegro.

     “Manager Event” has the meaning set forth in Section 3.01(g) of the Holdings LLC Agreement.

     “Manufacturing Subcontracting Agreement” means a Subcontracting Agreement that is directly related to the manufacture of Product (including procurement of components and development of improved manufacturing methods) or the improvement of the Staccato Technology.

     “Material Adverse Effect” means, with respect to any Person, a material adverse effect on (i) the business, assets, property or condition (financial or otherwise) of such Person or, (ii) its ability to comply with and satisfy its respective agreements and obligations under the Operative Documents or, (iii) the enforceability of the obligations of such Person of any of the Operative Documents to which it is a party.

     “Material Subsidiary” means, at any time, a Subsidiary of Alexza having assets in an amount equal to at least 5% of the amount of total consolidated assets of Alexza and its Subsidiaries (determined as of the last day of the most recent reported fiscal quarter of Alexza) or revenues or net income in an amount equal to at least 5% of the amount of total consolidated revenues or net income of Alexza and its Subsidiaries for the 12-month period ending on the last day of the most recent reported fiscal quarter of Alexza.

     “Medical Discontinuation Event” means a series of adverse events, side effects or other undesirable outcomes that, when collected in a Program, would cause a reasonable FDA Sponsor to discontinue such Program.

     “Membership Interest” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, the meaning set forth in the Holdings LLC Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “NASDAQ” means the Nasdaq Stock Market, Inc.

     “NDA” means a New Drug Application, as defined in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

     “Non-Alexza Capital Transaction” means any (i) sale or other disposition of all or part of the Symphony Allegro Shares or all or substantially all of the operating assets of Symphony Allegro, to a Person other than Alexza or an Affiliate of Alexza or (ii) distribution in kind of the Symphony Allegro Shares following the unexercised expiration or termination of the Purchase Option.

     “Novated and Restated Technology License Agreement” means the Novated and Restated Technology License Agreement, dated as of the Closing Date, among Alexza, Symphony Allegro and Holdings.

     “Operative Documents” means, collectively, the Indemnification Agreement, the Holdings LLC Agreement, the Purchase Option Agreement, the Warrant Purchase Agreement, the Registration Rights Agreement, the Subscription Agreement, the Technology License Agreement, the Novated and Restated Technology License Agreement, the RRD Services Agreement, the Research and Development Agreement, the Research Cost Sharing and Extension Agreement, the Amended and Restated Research and Development Agreement, the Confidentiality Agreement, and each other certificate and agreement executed in connection with any of the foregoing documents.

     “Organizational Documents” means any certificates or articles of incorporation or formation, partnership agreements, trust instruments, bylaws or other governing documents.

     “Partial Stock Payment” has the meaning set forth in Section 3(a)(iii) of the Purchase Option Agreement.

     “Party(ies)” means, for each Operative Document or other agreement in which it appears, the parties to such Operative Document or other agreement, as set forth therein. With respect to any agreement in which a provision is included therein by reference to a provision in another agreement, the term “Party” shall be read to refer to the parties to the document at hand, not the agreement that is referenced.

     “Payment Terms” has the meaning set forth in Section 8.2 of the Amended and Restated Research and Development Agreement.

     “Percentage” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Investments” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

     “Personnel” of a Party means such Party, its employees, subcontractors, consultants, representatives and agents.

     “Prime Rate” means the quoted “Prime Rate” at JPMorgan Chase Bank or, if such bank ceases to exist or is not quoting a base rate, prime rate reference rate or similar rate for United States dollar loans, such other major money center commercial bank in New York City selected by the Manager.

     “Products” means an AZ-002 Product and/or an AZ-004 Product.

     “Profit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Programs” means the AZ-002 Program and/or the AZ-004 Program.

     “Program-Specific Claim” means any claim in a patent or patent application in the Licensed Patent Rights that is directed exclusively to AZ-002 Products and/or AZ-004 Products.

     “Program-Specific Patents” means any and all Licensed Patent Rights that contain at least one Program-Specific Claim.

     “Protocol” means a written protocol that meets the substantive requirements of Section 6 of the ICH Guideline for Good Clinical Practice as adopted by the FDA, effective May 9, 1997, and is included within the Development Plan or later modified or added to the Development Plan pursuant to the Amended and Restated Research and Development Agreement.

     “Public Companies” has the meaning set forth in Section 5(e) of the Purchase Option Agreement.

     “Purchase Option” has the meaning set forth in Section 1(a) of the Purchase Option Agreement.

     “Purchase Option Agreement” means the Purchase Option Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Purchase Option Closing” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Closing Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Purchase Option Commencement Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Option Exercise Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Exercise Notice” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Offset Amount” shall mean, following the termination of the Amended and Restated Research and Development Agreement by Alexza pursuant to Section 17.3 thereof, those unpaid amounts actually owed to Alexza as a result of the material breach or default of any payment obligation of Symphony Allegro to Alexza pursuant to the Amended and Restated Research and Development Agreement by Symphony Allegro or Holdings that was the basis for such termination of the Amended and Restated Research and Development Agreement by Alexza.

     “Purchase Option Period” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Price” has the meaning set forth in Section 2(b) of the Purchase Option Agreement.

     “QA Audits” has the meaning set forth in Section 6.6 of the Amended and Restated Research and Development Agreement.

     “Quarterly Price” has the meaning set forth in Section 2(b)(i) of the Purchase Option Agreement.

     “Registration Rights Agreement” means the Registration Rights Agreement dated as of the Closing Date, between Alexza and Holdings.

     “Registration Statement” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

     “Regulatory Allocation” has the meaning set forth in Section 3.06 of the Holdings LLC Agreement.

     “Regulatory Authority” means the United States Food and Drug Administration, or any successor agency in the United States, or any health regulatory authority(ies) in any other country that is a counterpart to the FDA and has responsibility for granting registrations or other regulatory approval for the marketing, manufacture, storage, sale or use of drugs in such other country.

     “Regulatory Files” means any IND, NDA or any other filings filed with any Regulatory Authority with respect to the Programs.

     “Representative” of any Person means such Person’s shareholders, principals, directors, officers, employees, members, managers and/or partners.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Research Cost Sharing and Extension Agreement” means the Research Cost Sharing and Extension Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Research and Development Agreement” means the Research and Development Agreement dated as of the Closing Date, between Alexza and Holdings.

     “RRD” means RRD International, LLC, a Delaware limited liability company.

     “RRD Indemnified Party” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Loss” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Personnel” has the meaning set forth in Section 1(a)(ii) of the RRD Services Agreement.

     “RRD Services Agreement” means the RRD Services Agreement between Symphony Allegro and RRD, dated as of the Closing Date.

     “Schedule K-1” has the meaning set forth in Section 9.02(a) of the Holdings LLC Agreement.

     “Scheduled Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Scientific Discontinuation Event” has the meaning set forth in Section 4.2(c) of the Amended and Restated Research and Development Agreement.

     “SCP” means Symphony Capital Partners, L.P., a Delaware limited partnership.

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Selling Stockholder Questionnaire” has the meaning set forth in Section 4(a) of the Registration Rights Agreement.

     “Shareholder” means any Person who owns any Symphony Allegro Shares.

     “Solvent” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “SSP” means Symphony Strategic Partners, LLC, a Delaware limited liability company.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Staccato Technology” means Alexza’s proprietary technology for the vaporization of a pharmaceutical composition via rapid-heating to form a condensation aerosol that allows rapid systemic drug delivery to humans through lung inhalation.

     “Stock Payment Date” has the meaning set forth in Section 2 of the Subscription Agreement.

     “Stock Purchase Price” has the meaning set forth in Section 2 of the Subscription Agreement.

     “Subcontracting Agreement” means (a) any written agreement between Alexza and a third party pursuant to which the third party performs any Alexza Obligations or (b) any work order, change order, purchase order or the like entered into pursuant to Section 6.2(b) of the Amended and Restated Research and Development Agreement.

     “Sublicense Obligations” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Sublicensed Intellectual Property” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Subscription Agreement” means the Subscription Agreement between Symphony Allegro and Holdings, dated as the Closing Date.

     “Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

     “Surviving Entity” means the surviving legal entity which is surviving entity to Alexza after giving effect to a Change of Control.

     “Symphony Allegro” means Symphony Allegro, Inc., a Delaware corporation.

     “Symphony Allegro Auditors” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Symphony Allegro Board” means the board of directors of Symphony Allegro.

     “Symphony Allegro By-laws” means the By-laws of Symphony Allegro, as adopted by resolution of the Symphony Allegro Board on the Closing Date.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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     “Symphony Allegro Charter” means the Amended and Restated Certificate of Incorporation of Symphony Allegro, dated as of the Closing Date.

     “Symphony Allegro Director Event” has the meaning set forth in Section 3.01(h)(i) of the Holdings LLC Agreement.

     “Symphony Allegro Enhancements” means any and all Know-How, whether or not patentable, that is made by or on behalf of Symphony Allegro during the Term, including Know-How generated or derived by RRD and assigned to Symphony Allegro pursuant to Section 12 of the RRD Services Agreement.

     “Symphony Allegro Equity Securities” means the Common Stock and any other stock or shares issued by Symphony Allegro.

     “Symphony Allegro Loss” has the meaning set forth in Section 10(b) of the RRD Services Agreement.

     “Symphony Allegro Shares” has the meaning set forth in Section 2.02 of the Holdings LLC Agreement.

     “Symphony Capital” means Symphony Capital LLC, a Delaware limited liability company.

     “Symphony Fund(s)” means Symphony Capital Partners, L.P., a Delaware limited partnership, and Symphony Strategic Partners, LLC, a Delaware limited liability company.

     “Tangible Materials” means any tangible technical, medical, regulatory or marketing documentation, whether written or electronic, existing as of the Closing Date or made by or on behalf of Symphony Allegro during the Term, that (a) is Controlled by the Licensor and (b) embodies or relates solely to the Regulatory Files (other than Drug Master Files), Exiting Products or the Programs; provided, however, that Tangible Materials shall not include any manufacturing-related documentation or any documentation related to Licensed Intellectual Property.

     “Tax Amount” has the meaning set forth in Section 4.02 of the Holdings LLC Agreement.

     “Technology License Agreement” means the Technology License Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Term” has the meaning set forth in Section 4(b)(iii) of the Purchase Option Agreement, unless otherwise stated in any Operative Document.

     “Territory” means the world.

     “Third Party IP” has the meaning set forth in Section 2.9 of the Novated and Restated Technology License Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-20

     “Third Party Licensor” means a third party from which Alexza has received a license or sublicense to Licensed Intellectual Property.

     “Transaction Event” has the meaning set forth in Section 6.05 of the Warrant Purchase Agreement.

     “Transfer” has for each Operative Document in which it appears the meaning set forth in such Operative Document.

     “Transferee” has, for each Operative Document in which it appears, the meaning set forth in such Operative Document.

     “Voluntary Bankruptcy” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Warrant Closing” has the meaning set forth in Section 2.03 of the Warrant Purchase Agreement.

     “Warrant Date” has the meaning set forth in Section 2.02 of the Warrant Purchase Agreement.

     “Warrant Purchase Agreement” means the Warrant Purchase Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Warrant Shares” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

     “Warrant Surrender Price” has the meaning set forth in Section 7.08 of the Warrant Purchase Agreement.

     “Warrants” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

A-21

EXHIBIT 1

PURCHASE OPTION EXERCISE NOTICE

                    , 20  

Attention:                     

Ladies and Gentlemen:

     Reference is hereby made to that certain Purchase Option Agreement dated as of December 1, 2006 (the “Purchase Option Agreement”), by and among Alexza Pharmaceuticals, Inc., a Delaware corporation (“Alexza”), Symphony Allegro Holdings LLC, a Delaware limited liability company, and Symphony Allegro, Inc., a Delaware corporation. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Purchase Option Agreement.

     Pursuant to Section 2(a) of the Purchase Option Agreement, Alexza hereby irrevocably notifies you that it hereby exercises the Purchase Option.

     Subject to the terms set forth therein, Alexza hereby affirms the representations and warranties set forth in Section 3(a) of the Purchase Option Agreement, as of the date hereof.

     Alexza estimates that the Purchase Option Closing Date will be                     .

     The Purchase Price will be $                    , subject to adjustment if the Purchase Option Closing Date occurs later than the estimated date set forth above.

     {Alexza intends to pay                     % of the Purchase Price in Alexza Common Stock. The number of shares to be transferred at such Purchase Price will be                     , based on a per share valuation of $                    . This represents                     % of the total amount of Alexza Common Stock issued and outstanding as of the Purchase Option Closing Date.}

Very truly yours,
ALEXZA PHARMACEUTICALS, INC.
By:
	Name:	{August J. Moretti}
	Title:	{Senior Vice President and Chief Financial Officer}

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EXHIBIT 2

FORM OF OPINION OF COOLEY GODWARD KRONISH LLP

{See attached.}

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

December 1, 2006

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855

Dear Ladies and Gentlemen:

We have acted as counsel for Alexza Pharmaceuticals, Inc., a Delaware corporation (the “Company”), in connection with the financing of certain of the Company’s research and development programs (the "Financing”). In connection with the Financing, the Company is entering into the agreements listed on Schedule I hereto (collectively, the “Transaction Agreements”). We are rendering this opinion pursuant to Section 3.02(d) of the Warrant Purchase Agreement.

In connection with this opinion, we have examined and relied upon the representations and warranties as to factual matters contained in and made pursuant to the Transaction Agreements by the various parties and originals, or copies certified to our satisfaction, of such records, documents, certificates, opinions, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below.

As to certain factual matters, we have relied upon certificates of officers of the Company and have not sought to independently verify such matters. Where we render an opinion “to our knowledge” or concerning an item “known to us” or our opinion otherwise refers to our knowledge, it is based solely upon (i) an inquiry of attorneys within this firm who have represented the Company in this transaction, (ii) receipt of a certificate executed by an officer of the Company covering such matters and (iii) such other investigation, if any, that we specifically set forth herein.

In rendering this opinion, we have assumed: the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; the due authorization, execution and delivery of all documents (except the due authorization, execution and delivery by the Company of the Transaction Agreements), where authorization, execution and delivery are prerequisites to the effectiveness of such documents; and the genuineness and authenticity of all signatures on original documents (except the signatures on behalf of the Company on the Transaction Agreements). We have also assumed: that all individuals executing and delivering documents had the legal capacity to so execute and deliver; that the Transaction Agreements are obligations binding upon the parties thereto other than the Company; that the parties to the Transaction Agreements other than the Company have filed any required California franchise or income tax returns and have paid any required California franchise or income taxes; and that there are no extrinsic agreements or understandings among the parties to the Transaction Agreements or to the Material Agreements (as defined below) that would modify or interpret the terms of any such agreements or the respective rights or obligations of the parties thereunder.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Our opinion is expressed only with respect to the federal laws of the United States of America, the laws of the State of California, the laws of the State of New York and the General Corporation Law of the State of Delaware. We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof.

We are not rendering any opinion as to any statute, rule, regulation, ordinance, decree or decisional law relating to antitrust, banking, land use, environmental, pension, employee benefit, tax, usury, laws governing the legality of investments for regulated entities, regulations T, U or X of the Board of Governors of the Federal Reserve System or local law. Furthermore, we express no opinion with respect to compliance with antifraud laws, rules or regulations relating to securities or the offer and sale thereof; compliance with fiduciary duties by the Company’s Board of Directors or stockholders; compliance with safe harbors for disinterested Board of Director or stockholder approvals; compliance with state securities or blue sky laws except as specifically set forth below; or compliance with laws that place limitations on corporate distributions.

With regard to our opinion in paragraph 1 below, we have relied solely upon a certificate of the Secretary of State of the State of Delaware as of a recent date.

With regard to our opinion in paragraph 3 below, with respect to the due and valid authorization of each of the Transaction Documents, we have relied solely upon (i) a certificate of an officer of the Company, (ii) a review of the certificate of incorporation and bylaws of the Company, (iii) a review of the resolutions certified by an officer of the Company, (iv) and a review of the Delaware General Corporation Law.

With regard to our opinion paragraph 4 below concerning material defaults under and any material breaches of any agreement identified on Schedule II hereto, we have relied solely upon (i) a certificate of an officer of the Company, (ii) a list supplied to us by the Company of material agreements to which the Company is a party, or by which it is bound, a copy of which is attached hereto as Schedule II (the “Material Agreements”) and (iii) an examination of the Material Agreements in the form provided to us by the Company. We have made no further investigation. Further, with regard to our opinion in paragraph 4 below concerning Material Agreements, we express no opinion as to (i) financial covenants or similar provisions therein requiring financial calculations or determinations to ascertain compliance, (ii) provisions therein relating to the occurrence of a “material adverse event” or words of similar import or (iii) any statement or writing that may constitute parol evidence bearing on interpretation or construction.

With regard to our opinion in paragraph 7 below, we express no opinion to the extent that, notwithstanding its current reservation of shares of Common Stock, future issuances of securities of the Company and/or antidilution adjustments to outstanding securities of the Company may cause the Warrant Shares (as defined in the Warrant Purchase Agreement)or the Alexza Common Stock (as defined in the Purchase Option Agreement) to exceed the number of shares of Common Stock that then remain authorized but unissued.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

With regard to our opinion in paragraph 8 concerning exemption from registration, our opinion is expressed only with respect to the offer and sale of the Warrant or the Warrant Shares without regard to any offers or sales of securities occurring prior to or subsequent to the date hereof.

With regard to our opinion in paragraph 9 below, we have based our opinion, to the extent we consider appropriate, on Rule 3a-8 under the Investment Company Act of 1940, as amended, and a certificate of an officer of the Company as to compliance with each of the requirements necessary to comply with Rule 3a-8. We have conducted no further investigation.

On the basis of the foregoing, in reliance thereon and with the foregoing qualifications, we are of the opinion that:

1. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware.

2. The Company has the corporate power to execute, deliver and perform its obligations under the Transaction Agreements.

3. Each of the Transaction Agreements has been duly and validly authorized, executed and delivered by the Company. The offer and sale of the Warrant (as defined in the Warrant Purchase Agreement) has been duly authorized by the Company.

4. The execution and delivery of the Transaction Agreements by the Company and the issuance of the Warrant pursuant thereto and the Warrant Shares assuming the exercise of the Warrant on the date hereof, will not, (a) violate any provision of the Company’s certificate of incorporation or by-laws, (b) violate any governmental statute, rule or regulation which in our experience is typically applicable to transactions of the nature contemplated by the Transaction Agreements, (c) violate any order, writ, judgment, injunction, decree, determination or award which has been entered against the Company and of which we are aware or (d) constitute a material default under or a material breach of any Material Agreement, in the case of clauses (c) and (d) to the extent such default or breach would materially and adversely affect the Company.

5. All consents, approvals, authorizations or orders of, and filings, registrations and qualifications with any U.S. Federal or California regulatory authority or governmental body required for the due execution or delivery by the Company of any Transaction Agreement and the sale and issuance of the Warrant have been made or obtained, except (a) for the filing of a Form D pursuant to Securities and Exchange Commission Regulation D and (b) for the filing of the notice to be filed under California Corporations Code Section 25102.1(d).

6. Each of the Transaction Agreements constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its respective terms.

7. The Warrant Shares (as defined in the Warrant Purchase Agreement) and, the Alexza Common Stock (as defined in the Purchase Option Agreement), when sold and issued in accordance with the terms of the Warrant or the Purchase Option Agreement, as

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

applicable, will be validly issued, fully paid and non-assessable, and the issuance of the Warrant Shares is not be subject to preemptive rights pursuant to the General Corporation Law of the State of Delaware, the certificate of incorporation or by-laws of the Company or similar rights to subscribe pursuant to any Material Agreement.

8. The offer and sale of the Warrant and Warrant Shares (assuming exercise of the Warrant on the date hereof) are exempt from the registration requirements of the Securities Act of 1933, as amended, subject to the timely filing of a Form D pursuant to Securities and Exchange Commission Regulation D.

9. The Company is not an “investment company” as defined in the Investment Company Act of 1940, as amended.

Our opinion in paragraph 6 above is specifically subject to the following limitations, exceptions, qualifications and assumptions:

     A. The opinions expressed above are subject to, and may be limited by, applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance, debtor and creditor, and similar laws which relate to or affect creditors’ rights generally. This opinion is also subject to, and may be limited by, general principles of equity and the exercise of judicial discretion (regardless of whether such validity or enforceability is considered in a proceeding in equity or at law), including the possible unavailability of specific performance, injunctive relief or any other equitable remedy and concepts of materiality, reasonableness, conscionability, good faith and fair dealing.

     B. We express no opinion as to the effect of court decisions, invoking statutes or principles of equity, which have held that certain covenants and provisions of agreements are unenforceable where enforcement of such covenants or provisions under the circumstances would violate the enforcing party’s implied covenant of good faith and fair dealing or would be limited by the principles of course of dealing or course of performance.

     C. We express no opinion as to the effect of any federal or state law or equitable principle which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof that the courts find to be unconscionable at the time it was made or contrary to public policy.

     D. We express no opinion as to the enforceability under certain circumstances of provisions expressly or by implication waiving broadly or vaguely stated rights, unknown future rights including without limitation rights to damages, or defenses to obligations or rights granted by law, when such waivers are against public policy or prohibited by law.

     E. We express no opinion as to the enforceability under certain circumstances of provisions to the effect that rights or remedies are not exclusive, that rights or remedies may be exercised without notice, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, that election of a particular remedy or remedies does not preclude recourse to one or more remedies, or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     F. We express no opinion as to the enforceability of any provision of an applicable agreement requiring that waivers must be in writing; such provision may not be binding or enforceable if a non-executory oral agreement has been created modifying any such provision or if an implied agreement by trade practice or course of conduct has given rise to a waiver.

     G. We express no opinion as to the enforceability of the following rights and remedies which may be limited by applicable law: (i) any provision which provides for a rate of interest which exceeds that permissible under applicable law; (ii) any provision which purports to affect the jurisdiction of a court (including provisions as to methods of service of process and as to property which may be subject to such jurisdiction) or may be subject to the discretion of a court (including provisions as to venue); (iii) any provision which purports to make available remedies for violations, breaches or defaults that are determined by a court of competent jurisdiction to be non-material or unreasonable; (iv) any provision which provides for a choice of law or choice of forum; (v) any provision relating to contribution to or the indemnification or exculpation of any party; and (vi) any provision that contains a waiver of the benefits of statutory, regulatory, or constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allows waiver, including without limitation, any provision which purports to waive trial by jury.

     H. We express no opinion with respect to the following: (i) any document referenced in the Transaction Agreements that is not a Transaction Agreement; and (ii) the enforceability of the Transaction Agreements by or against any person or entity that is not a party thereto.

     I. We express no opinion as to the enforceability of any provision for penalties, liquidated damages, acceleration of future amounts due (other than principal) without appropriate discount to present value, late charges, prepayment charges, or increased interest rates upon default.

     J. We express no opinion as the enforceability of any provision stating that the provisions of a contract are severable.

     K. We express no opinion as to the enforceability of any provision that would permit the other party to require performance without requiring consideration of the impracticability or impossibility of performance at the time of attempted enforcement due to unforeseen circumstances not within the contemplation of the parties.

     L. We express no opinion as to the enforceability of any provision which purports to assign, grant a lien upon or security interest in or to any contract, right, agreement or other property right or the proceeds thereof (other than assignments or security interests in accounts, general intangibles, chattel paper or promissory notes to the extent provided by Sections 9-406(d), 9-407 and 9-408 of the New York Uniform Commercial Code), which by its terms or under applicable law, rule or regulation is not so assignable or under which the grant of such a lien or security interest is prohibited.

     M. We express no opinion as to the Company’s rights in the technology which is the subject of the Technology License Agreement, the Novated and Restated Technology License Agreement, the Research and Development Agreement, or the Amended and Restated Research

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

and Development Agreement (collectively, the “Technology Agreements”). We further express no opinion to the extent that portions of the Technology Agreements may be deemed to be agreements to agree, or as to the future interpretation of these agreements.

     This opinion is intended solely for your benefit and is not to be made available to or be relied upon by any other person, firm, or entity without our prior written consent.

Sincerely,
Cooley Godward Kronish LLP
By:
	Barbara A. Kosacz

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Schedule I

List of Transaction Agreements

1. Warrant Purchase Agreement, dated as of December 1, 2006 between the Company and Symphony Allegro Holdings LLC (the “Warrant Purchase Agreement”).

2. Warrant to purchase 2,000,000 shares of common stock of the Company, dated as of December 1, 2006 (the “Warrant”).

3. Purchase Option Agreement, dated as of December 1, 2006, by and among the Company, Symphony Allegro Holdings LLC and Symphony Allegro, Inc. (the “Purchase Option Agreement”).

4. Research and Development Agreement, dated as of December 1, 2006, by and among the Company, Symphony Allegro Holdings LLC and Symphony Allegro, Inc. (the “Research and Development Agreement”).

5. Amended & Restated Research and Development Agreement, dated as of December 1, 2006, between the Company and Symphony Allegro Holdings LLC (the “Amended & Restated Research and Development Agreement”).

6. Technology License Agreement, dated as of December 1, 2006 between the Company and Symphony Allegro Holdings LLC (the “Technology License Agreement”).

7. Novated and Restated Technology License Agreement, dated as of December 1, 2006, by and among the Company, Symphony Allegro, Inc. and Symphony Allegro Holdings LLC (the “Novated and Restated Technology License Agreement”).

8. Confidentiality Agreement, dated as of December 1, 2006, by and among the Company, Symphony Allegro Holdings LLC, Symphony Allegro, Inc., Symphony Capital Partners, L.P., Symphony Strategic Partners, LLC, Symphony Allegro Investors LLC, Symphony Capital LLC and RRD International, LLC (the “Confidentiality Agreement”).

9. Registration Rights Agreement, dated as of December 1, 2006, between the Company and Symphony Allegro Holdings LLC (the “Registration Rights Agreement”).

10. Research Cost Sharing and Extension Agreement, dated as of December 1, 2006, by and among the Company, Symphony Allegro Holdings LLC and Symphony Allegro, Inc. (the “Cost Sharing Agreement”)

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCHEDULE II

LIST OF MATERIAL AGREEMENTS

1.	Lease between the Company and Brittania, LLC dated August 25, 2006.
2.	2006 Performance Bonus Program.
3.	Second Amended and Restated Investors’ Rights Agreement between the Company and certain holders of Preferred Stock dated November 5, 2004.
4.	2005 Equity Incentive Plan.
5.	2005 Non-Employee Directors’ Stock Option Plan.
6.	2005 Employee Stock Purchase Plan.
7.	Lease between the Company and California Pacific Commercial Corporation dated March 20, 2002.
8.	First Amendment to Lease between the Company and California Pacific Commercial Corporation dated May 8, 2003.
9.	Second Amendment to Lease between the Company and California Pacific Commercial Corporation dated February 11, 2005.
10.	Development Agreement between the Company and Autoliv ASP, Inc. dated October 3, 2005.
11.	Loan and Security Agreement between the Company and Silicon Valley Bank dated March 20, 2002, as amended on January 7, 2003, September 3, 2003, March 18, 2004 and May 16, 2005
12.	Master Security Agreement between the Company and General Electric Capital Corporation dated May 17, 2005, as amended on May 18, 2005.
13.	Promissory Note between the Company and General Electric Capital Corporation dated June 15, 2005.
14.	Promissory Note between the Company and General Electric Capital Corporation dated August 24, 2005.
15.	Warrant to Purchase shares of Series B Preferred Stock issued to Silicon Valley Bank dated March 20, 2002.
16.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated January 30, 2003, as amended on March 4, 2003.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

17.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated September 19, 2003.
18.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated April 7, 2004.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EX-10.27

Exhibit 10.27

EXECUTION COPY

WARRANT PURCHASE AGREEMENT

between

ALEXZA PHARMACEUTICALS, INC.

and

SYMPHONY ALLEGRO HOLDINGS LLC

Dated as of December 1, 2006

Table of Contents

	Page
ARTICLE I DEFINITIONS		1
Section 1.01 Definitions		1
ARTICLE II PURCHASE AND SALE OF WARRANTS		1
Section 2.01 Authorization to Issue Warrants		1
Section 2.02 Purchase and Sale of Warrants		2
Section 2.03 Warrant Date		2
ARTICLE III CONDITIONS OF PURCHASE		2
Section 3.01 Conditions Precedent to Each Party’s Obligations		2
Section 3.02 Conditions Precedent to Holdings’ Obligations		2
Section 3.03 Conditions Precedent to Alexza’s Obligations		4
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS		5
Section 4.01 Representations, Warranties and Covenants of Holdings		5
Section 4.02 Representations, Warranties and Covenants of Alexza		7
ARTICLE V INDEMNITY		9
Section 5.01 Indemnification		9
Section 5.02 Notice of Claims		10
Section 5.03 Defense of Proceedings		10
Section 5.04 Settlement		11
ARTICLE VI TRANSFER RESTRICTIONS		12
Section 6.01 Transfer Restrictions		12
Section 6.02 Legends		13
Section 6.03 Warrant Legend Removal		13
Section 6.04 Improper Transfer		14
Section 6.05 Limits on Daily Disposition		14
ARTICLE VII MISCELLANEOUS		15
Section 7.01 Notice of Breach		15
Section 7.02 Notices		16
Section 7.03 Governing Law; Consent to Jurisdiction and Service of Process		17
Section 7.04 Waiver of Jury Trial		17
Section 7.05 Entire Agreement		18
Section 7.06 Amendment and Waivers		18

	Page
Section 7.07 Counterparts		18
Section 7.08 Assignment and Successors		18

Annex A	Certain Definitions
Exhibit A	Form of opinion of Cooley Godward Kronish LLP
Exhibit B	Form of Warrant
Exhibit C	Warrant Conversion Example

WARRANT PURCHASE AGREEMENT

     This WARRANT PURCHASE AGREEMENT (this “Agreement”) is dated as of December 1, 2006, by and between Alexza Pharmaceuticals, Inc., a Delaware corporation (“Alexza”), and SYMPHONY ALLEGRO HOLDINGS LLC, a Delaware limited liability company (together with its permitted successors, assigns and transferees, “Holdings”).

     WHEREAS, contemporaneously with the execution of this Agreement, Holdings, Alexza, and Symphony Allegro, Inc., a Delaware corporation (“Symphony Allegro”) are entering into a Purchase Option Agreement (the “Purchase Option Agreement”) pursuant to which, among other things, Holdings is granting to Alexza an option to purchase all of the equity securities of Symphony Allegro (the “Symphony Allegro Equity Securities”) owned, or hereafter acquired, by Holdings on the terms set forth in the Purchase Option Agreement (the “Purchase Option”); and

     WHEREAS, in consideration for Holdings’ grant of the Purchase Option to Alexza, Alexza desires to issue and sell to Holdings the Warrants described herein on the terms hereof;

     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto (the “Parties”) agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.01 Definitions. Capitalized terms used but not defined herein are used as defined in Annex A hereto.

ARTICLE II

PURCHASE AND SALE OF WARRANTS

     Section 2.01 Authorization to Issue Warrants. Alexza has authorized the issuance of certain warrants (the “Warrants”) representing the right to purchase 2,000,000 shares of Alexza’s common stock (“Alexza Common Stock”), par value $0.0001 per share, at a price per share that shall be an amount equal to 125% of the average closing price per share of Alexza Common Stock, as reported by the NASDAQ Global Market, or other national exchange that is the primary exchange on which Alexza Common Stock is listed, over a continuous period of sixty (60) trading days immediately preceding (but not including) the second trading day prior to the Closing Date (such shares, the “Warrant Shares”). The Warrants shall have a term of five (5) years and shall be evidenced by certificates issued pursuant to this Agreement in the form set forth in Exhibit B hereto, with such appropriate insertions, omissions, substitutions, and other variations as are required or permitted by this Agreement.

Warrant Purchase Agreement

     Section 2.02 Purchase and Sale of Warrants. Alexza hereby agrees to issue to Holdings, and Holdings hereby agrees to acquire from Alexza, the Warrants on the Closing Date (hereinafter, the “Warrant Date”), subject to the fulfillment of the conditions precedent described in Article III below. The Warrants will be issued to Holdings as consideration for the execution and delivery by Holdings of the Purchase Option Agreement.

     Section 2.03 Warrant Date. Subject to the terms and conditions of this Agreement, the issuance, sale and purchase of the Warrants contemplated by this Agreement shall take place at a closing on the Warrant Date (the “Warrant Closing”) to be held at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019, at 4:30 P.M., Eastern Time, following the satisfaction or waiver of all other conditions to the obligations of the Parties set forth in Section 2.02 hereof, or at such other place or at such other time or such other date as Holdings and Alexza shall mutually agree upon in writing.

ARTICLE III

CONDITIONS OF PURCHASE

     Section 3.01 Conditions Precedent to Each Party’s Obligations. The respective obligations of Alexza and Holdings to effect the transactions contemplated hereby shall be subject to the satisfaction of the conditions precedent contained in this Section 3.01 or the waiver thereof in writing by Holdings and Alexza prior to or on the Warrant Date.

          (a) Approvals. All Governmental Approvals imposed by any Governmental Authority in connection with the transactions contemplated by this Agreement and the other Operative Documents required to be in effect prior to or on the Warrant Date shall be in effect, the failure of which to be in effect would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on either of the Parties.

          (b) Litigation. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law or Governmental Order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby or in the other Operative Documents.

     Section 3.02 Conditions Precedent to Holdings’ Obligations. The obligation of Holdings to effect the transactions contemplated hereby shall be subject to the satisfaction of the further conditions precedent contained in this Section 3.02, or the waiver thereof in writing by Holdings, prior to or on the Warrant Date.

          (a) Authorization, Execution and Delivery of Documents. This Agreement and each of the other Operative Documents (including all schedules, annexes and exhibits thereto) required to be entered into on or prior to the Warrant Date shall have

Warrant Purchase Agreement

2

been duly authorized, executed and delivered by each of the parties thereto (other than Holdings) and shall be in full force and effect.

          (b) Issuance of Warrants. All actions required by any applicable law, or necessary in the reasonable opinion of Holdings, to issue the Warrants shall have been duly taken by Alexza (or provisions therefor shall have been made), including, without limitation, the making of all registrations and filings required to be made prior to or on the Warrant Date, and all necessary consents shall have been received.

          (c) Performance of Obligations by Alexza; Representations and Warranties. Alexza shall have performed in all material respects and complied in all material respects with all agreements and conditions contained in this Agreement and the other Operative Documents that are required to be performed or complied with by it prior to or on the Warrant Date. Alexza’s representations and warranties set forth in Section 4.02 of this Agreement shall be true and correct in all respects as of the Warrant Date.

          (d) Opinion of Counsel. Holdings shall have received an opinion letter from Cooley Godward Kronish LLP, counsel to Alexza, in form and substance acceptable to Holdings.

          (e) Closing Certificate. At the Warrant Closing, Holdings shall have received a certificate from Alexza executed by its Chief Financial Officer or other duly authorized executive officer, dated as of the Warrant Date, in form and substance reasonably satisfactory to Holdings, certifying:

               (i) (A) that the Operative Documents to which Alexza is a party have been duly authorized, executed and delivered by Alexza, and are in full force and effect, and (B) that Alexza has satisfied all conditions precedent contained in the Operative Documents to which it is a party required to be satisfied by it on or prior to the Warrant Date; and

               (ii) as to (A) the accuracy and completeness of the contents of Alexza’s charter documents, (B) the resolutions of Alexza’s board of directors, duly authorizing Alexza’s execution, delivery and performance of each Operative Document to which it is or is to be a party and each other document required to be executed and delivered by it in accordance with the provisions hereof or thereof, and (C) the incumbency and signature of Alexza’s representatives authorized to execute and deliver documents on its behalf in connection with the obligations contemplated hereby and by the other Operative Documents.

          (f) Further Documents, Certificates, Etc. Holdings shall have received such other documents, certificates or opinions as Holdings may reasonably request in connection with the consummation of the transactions contemplated by this Agreement.

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          (g) No Events of Default. No breach, default, event of default or other similar event by Alexza, and no event which with the giving of notice, the passage of time, or both, would constitute any of the foregoing, under any Operative Document or any other material contract or agreement to which Alexza is a party, shall have occurred and be continuing, and no condition shall exist that constitutes, or with the giving of notice, the passage of time, or both, would constitute such default, event of default or other similar event.

          (h) No Violation. The transactions contemplated hereby shall comply with all applicable law in effect as of the Warrant Date, and no party (other than Holdings) to such transactions shall be in violation of any such applicable law. Holdings shall not be subject to any penalty or liability pursuant to any violation of applicable law in effect as of such Warrant Date by virtue of the transactions contemplated hereby and by each of the other Operative Documents.

          (i) Change in Law. There shall have been no change in any law, rule or regulation or the interpretation thereof (including any law, rule or regulation relating to taxes) that prohibits or prevents the consummation of this Agreement or any of the transactions contemplated hereby (including the sale and purchase of the Warrants) or by the Operative Documents or that results in any material increase in taxes payable by Holdings or Investors.

     Section 3.03 Conditions Precedent to Alexza’s Obligations. The obligation of Alexza to effect the transactions contemplated hereby shall be subject to the satisfaction of the further conditions precedent contained in this Section 3.03, or the waiver thereof in writing by Alexza, prior to or on the Warrant Date.

          (a) Authorization, Execution and Delivery of Documents. This Agreement and each of the other Operative Documents (including all schedules and exhibits thereto) required to be entered into on or prior to the Warrant Date shall have been duly authorized, executed and delivered by each of the parties thereto (other than Alexza) and shall be in full force and effect.

          (b) Performance of Obligations by Holdings; Representations and Warranties. As of the Warrant Date, Holdings shall have performed in all material respects and complied in all material respects with all agreements and conditions contained in this Agreement and the other Operative Documents required to be performed or complied with by it prior to or at the Warrant Date. Each of Holdings’ representations and warranties set forth in Section 4.01 of this Agreement shall be true and correct in all respects as of the Warrant Date with the same effect as though such representations and warranties were made on and as of the Warrant Date (or if stated to have been made as of an earlier date, as of such date).

          (c) No Events of Default. No breach, default, event of default or other similar event by Holdings, and no event which with the giving of notice, the passage of time, or both, would constitute any of the foregoing, under any Operative Document or any other material contract or agreement to which Holdings is a party, shall

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have occurred and be continuing, and no condition shall exist that constitutes, or with the giving of notice, the passage of time, or both, would constitute such default, event of default or other similar event.

          (d) No Violation. The transactions contemplated hereby shall comply in all material respects with all applicable law in effect as of the Warrant Date, and no party (other than Alexza) to such transactions shall be in material violation of any such applicable law. Alexza shall not be subject to any penalty or liability pursuant to any violation of applicable law in effect as of such Warrant Date by virtue of the transactions contemplated hereby and by each of the other Operative Documents, the failure to comply with which would, either individually or in the aggregate, reasonably be expected to have a material adverse effect on the Programs.

ARTICLE IV

REPRESENTATIONS, WARRANTIES AND COVENANTS

     Section 4.01 Representations, Warranties and Covenants of Holdings.

          (a) Holdings hereby represents and warrants to Alexza that:

               (i) Organization. Holdings is a limited liability company, duly formed, validly existing and in good standing under the laws of the State of Delaware.

               (ii) Authority and Validity. Holdings has all requisite limited liability company power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Holdings of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action required on the part of Holdings, and no other proceedings on the part of Holdings are necessary to authorize this Agreement or for Holdings to perform its obligations under this Agreement. This Agreement constitutes the lawful, valid and legally binding obligation of Holdings, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

               (iii) No Violation or Conflict. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not (A) violate, conflict with or result in the breach of any provision of the Organizational Documents of Holdings, (B) conflict with or violate any law or Governmental Order applicable to Holdings or any of its assets, properties or businesses, or (C) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or

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cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Holdings, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Holdings is a party except, in the case of clauses (B) and (C), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

               (iv) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Holdings do not, and the consummation of the transactions contemplated hereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

               (v) Litigation. There are no actions by or against Holdings pending before any Governmental Authority or, to the knowledge of Holdings, threatened to be brought by or before any Governmental Authority, that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings. There are no pending or, to the knowledge of Holdings, threatened actions to which Holdings is a party (or threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. Holdings is not subject to any Governmental Order (nor, to the knowledge of Holdings, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Holdings.

               (vi) Accredited Investor.

                    (A) Holdings is and will remain at all relevant times an “Accredited Investor”.

                    (B) Holdings has relied completely on the advice of, or has consulted with or has had the opportunity to consult with, its own personal tax, investment, legal or other advisors and has not relied on Alexza or any of its Affiliates for advice. Holdings has reviewed the Investment Overview and is aware of the risks disclosed therein. Holdings acknowledges that it has had a reasonable opportunity to conduct its own due diligence with respect to the Products, the Programs, Symphony Allegro, Alexza and the transactions contemplated by the Operative Documents.

                    (C) Holdings has been advised and understands that the offer and sale of the Warrants and the Warrant Shares have not been registered under the Securities Act. Holdings is able to bear the economic risk of such investment for an indefinite period and to afford a complete loss thereof.

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                    (D) Holdings is acquiring the Warrants and the Warrant Shares solely for Holdings’ own account for investment purposes as a principal and not with a view to the resale of all or any part thereof; provided, that Holdings may transfer the Warrants as set forth in Section 6.01 hereof. Holdings agrees that the Warrants and the Warrant Shares may not be resold (1) without registration thereof under the Securities Act (unless an exemption from such registration is available), or (2) in violation of any law. Holdings is not and will not be an underwriter within the meaning of Section 2(11) of the Securities Act with respect to the Warrants and the Warrant Shares.

                    (E) No person or entity acting on behalf of, or under the authority of, Holdings is or will be entitled to any broker’s, finder’s, or similar fees or commission payable by Alexza or any of its Affiliates.

                    (F) Holdings acknowledges and agrees to treat the Warrants for federal, state and local income tax purposes as option premium paid in return for the grant and maintenance of the Purchase Option.

     Section 4.02 Representations, Warranties and Covenants of Alexza.

          (a) Alexza hereby represents and warrants to Holdings that:

               (i) Organization. Alexza is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.

               (ii) Authority and Validity. Alexza has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Alexza of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action required on the part of Alexza, and no other proceedings on the part of Alexza are necessary to authorize this Agreement or for Alexza to perform its obligations under this Agreement. This Agreement constitutes the lawful, valid and legally binding obligation of Alexza, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

               (iii) No Violation or Conflict. The execution, delivery and performance of this Agreement and the transactions contemplated hereby do not (A) violate, conflict with or result in the breach of any provision of the Organizational Documents of Alexza, (B) conflict with or violate any law or Governmental Order applicable to Alexza or any of its assets, properties or businesses, or (C) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or

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cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Alexza, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Alexza is a party except, in the case of clauses (B) and (C), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

               (iv) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Alexza do not, and the consummation of the transactions contemplated hereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

               (v) Litigation. Except as disclosed in any Alexza Public Filings available as of the date hereof, there are no actions by or against Alexza pending before any Governmental Authority or, to the knowledge of Alexza, threatened to be brought by or before any Governmental Authority, that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza. There are no pending or, to the knowledge of Alexza, threatened actions, to which Alexza is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. Alexza is not subject to any Governmental Order (nor, to the knowledge of Alexza, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza.

               (vi) Private Placement. Assuming the accuracy of Holdings’ representations and warranties set forth in Section 4.01, (i) the purchase and sale of the Warrants is exempt from the registration requirements of the Securities Act, and (ii) no other offering of Common Stock by Alexza will be integrated with the offering of the Warrants or the Warrant Shares. Neither Alexza nor any Person acting on its behalf has or will offer the Warrants or the Warrant Shares by any form of general solicitation or general advertising and all filings required under Rule 503 of the Securities Act will be made in a timely manner.

          (b) Alexza covenants and agrees with Holdings that, so long as any of the Warrants are outstanding (including as such Warrants may be reissued pursuant to transfer in accordance with Section 6.01 hereof), Alexza shall take all action necessary to reserve and keep available out of its authorized and unissued Alexza Common Stock, solely for the purpose of effecting the exercise of the Warrants, 100% of the number of shares of Alexza Common Stock issuable upon exercise of the Warrants. Upon exercise in accordance with the Warrants, the Alexza Common Stock delivered thereby will be validly issued, fully paid and nonassessable and free from all taxes, liens

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and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of the Alexza Common Stock.

          (c) Alexza acknowledges and agrees to treat the Warrants for federal, state and local income tax purposes as option premium paid in return for the grant of the Purchase Option.

ARTICLE V

INDEMNITY

     Section 5.01 Indemnification. To the greatest extent permitted by applicable law, Alexza shall indemnify and hold harmless Holdings, and Holdings shall indemnify and hold harmless Alexza, and each of their respective Affiliates, officers, directors, employees, agents, partners, members, successors, assigns, representatives of, and each Person, if any (including any officers, directors, employees, agents, partners, members of such Person) who controls, Holdings and Alexza, as applicable, within the meaning of the Securities Act or the Exchange Act, (each, an “Indemnified Party”), from and against any and all actions, causes of action, suits, claims, losses, costs, interest, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (hereinafter, a “Loss”), incurred by any Indemnified Party to the extent resulting from, arising out of or relating to: (i) in the case of Alexza being the Indemnifying Party, (A) any breach of any representation or warranty made by Alexza herein, (B) any breach of any covenant, agreement or obligation of Alexza contained herein, or (C) any untrue statement of a material fact about Alexza contained in the reports filed by Alexza with the SEC, or the omission therefrom of a material fact about Alexza required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, to the extent that such reports are attached to the Investment Overview; provided, that the information contained in a later filed report filed prior to the date of this Agreement shall be deemed to update any related information contained in a previously filed report (the items set forth herein in clauses (A), (B) and (C) being hereinafter referred to as the “Holdings Claims”), and (ii) in the case of Holdings being the Indemnifying Party, (x) any breach of any representation or warranty made by Holdings herein, (y) any breach of any covenant, agreement or obligation of Holdings contained herein, or (z) any untrue statement or alleged untrue statement of a material fact about Holdings contained in the Investment Overview or the omission or alleged omission therefrom of a material fact about Holdings required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (the items set forth herein in clauses (x), (y) and (z) being hereinafter referred to as the “Alexza Claims”). To the extent that the foregoing undertaking by Alexza or Holdings may be unenforceable for any reason, such Party shall make the maximum contribution to the payment and satisfaction of any Loss that is permissible under applicable law.

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     Section 5.02 Notice of Claims. Any Indemnified Party that proposes to assert a right to be indemnified under this Article V shall notify Alexza or Holdings, as applicable (the “Indemnifying Party”), promptly after receipt of notice of commencement of any action, suit or proceeding against such Indemnified Party (an “Indemnified Proceeding”) in respect of which a claim is to be made under this Article V, or the incurrence or realization of any Loss in respect of which a claim is to be made under this Article V, of the commencement of such Indemnified Proceeding or of such incurrence or realization, enclosing a copy of all relevant documents, including all papers served and claims made, but the omission to so notify the applicable Indemnifying Party promptly of any such Indemnified Proceeding or incurrence or realization shall not relieve (x) such Indemnifying Party from any liability that it may have to such Indemnified Party under this Article V or otherwise, except, as to such Indemnifying Party’s liability under this Article V, to the extent, but only to the extent, that such Indemnifying Party shall have been prejudiced by such omission, or (y) any other indemnitor from liability that it may have to any Indemnified Party.

     Section 5.03 Defense of Proceedings. In case any Indemnified Proceeding shall be brought against any Indemnified Party, it shall notify the applicable Indemnifying Party of the commencement thereof as provided in Section 5.02, and such Indemnifying Party shall be entitled to participate in, and provided such Indemnified Proceeding involves a claim solely for money damages and does not seek an injunction or other equitable relief against the Indemnified Party and is not a criminal or regulatory action, to assume the defense of, such Indemnified Proceeding with counsel reasonably satisfactory to such Indemnified Party. After notice from such Indemnifying Party to such Indemnified Party of such Indemnifying Party’s election to so assume the defense thereof and the failure by such Indemnified Party to object to such counsel within ten (10) Business Days following its receipt of such notice, such Indemnifying Party shall not be liable to such Indemnified Party for legal or other expenses related to such Indemnified Proceedings incurred after such notice of election to assume such defense except as provided below and except for the reasonable costs of investigating, monitoring or cooperating in such defense subsequently incurred by such Indemnified Party reasonably necessary in connection with the defense thereof. Such Indemnified Party shall have the right to employ its counsel in any such Indemnified Proceeding, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless:

               (i) the employment of counsel by such Indemnified Party at the expense of the applicable Indemnifying Party has been authorized in writing by such Indemnifying Party;

               (ii) such Indemnified Party shall have reasonably concluded in its good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between the applicable Indemnifying Party and such Indemnified Party in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims,

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or causes of action available to such Indemnified Party (it being agreed that in any case referred to in this clause (ii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

               (iii) the applicable Indemnifying Party shall not have employed counsel reasonably acceptable to the Indemnified Party, to assume the defense of such Indemnified Proceeding within a reasonable time after notice of the commencement thereof; provided, however, that (A) this clause (iii) shall not be deemed to constitute a waiver of any conflict of interest that may arise with respect to any such counsel, and (B) an Indemnified Party may not invoke this clause (iii) if such Indemnified Party failed to timely object to such counsel pursuant to the first paragraph of this Section 5.03 above (it being agreed that in any case referred to in this clause (iii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); or

               (iv) any counsel employed by the applicable Indemnifying Party shall fail to timely commence or diligently conduct the defense of such Indemnified Proceeding and such failure has prejudiced (or is in immediate danger of prejudicing) the outcome of such Indemnified Proceeding (it being agreed that in any case referred to in this clause (iv) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

in each of which cases the reasonable fees and expenses of counsel for such Indemnified Party shall be at the expense of such Indemnifying Party. Only one counsel shall be retained by all Indemnified Parties with respect to any Indemnified Proceeding, unless counsel for any Indemnified Party reasonably concludes in good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between such Indemnified Party and one or more other Indemnified Parties in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes or action available to such Indemnified Party.

     Section 5.04 Settlement. Without the prior written consent of such Indemnified Party, such Indemnifying Party shall not settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding, unless such settlement, compromise, consent or related judgment (i) includes an unconditional release of such Indemnified Party from all liability for Losses arising out of such claim, action, investigation, suit or other legal proceeding, (ii) provides for the payment of money damages as the sole relief for the claimant (whether at law or in equity), (iii) involves no admission of fact adverse to the Indemnified Party or finding or admission of any violation of law or the rights of any Person by the Indemnified Party, and (iv) is not in the nature of a criminal or regulatory action. No Indemnified Party shall settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding (A) in respect of which any payment would result hereunder or under, (B) which includes an injunction that will materially adversely affect any Indemnifying Party, (C) which involves an admission of fact adverse to the Indemnifying

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Party or a finding or admission of any violation of law or the rights of any Person by the Indemnifying Party, or (D) which is in the nature of a criminal or regulatory action, without the prior written consent of the Indemnifying Party, such consent not to be unreasonably conditioned, withheld or delayed.

ARTICLE VI

TRANSFER RESTRICTIONS

     Section 6.01 Transfer Restrictions. Holdings agrees (and agrees to cause all of its members and any subsequent transferees thereof to so agree) that (i) except as specifically set forth in the proviso immediately below, it will not, directly or indirectly, offer, sell, assign, transfer, distribute, grant or sell a participation in, pledge or otherwise dispose of any Warrants or Warrant Shares or solicit any offers to buy or otherwise acquire, or take a pledge of, any Warrants (collectively, “Transfer”) unless such Warrants or Warrant Shares are registered and/or qualified under the Securities Act and applicable state securities laws, or unless an exemption from the registration or qualification requirements is otherwise available; provided, that, prior to such registration or qualification, (x) Holdings may Transfer Warrants or Warrant Shares to Investors, RRD and each Symphony Fund, (y) Investors may Transfer Warrants or Warrant Shares to its members, and (z) SCP may, in a single distribution, further Transfer Warrants or Warrant Shares to its limited partners, but in no event shall any of RRD, the members of Investors (other than SCP) or SCP’s limited partners further Transfer such Warrants or Warrant Shares prior to their registration or qualification (unless in accordance with clauses (x), (y) or (z)); (ii) (A) no Transfer of such Warrants, or (B) with respect to a private placement of the Warrant Shares, no Transfer of such Warrant Shares, shall be effective or recognized unless the transferor and the transferee make the representations and agreements contained herein and furnish to Alexza such certifications and other information as Alexza may reasonably request to confirm that any proposed transfer complies with the restrictions set forth herein and any applicable laws; and (iii) (1) except with respect to a Transfer made pursuant to the proviso in clause (i) above, Warrants may only be transferred in minimum denominations of Warrants representing the right to purchase at least 30,000 Warrant Shares, and (2) prior to the registration of Warrant Shares as contemplated in the Registration Rights Agreement, the Warrant Shares may only be transferred in minimum denominations of at least 30,000 Warrant Shares (other than a Transfer following a Transaction Event); provided, however, that in the event that any holder of any Warrants or Warrant Shares holds Warrants representing the right to purchase less than 30,000 Warrant Shares, or holds less than 30,000 Warrant Shares, as the case may be, such holder shall be entitled to exercise all, but not less than all, such Warrants and sell all, but not less than all, such Warrant Shares delivered to it in connection therewith, notwithstanding the fact that the number of such Warrant Shares is less than 30,000; provided, further, that Holdings agrees (and agrees to cause its members and any subsequent transferees thereof to so agree), that with respect to the Warrants, such holder of Warrants will not sell or otherwise transfer any Warrants, except in private placements to Accredited Investors or as otherwise permitted hereunder. Notwithstanding anything to the contrary contained herein, it is understood and agreed

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that Holdings (and its Affiliates) and any transferees thereof shall be entitled to immediately exercise all or any portion of its Warrants and Transfer such Warrant Shares without regard to the minimum share limitations hereunder at any time after a Transaction Event; provided, however, that following the public announcement by Alexza that the proposed transaction has been terminated in accordance with its terms, holders of Warrant Shares shall be subject to the share limitations hereunder.

     Section 6.02 Legends.

          (a) Holdings acknowledges and agrees that Alexza shall affix to each certificate evidencing outstanding Warrants (and any certificates issued upon the transfer of the Warrants) a legend in substantially the following form (a “Warrant Legend”):

“NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN (OR WILL BE, WITH RESPECT TO THE SECURITIES ISSUABLE UPON EXERCISE HEREOF) ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

THE WARRANT EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THIS WARRANT WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.”

     Section 6.03 Warrant Legend Removal. If the certificates representing such Warrants, include a Warrant Legend (as set forth in Section 6.02 hereof), Alexza shall, upon a request from Holdings, or a member or subsequent transferee thereof, as

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soon as practicable but in no event more than thirty (30) days after receiving such request, remove or cause to be removed (i) if the Warrants cease to be restricted securities, the securities law portion of the Warrant Legend and/or (ii) in the event of a sale of the Warrants in compliance with the transfer restrictions, the transfer restriction portion of the Warrant Legend, from such certificates representing the Warrants as Holdings, or such member or transferee, shall designate, in accordance with the terms hereof and, if applicable, in accordance with the terms of the applicable Warrant.

     Section 6.04 Improper Transfer. Any attempt to sell, assign, transfer, grant or sell a participation in, pledge or otherwise dispose of any Warrants or any Warrant Shares, not in compliance with this Agreement shall be null and void and Alexza, and such transfer agent as Alexza may employ, shall give no effect to, and shall not register or record a transfer pursuant to, such attempted sale, assignment, transfer, grant, sale of a participation, pledge or other disposition that is not made in accordance with the terms of this Agreement.

     Section 6.05 Limits on Daily Disposition. Holdings and its Affiliates each agree that, in the event that any holder of Warrants exercises some or all of such Warrants and determines to dispose of the resulting Warrant Shares on the market, Holdings (and its Affiliates) or the transferee of Holdings of those Warrant Shares will not sell or otherwise dispose in any single day of Warrant Shares totaling, in the aggregate, in excess of the greater of (x) 35,000 shares or (y) 25% of the average daily trading volume of Alexza Common Stock over the course of the previous twenty-eight (28) calendar days (as reported on the NASDAQ Global Market or such other national exchange representing the primary exchange on which Alexza Common Stock is listed) (the “Average Daily Volume”), and that, upon any transfer of the Warrant Shares to multiple holders, each subsequent holder shall be subject to a daily disposition limit in respect of its Warrant Shares that is its pro rata share of the 35,000 share limit or 25% of the Average Daily Volume, whichever is greater, reflecting its proportionate share of the total number of Warrant Shares; provided, however, that Holdings (and its Affiliates) and any transferees thereof may sell or otherwise dispose of their Warrant Shares without regard to the share limitations hereunder (i) at any time after the public announcement (a “Transaction Event”) by Alexza that it has entered into an agreement relating to the merger, sale, reorganization, reclassification, acquisition, disposition or consolidation of Alexza, including without limitation, any Change of Control transaction, upon the consummation of which Alexza will not be the Surviving Entity; provided, however, that following the public announcement by Alexza that the proposed transaction has been terminated in accordance with its terms, holders of Warrant Shares shall be subject to the share limitations hereunder, and (ii) in a private placement to accredited investors; and provided further, that any holder of Warrant Shares holding less than 35,000 shares shall not be subject to the disposition restrictions set forth in this Section 6.05. Holdings and its Affiliates shall notify any transferee of the Warrants or Warrant Shares of the terms of this Section 6.05, but shall in no event be responsible for monitoring the disposition of the Warrant Shares by any transferee.

Warrant Purchase Agreement

14

          (a) Holdings acknowledges and agrees that any stock certificate(s) representing Warrant Shares issued by Alexza pursuant hereto may contain a legend (the “Warrant Share Legend”) substantially as follows:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN ARTICLE VI OF THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, BY AND BETWEEN THE ISSUER HEREOF AND SYMPHONY ALLEGRO HOLDINGS LLC (COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER HEREOF), INCLUDING, BUT NOT LIMITED TO, A DAILY SHARE DISPOSITION LIMIT, WHICH IS THE GREATER OF (X) 35,000 SHARES OR (Y) 25% OF THE AVERAGE DAILY TRADING VOLUME OF ALEXZA COMMON STOCK OVER THE COURSE OF THE PREVIOUS TWENTY-EIGHT (28) CALENDAR DAYS (AS REPORTED ON THE NASDAQ GLOBAL MARKET OR SUCH OTHER NATIONAL EXCHANGE REPRESENTING THE PRIMARY EXCHANGE ON WHICH ALEXZA COMMON STOCK IS LISTED) PER DAY IN RESPECT OF THE WARRANT SHARES OF THE HOLDER HEREOF. UPON A SALE OR OTHER TRANSACTION RESULTING IN A DIVISION OF THE SHARES REPRESENTED HEREBY, SUCH MAXIMUM DAILY DISPOSITION AMOUNT WILL BE DIVIDED PRO RATA AMONG SUBSEQUENT HOLDERS OF THE WARRANT SHARES.

ARTICLE VII

MISCELLANEOUS

     Section 7.01 Notice of Breach. Each Party covenants and agrees that, upon its acquiring Knowledge of any breach by it of any representation, warranty, covenant or any other term or condition of this Agreement or acquiring Knowledge of a material event or development that is, or is reasonably expected to be, adverse to the other Party with respect to any Program or the transactions contemplated hereby, such Party shall promptly notify the other Party in writing within three (3) Business Days of acquiring such Knowledge; provided, that the failure to provide such notice shall not impair or otherwise be deemed a waiver of any rights any Party may have arising from such breach, material event or development and that notice under this Section 7.01 shall not in itself constitute notice of any breach, unless explicitly stated in such notice.

Warrant Purchase Agreement

15

     Section 7.02 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing addressed to the Party at its address set forth below and shall be deemed given (i) when delivered to the Party personally, (ii) if sent to the Party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 7.02), when the transmitting Party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving Party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail, when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by a return receipt:

     Alexza:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn: August J. Moretti
Facsimile: (650) 687-3999

     with a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Facsimile: (650) 849-7400

     Holdings:

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Robert L. Smith, Jr.
Facsimile: (301) 762-6154

     with a copy to:

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

     and

Warrant Purchase Agreement

16

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

or to such other address as such Party may from time to time specify by notice given in the manner provided herein to each other Party entitled to receive notice hereunder.

     Section 7.03 Governing Law; Consent to Jurisdiction and Service of Process.

          (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York; except to the extent that this Agreement pertains to the internal governance of Alexza, and to such extent this Agreement shall be governed and construed in accordance with the laws of the State of Delaware.

          (b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court and any Delaware State court or federal court of the United States of America sitting in The City of New York, Borough of Manhattan or Wilmington, Delaware, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court, any such Delaware State court or, to the fullest extent permitted by law, in such federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Party may otherwise have to bring any action or proceeding relating to this Agreement.

          (c) Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court, or any Delaware State or federal court. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereby consent to service of process by mail.

     Section 7.04 Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

Warrant Purchase Agreement

17

     Section 7.05 Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments here) constitutes the entire agreement between the Parties with respect to the matters covered hereby and supersedes all prior and contemporaneous agreements, correspondence, discussion and understandings with respect to such matters between the Parties, excluding the Operative Documents.

     Section 7.06 Amendment and Waivers. The terms of this Agreement shall not be waived, altered, modified, amended or supplemented in any manner whatsoever except by a written instrument signed by each of the Parties. Any Party may waive, solely with respect to itself, any one or more of its rights hereunder without the consent of any other Party hereto; provided, that no such waiver shall be effective unless set forth in a written instrument executed by the Party hereto against whom such waiver is to be effective.

     Section 7.07 Counterparts. This Agreement may be executed in one or more counterparts, each of which, when executed, shall be deemed an original but all of which taken together shall constitute one and the same Agreement.

     Section 7.08 Assignment and Successors. Except as otherwise permitted pursuant to Article VI hereof, neither Alexza nor Holdings may Transfer, in whole or in part, any or all of its rights or obligations hereunder to any Person (a “Transferee”) without the prior written approval of the other Party; provided, however, that Alexza, without the prior approval of the other Party, acting in accordance with Section 2A of the Purchase Option Agreement, may make such Transfer to any Person which acquires all or substantially all of Alexza’s assets or business (or assets or business related to the Programs) or which is the surviving or resulting Person in a merger or consolidation with Alexza; provided further, that in the event of any permitted Transfer by Holdings, Holdings shall provide written notice to Alexza of any such Transfer not later than thirty (30) days after such Transfer setting forth the identity and address of the Transferee and summarizing the terms of the Transfer. In the event that the surviving or resulting “parent” entity (the “Surviving Entity”) in a merger or acquisition involving Alexza is an entity other than Alexza, then Holdings or any subsequent holder of a Warrant shall either exercise such Warrant (which will become immediately exercisable upon a Transaction Event) or surrender such Warrant in exchange for a new Warrant exercisable for shares of the common stock of the Surviving Entity (the “Replacement Warrant”); provided, that:

               (i) if the terms of such merger or acquisition shall provide for consideration that consists of a combination of cash and stock of the Surviving Entity, then any Replacement Warrant issued to the holders of the Warrants shall be solely for stock of the Surviving Entity, at an exchange ratio reflecting the total consideration paid by the Surviving Entity at the time of such change in control as if the total consideration (including cash) for each share of Alexza Common Stock was instead paid only in stock of the Surviving Entity at the time of such change of control (as illustrated on Exhibit C hereto), and the holders of the Replacement Warrants shall have the registration rights for stock issuable upon exercise of the Replacement Warrants as provided under the Registration Rights Agreement; and

Warrant Purchase Agreement

18

               (ii) if prior to the end of the Term, such a merger or acquisition shall occur and the consideration for such merger or acquisition shall be paid entirely in cash, then any holder of any outstanding Warrant shall then have the option to elect within fifteen (15) Business Days of receiving notice of the public announcement of the merger or acquisition by written notice of election to Alexza, either (A) to retain such Warrant and the right to exercise such Warrant for shares of Alexza Common Stock in accordance with the terms of such Warrant and this Agreement, which exercise shall occur no later than immediately prior to the closing of such merger or acquisition; or (B) to surrender such outstanding Warrant to Alexza in consideration of a cash payment for each share of Alexza Common Stock subject to purchase under such Warrant in an amount equal to 40% of the per share cash consideration to be received by a holder of one share of Alexza Common Stock to be tendered in the merger or acquisition; provided that the aggregate total cash payments to all holders of the Warrants shall not exceed $10,000,000 (the “Warrant Surrender Price”). The Warrant Surrender Price shall be paid upon the surrender of the Warrants promptly following the closing of the all cash merger or acquisition. Any failure by the Holder to deliver a written notice of election to Alexza pursuant to this Section 7.08(ii) shall be deemed an election of clause (A) of this Section 7.08(ii).

Following a merger or acquisition involving the payment of non-cash consideration in which Alexza is not the Surviving Entity, any reference to “Alexza Common Stock” shall be deemed instead to refer to the common stock of the Surviving Entity. For purposes of this Section 7.08 “common stock of the Surviving Entity” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation, and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the occurrence of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 7.08 shall similarly apply to successive mergers, acquisitions, consolidations or disposition of assets.

[SIGNATURES FOLLOW ON NEXT PAGE]

Warrant Purchase Agreement

19

     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers or other representatives thereunto duly authorized, as of the date first above written.

ALEXZA PHARMACEUTICALS, INC.
By:	/s/ August J. Moretti
	Name:	August J. Moretti
	Title:	Senior Vice President and Chief Financial Officer

SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P.,
	its Manager
By:	Symphony Capital GP, L.P.,
	its member
By:	Symphony GP, LLC,
	its member

By:	/s/ Mark Kessel
	Name:	Mark Kessel
	Title:	Managing Member

Signature Page to Warrant Purchase Agreement

ANNEX A

CERTAIN DEFINITIONS

[See attached.]

Warrant Purchase Agreement

EXHIBIT A

FORM OF OPINION OF COOLEY GODWARD KRONISH LLP

[See attached.]

Exhibit A to the Warrant Purchase Agreement

A-1

EXHIBIT B

FORM OF WARRANT

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN (OR WILL BE, WITH RESPECT TO THE SECURITIES ISSUABLE UPON EXERCISE HEREOF) ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

THE WARRANT EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THIS WARRANT WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.

ALEXZA PHARMACEUTICALS, INC.

WARRANT TO PURCHASE COMMON STOCK

No. CW-_ December 1, 2006

Void After December 1, 2011

     THIS CERTIFIES THAT, for value received, SYMPHONY ALLEGRO HOLDINGS LLC, with its principal office at 7361 Calhoun Place, Suite 325, Rockville, MD 20855, or its assigns (the “Holder”), is entitled to subscribe for and purchase at the Exercise Price (defined below) from Alexza Pharmaceuticals, Inc., a Delaware corporation, with its principal office at 1020 East Meadow Circle, Palo Alto, CA 94303 (the “Company”) up to two million (2,000,000) shares of the Common Stock of the Company (the “Common Stock”), subject to adjustment as provided herein. This Warrant is being issued pursuant to the terms of the Warrant Purchase Agreement, dated December 1, 2006, by and among the Company and the Holder (the “Warrant Purchase Agreement”). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Warrant Purchase Agreement.

     1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings:

Exhibit B to the Warrant Purchase Agreement

B-1

          (a) “Exercise Period” shall mean the period commencing on December 1, 2007 and ending on December 1, 2011, except as otherwise provided below.

          (b) “Exercise Price” shall mean $9.91 per share, subject to adjustment pursuant to Section 6 below.

          (c) “Exercise Shares” shall mean the shares of the Company’s Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 6 below.

     2. EXERCISE OF WARRANT.

          2.1 Method of Exercise. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period or earlier at any time upon a Transaction Event, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):

               (a) An executed Notice of Exercise in the form attached hereto;

               (b) Payment of the Exercise Price of the Exercise Shares purchased thereby (i) in cash or by check or wire transfer of immediately available funds, (ii) pursuant to a Cashless Exercise, as described below, or (iii) by a combination of (i) and (ii); and

               (c) Upon the exercise of the rights represented by this Warrant, shares of Common Stock shall be issued for the Exercise Shares so purchased, and shall be registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, within a reasonable amount of time following receipt by the Company of all of the items designated in clauses (a), (b) and (c) above, but in no event later than thirty (30) days after the date of exercise pursuant to this Section 2.1. The Company shall (i) upon request of the Holder, if available and if allowed under applicable securities laws, use commercially reasonable efforts to deliver Exercise Shares electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, or (ii) if requested by the Holder, deliver to the Holder certificates evidencing the Exercise Shares. The person in whose name any Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which delivery of the Notice of Exercise, delivery of this Warrant and payment of the Exercise Price were made, irrespective of the date of issuance of the shares of Common Stock, except that, if the date of such delivery and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

Exhibit B to the Warrant Purchase Agreement

B-2

          2.2 Cashless Exercise. Notwithstanding any provisions herein to the contrary, if, at any time during the Exercise Period, the Current Market Price (as defined below) of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant in whole or part by a cashless exercise by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise and the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

	X =	Y (B-A)
		B
Where:	X =	the number of shares of Common Stock to be issued to the Holder.
	Y=	the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (in each case subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 6 below).
	A =	the Exercise Price.
	B =	the Current Market Price of one share of Common Stock.
	“Current Market Price” means on any particular date:

               (a) if the Common Stock is traded on the Nasdaq SmallCap Market or the Nasdaq Global Market, the average of the closing prices of the Common Stock of the Company on such market over the five (5) trading days ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date);

               (b) if the Common Stock is traded on any registered national stock exchange but is not traded on the Nasdaq SmallCap Market or the Nasdaq Global Market, the average of the closing prices of the Common Stock of the Company on such exchange over the five (5) trading days ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date).

               (c) if the Common Stock is traded over-the-counter, but not on the Nasdaq SmallCap Market, the Nasdaq Global Market or a registered national stock exchange, the average of the closing bid prices over the five (5) trading day period ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date); and

Exhibit B to the Warrant Purchase Agreement

B-3

               (d) if there is no active public market for the Common Stock, the value thereof, as determined in good faith by the Board of Directors of the Company upon due consideration of the proposed determination thereof by the Holder.

          2.3 Partial Exercise. If this Warrant is exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver, within ten (10) days of the date of exercise, a new Warrant evidencing the rights of the Holder, or such other person as shall be designated in the Notice of Exercise, to purchase the balance of the Exercise Shares purchasable hereunder. In no event shall this Warrant be exercised for a fractional Exercise Share, and the Company shall not distribute a Warrant exercisable for a fractional Exercise Share. Fractional Exercise Shares shall be treated as provided in Section 5 hereof.

          2.4 Legend.

               (a) All certificates evidencing the shares to be issued to the Holder may bear the following legends (provided that no such legend shall be borne by Exercise Shares issued following the valid disposition of such shares pursuant to a registration statement which is effective under the Securities Act):

     “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.”

     “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN ARTICLE VI OF THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, BY AND BETWEEN THE ISSUER HEREOF AND SYMPHONY ALLEGRO HOLDINGS LLC (COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER HEREOF), INCLUDING, BUT NOT LIMITED TO, A DAILY SHARE DISPOSITION LIMIT, WHICH IS THE GREATER OF (X) 35,000 SHARES OR (Y) 25% OF THE AVERAGE DAILY TRADING VOLUME OF ALEXZA COMMON STOCK OVER THE COURSE OF THE PREVIOUS TWENTY-EIGHT (28) CALENDAR DAYS (AS REPORTED ON THE NASDAQ GLOBAL MARKET OR SUCH OTHER NATIONAL EXCHANGE REPRESENTING THE PRIMARY EXCHANGE ON WHICH ALEXZA COMMON STOCK IS LISTED) PER DAY IN RESPECT OF THE WARRANT SHARES OF THE HOLDER HEREOF. UPON A SALE OR OTHER TRANSACTION RESULTING IN A DIVISION OF THE SHARES REPRESENTED HEREBY, SUCH MAXIMUM DAILY DISPOSITION AMOUNT WILL BE DIVIDED PRO RATA AMONG SUBSEQUENT HOLDERS OF THE WARRANT SHARES”.

Exhibit B to the Warrant Purchase Agreement

B-4

               (b) If the certificates representing shares include either or both of the legends set forth in Section 2.4(a) hereof, the Company shall, upon a request from a Holder, or subsequent transferee of a Holder, as soon as practicable but in no event more than thirty (30) days after receiving such request, remove or cause to be removed (i) if the shares cease to be restricted securities, the securities law portion of the legend and/or (ii) in the event of a sale of the shares subject to issuance following the transfer of the shares in compliance with the transfer restrictions, the transfer restriction portion of the legend, from certificates representing the shares delivered by a Holder (or a subsequent transferee).

          2.5 Charges, Taxes and Expenses. Issuance of the Exercise Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of any electronic or paper certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event Exercise Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Notwithstanding anything to the contrary in this Section 2.5, all issue or transfer tax or other incidental expenses imposed by a Governmental Authority outside the United States shall be 100% borne by the Holder.

     3. COVENANTS OF THE COMPANY.

          3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock (or other securities as provided herein) to such number of shares as shall be sufficient for such purposes.

          3.2 No Impairment. Except and to the extent as waived or consented to by the Holder in accordance with Section 10 hereof, the Company will not, by amendment of its Certificate of Incorporation (as such may be amended from time to time), or through any means, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith carry out of all the provisions of this Warrant and take all such action

Exhibit B to the Warrant Purchase Agreement

B-5

as may be necessary or appropriate in order to protect the exercise rights of the Holder against such impairment.

          3.3 Notices of Record Date. If at any time:

               (a) the Company shall take a record of the holders of Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right (other than with respect to any equity or equity equivalent security issued pursuant to a rights plan adopted by the Company’s Board of Directors);

               (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company; or

               (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall use commercially reasonable efforts to give to the Holder, provided that such action is available and permitted under the applicable securities laws, at least ten (10) days’ prior written notice of the record date for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, disposition, dissolution, liquidation or winding up of the Company. Any notice provided hereunder shall specify the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and the then current estimated date for the closing of the transaction contemplated by any proposed reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, disposition, dissolution, liquidation or winding up of the Company.

     4. REPRESENTATIONS OF HOLDER.

          4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a present view toward the public sale or public distribution of said Warrant or Exercise Shares or any part thereof and has no intention of selling or distributing said Warrant or Exercise Shares or any arrangement or understanding with any other persons regarding the sale or distribution of said Warrant or the Exercise Shares, except as would not result in a violation of the Securities Act. The Holder will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) the Warrant except in accordance with the provisions of Article VI of the Warrant Purchase Agreement and will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of)

Exhibit B to the Warrant Purchase Agreement

B-6

the Exercise Shares except in accordance with the provisions of Article VI of the Warrant Purchase Agreement or pursuant to and in accordance with the Securities Act.

          4.2 Securities Are Not Registered.

               (a) The Holder understands that the offer and sale of neither the Warrant nor the Exercise Shares has been registered under the Securities Act.

               (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or, except as provided in the Warrant Purchase Agreement and the Registration Rights Agreement, the Exercise Shares, or to comply with any exemption from such registration.

               (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the availability of certain current public information about the Company and the expiration of the required holding period under Rule 144.

          4.3 Disposition of Warrant and Exercise Shares.

               (a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until one of the following occurs:

                    (i) The Company shall have received a letter secured by the Holder from the SEC stating that no action will be recommended to the Commission with respect to the proposed disposition;

                    (ii) There is then in effect a registration statement under the Securities Act covering the Exercise Shares and such disposition is made in accordance with said registration statement; or

                    (iii) The Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Securities Act or any applicable state securities laws; provided, that so long as the Holder provides the Company with a representation letter in customary form with respect to such Rule 144 disposition, no opinion shall be required for any disposition made or to be made in accordance with the provisions of Rule 144.

     5. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of

Exhibit B to the Warrant Purchase Agreement

B-7

a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then Current Market Price (as of the applicable exercise date) of an Exercise Share by such fraction.

     6. CERTAIN EVENTS.

          6.1 Dividends, Subdivisions, Combinations and Reclassifications. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

          6.2 Corporate Transactions. In the event that the Company enters into a merger or acquisition in which the surviving or resulting “parent” entity is an entity other than the Company, then the Holder shall either exercise the Warrant or surrender the Warrant in exchange for a new warrant exercisable in return for shares or common stock of the Surviving Entity (as defined in the Warrant Purchase Agreement) (the “Replacement Warrant”), provided that:

               (i) in accordance with Section 7.08 of the Warrant Purchase Agreement, if the consideration for a merger or acquisition consists of a combination of cash and stock of the Surviving Entity, then the Replacement Warrant issued to the Holder shall be solely for common stock of the Surviving Entity at an exchange ratio reflecting the total consideration paid by the Surviving Entity at the time of such change in control as if the total consideration (including cash) for each share of the Common Stock was instead paid only in common stock of the Surviving Entity at the time of such change of control (as illustrated on Exhibit C to the Warrant Purchase Agreement), and the holders of the Replacement Warrants shall have the registration

Exhibit B to the Warrant Purchase Agreement

B-8

rights for stock issuable upon exercise of the Replacement Warrants as provided under the Registration Rights Agreement; or

               (ii) in accordance with Section 7.08 of the Warrant Purchase Agreement, if prior to the end of the Term (as defined in the Warrant Purchase Agreement), a merger or acquisition shall occur and the consideration for such merger or acquisition shall be paid entirely in cash, then the Holder of this Warrant shall then have the option to irrevocably elect within fifteen (15) Business Days of the public announcement of the merger or acquisition by written notice of election to the Company, either (A) to retain the Warrant and the right to exercise the Warrant then outstanding for Exercise Shares in accordance with the terms of this Warrant, which exercise shall occur no later than immediately prior to the closing of such merger or acquisition, or (B) to surrender the Warrant to the Company in consideration of a cash payment for each share of the Common Stock subject to purchase under this Warrant in an amount equal to 40% of the per share cash consideration to be received by a holder of one share of the Common Stock to be tendered in the merger or acquisition, provided that the aggregate total cash payments to all holders of outstanding Warrants shall not exceed $10,000,000 (the “Warrant Surrender Price”). The Warrant Surrender Price shall be paid upon the surrender of the Warrants promptly following the closing of the all cash merger or acquisition. Any failure by the Holder to deliver a written notice of election to the Company pursuant to this Section 6.3(ii) shall be deemed an election of clause (B) of this Section 6.2(ii).

Following a merger or acquisition involving consideration of cash and stock in which the Surviving Entity is other than the Company, reference to the Common Stock shall instead be deemed a reference to the common stock of the Surviving Entity. For purposes of Section 6.2(i), “common stock of the Surviving Entity” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the occurrence of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 6.2 shall similarly apply to successive reorganizations, reclassifications, mergers, acquisitions, consolidations or disposition of assets.

          6.3 Adjustment of Exercise Price. The form of this Warrant need not be changed because of any adjustment in the number, class, and kind of shares subject to this Warrant. The Company shall promptly provide a certificate from its principal accounting officer notifying the Holder in writing of any adjustment in the Exercise Price and/or the total number, class, and kind of shares (and other securities or property) issuable upon exercise of this Warrant, which certificate shall specify the Exercise Price and number, class and kind of shares (and other securities or property) under this Warrant after giving effect to such adjustment and shall set forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

Exhibit B to the Warrant Purchase Agreement

B-9

     7. NO STOCKHOLDER RIGHTS. Except to the extent specified in Section 6, this Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. Upon the exercise of this Warrant in accordance with Section 2, the Exercise Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the date of such exercise.

     8. TRANSFER OF WARRANT. Subject to applicable laws, the restriction on transfer set forth on the first page of this Warrant and the provisions of Article VI of the Warrant Purchase Agreement, this Warrant and all rights hereunder are transferable by the Holder, in person or by duly authorized attorney, upon delivery of this Warrant, the Assignment Form attached hereto and funds sufficient to pay any transfer taxes (in accordance with Section 2.5 hereof) payable upon the making of such transfer, to any transferee designated by Holder. The transferee will sign and deliver to the Company an investment letter in a form that is commercially reasonable, customary for use in similar transactions and reasonably satisfactory to the Company. Upon such delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Exercise Shares without having a new Warrant issued.

     9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

     10. MODIFICATIONS AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.

     11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to the Holder at the addresses on the Company records, or at such other address as the Company or Holder may designate by ten days’ advance written notice to the other party hereto.

Exhibit B to the Warrant Purchase Agreement

B-10

     12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

     13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of New York without regard to the principles of conflict of laws. The Company and, by accepting this Warrant, the Holder, each irrevocably submits and consents to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     14. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

     15. SUCCESSORS AND ASSIGNS. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of the Holder.

     16. SEVERABILITY. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

     17. REGISTRATION RIGHTS. The holder of this Warrant and of the Exercise Shares shall be entitled to the registration rights and other applicable rights with respect to the Exercise Shares as and to the extent set forth in the Warrant Purchase Agreement and the Registration Rights Agreement.

     18. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

[Signature Page Follows]

Exhibit B to the Warrant Purchase Agreement

B-11

     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of December 1, 2006.

ALEXZA PHARMACEUTICALS, INC.

By:

Name:

Title:

Address:	1020 East Meadow Circle
	Palo Alto, CA 94303
	Attn: August J. Moretti
	Facsimile: (650) 687-3999
W/copy to:	Cooley Godward Kronish LLP
	Five Palo Alto Square
	3000 El Camino Real
	Palo Alto, CA 94306-2155
	Attn: Barbara A. Kosacz, Esq.
	Facsimile: (650) 849-7400

Exhibit B to the Warrant Purchase Agreement

B-12

NOTICE OF EXERCISE

TO: ALEXZA PHARMACEUTICALS, INC.

     (1) The undersigned hereby elects to (check one box only):

          o purchase                                 shares of the Common Stock of Alexza Pharmaceuticals, Inc. (the “Company”) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full for such shares.

          o purchase the number of shares of Common Stock of the Company by cashless exercise pursuant to the terms of the Warrant as shall be issuable upon cashless exercise of the portion of the Warrant relating to                      shares.

     (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

     (3) If the Warrant is not being exercised in full, please issue a certificate representing a new Warrant evidencing the right of the Holder to purchase the balance of the Exercise Shares purchasable under the Warrant, such certificate to be registered in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

     (4) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned not with a view to, or for resale in connection with, the distribution thereof in violation of the Securities Act of 1933, as amended (the “Securities Act”) and that the undersigned has no present intention of distributing or reselling such shares in violation of the Securities Act; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the

Exhibit B to the Warrant Purchase Agreement

B-13

undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available, and (v) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

(Date)	(Signature)
	(Print Name)

Exhibit B to the Warrant Purchase Agreement

B-14

ASSIGNMENT FORM

(To assign the foregoing Warrant, subject to compliance with Section 4.3 hereof, execute this form and supply required information. Do not use this form to purchase shares.)

          FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

Name:

(Please Print)

Address:

(Please Print)

Dated: ____________________, 20__

Holder’s

Signature:

Holder’s

Address:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Exhibit B to the Warrant Purchase Agreement

B-15

EXHIBIT C

WARRANT CONVERSION EXAMPLE

               In the event that Alexza is the target of a merger or acquisition in which the share purchase price paid by the acquiror is paid in cash or a mixture of cash and stock, the outstanding Warrants are to be exchanged for Replacement Warrants of the Surviving Entity such that the holders of Warrants shall receive additional Replacement Warrants in lieu of the cash portion of the share purchase price, as set out in the following example:

• A holder hereunder holds Warrants exercisable for 100,000 shares of Alexza Common Stock at an exercise price of $10.00 per share, and the share purchase price paid by the acquiror is $15.00 per share of Alexza Common Stock, with $5.00 to be paid in cash and $10.00 to be paid in shares of the common stock of the Surviving Entity (“New Stock”), based on a price of $100.00 per share of New Stock.

• The Warrants of the holder, exercisable for 100,000 shares of Alexza Common Stock, shall be converted as follows:

(1)	The New Stock portion of the purchase price ($10.00 / share, or a ratio of New Stock to Alexza Common Stock of 10 to 1) shall yield Replacement Warrants exercisable for 10,000 shares of New Stock; and
(2)	The cash portion of the purchase price ($5.00 / share, or $500,000 total) shall, at the New Stock price of $100 /share, yield Replacement Warrants exercisable for 5,000 shares of New Stock ($500,000 / $100 = 5,000).

• Therefore, in such a scenario, a holder of Warrants exercisable for 100,000 shares of Alexza Common Stock would receive Replacement Warrants exercisable for 15,000 shares of New Stock at an exercise price of $66.67 per share ($10.00 / $15.00 = 0.67 x $100.00 = $66.67).

Exhibit C to the Warrant Purchase Agreement

C-1

EX-10.28

Exhibit 10.28

WARRANT

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN (OR WILL BE, WITH RESPECT TO THE SECURITIES ISSUABLE UPON EXERCISE HEREOF) ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.

THE WARRANT EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THIS WARRANT WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.

ALEXZA PHARMACEUTICALS, INC.

WARRANT TO PURCHASE COMMON STOCK

No. SA-001 December 1, 2006

Void After December 1, 2011

     THIS CERTIFIES THAT, for value received, SYMPHONY ALLEGRO HOLDINGS LLC, with its principal office at 7361 Calhoun Place, Suite 325, Rockville, MD 20855, or its assigns (the “Holder”), is entitled to subscribe for and purchase at the Exercise Price (defined below) from Alexza Pharmaceuticals, Inc., a Delaware corporation, with its principal office at 1020 East Meadow Circle, Palo Alto, CA 94303 (the “Company”) up to two million (2,000,000) shares of the Common Stock of the Company (the “Common Stock”), subject to adjustment as provided herein. This Warrant is being issued pursuant to the terms of the Warrant Purchase Agreement, dated December 1, 2006, by and among the Company and the Holder (the “Warrant Purchase Agreement”). Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Warrant Purchase Agreement.

     1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings:

          (a) “Exercise Period” shall mean the period commencing on December 1, 2007 and ending on December 1, 2011, except as otherwise provided below.

          (b) “Exercise Price” shall mean $9.91 per share, subject to adjustment pursuant to Section 6 below.

          (c) “Exercise Shares” shall mean the shares of the Company’s Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 6 below.

     2. EXERCISE OF WARRANT.

          2.1 Method of Exercise. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period or earlier at any time upon a Transaction Event, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):

               (a) An executed Notice of Exercise in the form attached hereto;

               (b) Payment of the Exercise Price of the Exercise Shares purchased thereby (i) in cash or by check or wire transfer of immediately available funds, (ii) pursuant to a Cashless Exercise, as described below, or (iii) by a combination of (i) and (ii); and

               (c) Upon the exercise of the rights represented by this Warrant, shares of Common Stock shall be issued for the Exercise Shares so purchased, and shall be registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, within a reasonable amount of time following receipt by the Company of all of the items designated in clauses (a), (b) and (c) above, but in no event later than thirty (30) days after the date of exercise pursuant to this Section 2.1. The Company shall (i) upon request of the Holder, if available and if allowed under applicable securities laws, use commercially reasonable efforts to deliver Exercise Shares electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, or (ii) if requested by the Holder, deliver to the Holder certificates evidencing the Exercise Shares. The person in whose name any Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which delivery of the Notice of Exercise, delivery of this Warrant and payment of the Exercise Price were made, irrespective of the date of issuance of the shares of Common Stock, except that, if the date of such delivery and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.

                           2.2 Cashless Exercise. Notwithstanding any provisions herein to the contrary, if, at any time during the Exercise Period, the Current Market Price (as defined below) of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant in whole or part by a cashless exercise by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise and the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

	X =	Y (B-A) B
Where:	X =	the number of shares of Common Stock to be issued to the Holder.
	Y =	the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (in each case subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 6 below).
	A =	the Exercise Price.
	B =	the Current Market Price of one share of Common Stock.
	“Current Market Price” means on any particular date:

                              (a) if the Common Stock is traded on the Nasdaq SmallCap Market or the Nasdaq Global Market, the average of the closing prices of the Common Stock of the Company on such market over the five (5) trading days ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date);

                              (b) if the Common Stock is traded on any registered national stock exchange but is not traded on the Nasdaq SmallCap Market or the Nasdaq Global Market, the average of the closing prices of the Common Stock of the Company on such exchange over the five (5) trading days ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date).

                              (c) if the Common Stock is traded over-the-counter, but not on the Nasdaq SmallCap Market, the Nasdaq Global Market or a registered national stock exchange, the average of the closing bid prices over the five (5) trading day period ending immediately prior to the applicable date of valuation (in the case of a cashless exercise, the date of valuation will be the exercise date); and

               (d) if there is no active public market for the Common Stock, the value thereof, as determined in good faith by the Board of Directors of the Company upon due consideration of the proposed determination thereof by the Holder.

          2.3 Partial Exercise. If this Warrant is exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver, within ten (10) days of the date of exercise, a new Warrant evidencing the rights of the Holder, or such other person as shall be designated in the Notice of Exercise, to purchase the balance of the Exercise Shares purchasable hereunder. In no event shall this Warrant be exercised for a fractional Exercise Share, and the Company shall not distribute a Warrant exercisable for a fractional Exercise Share. Fractional Exercise Shares shall be treated as provided in Section 5 hereof.

          2.4 Legend.

               (a) All certificates evidencing the shares to be issued to the Holder may bear the following legends (provided that no such legend shall be borne by Exercise Shares issued following the valid disposition of such shares pursuant to a registration statement which is effective under the Securities Act):

     “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, AND THE SAME HAVE BEEN ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.”

     “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN ARTICLE VI OF THE WARRANT PURCHASE AGREEMENT, DATED AS OF DECEMBER 1, 2006, BY AND BETWEEN THE ISSUER HEREOF AND SYMPHONY ALLEGRO HOLDINGS LLC (COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER HEREOF), INCLUDING, BUT NOT LIMITED TO, A DAILY SHARE DISPOSITION LIMIT, WHICH IS THE GREATER OF (X) 35,000 SHARES OR (Y) 25% OF THE AVERAGE DAILY TRADING VOLUME OF ALEXZA COMMON STOCK OVER THE COURSE OF THE PREVIOUS TWENTY-EIGHT (28) CALENDAR DAYS (AS REPORTED ON THE NASDAQ GLOBAL MARKET OR SUCH OTHER NATIONAL EXCHANGE REPRESENTING THE PRIMARY EXCHANGE ON WHICH ALEXZA COMMON STOCK IS LISTED) PER DAY IN RESPECT OF THE WARRANT SHARES OF THE HOLDER HEREOF. UPON A SALE OR OTHER TRANSACTION RESULTING IN A DIVISION OF THE SHARES REPRESENTED HEREBY, SUCH MAXIMUM DAILY DISPOSITION AMOUNT WILL BE DIVIDED PRO RATA AMONG SUBSEQUENT HOLDERS OF THE WARRANT SHARES”.

               (b) If the certificates representing shares include either or both of the legends set forth in Section 2.4(a) hereof, the Company shall, upon a request from a Holder, or subsequent transferee of a Holder, as soon as practicable but in no event more than thirty (30) days after receiving such request, remove or cause to be removed (i) if the shares cease to be restricted securities, the securities law portion of the legend and/or (ii) in the event of a sale of the shares subject to issuance following the transfer of the shares in compliance with the transfer restrictions, the transfer restriction portion of the legend, from certificates representing the shares delivered by a Holder (or a subsequent transferee).

          2.5 Charges, Taxes and Expenses. Issuance of the Exercise Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of any electronic or paper certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event Exercise Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. Notwithstanding anything to the contrary in this Section 2.5, all issue or transfer tax or other incidental expenses imposed by a Governmental Authority outside the United States shall be 100% borne by the Holder.

     3. COVENANTS OF THE COMPANY.

          3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock (or other securities as provided herein) to such number of shares as shall be sufficient for such purposes.

          3.2 No Impairment. Except and to the extent as waived or consented to by the Holder in accordance with Section 10 hereof, the Company will not, by amendment of its Certificate of Incorporation (as such may be amended from time to time), or through any means, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith carry out of all the provisions of this Warrant and take all such action

as may be necessary or appropriate in order to protect the exercise rights of the Holder against such impairment.

          3.3 Notices of Record Date. If at any time:

               (a) the Company shall take a record of the holders of Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right (other than with respect to any equity or equity equivalent security issued pursuant to a rights plan adopted by the Company’s Board of Directors);

               (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company; or

               (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall use commercially reasonable efforts to give to the Holder, provided that such action is available and permitted under the applicable securities laws, at least ten (10) days’ prior written notice of the record date for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, disposition, dissolution, liquidation or winding up of the Company. Any notice provided hereunder shall specify the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and the then current estimated date for the closing of the transaction contemplated by any proposed reorganization, reclassification, recapitalization, consolidation, merger, sale, transfer, disposition, dissolution, liquidation or winding up of the Company.

     4. REPRESENTATIONS OF HOLDER.

          4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a present view toward the public sale or public distribution of said Warrant or Exercise Shares or any part thereof and has no intention of selling or distributing said Warrant or Exercise Shares or any arrangement or understanding with any other persons regarding the sale or distribution of said Warrant or the Exercise Shares, except as would not result in a violation of the Securities Act. The Holder will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) the Warrant except in accordance with the provisions of Article VI of the Warrant Purchase Agreement and will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of)

the Exercise Shares except in accordance with the provisions of Article VI of the Warrant Purchase Agreement or pursuant to and in accordance with the Securities Act.

          4.2 Securities Are Not Registered.

               (a) The Holder understands that the offer and sale of neither the Warrant nor the Exercise Shares has been registered under the Securities Act.

               (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or, except as provided in the Warrant Purchase Agreement and the Registration Rights Agreement, the Exercise Shares, or to comply with any exemption from such registration.

               (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the availability of certain current public information about the Company and the expiration of the required holding period under Rule 144.

          4.3 Disposition of Warrant and Exercise Shares.

               (a) The Holder further agrees not to make any disposition of all or any part of the Warrant or Exercise Shares in any event unless and until one of the following occurs:

                    (i) The Company shall have received a letter secured by the Holder from the SEC stating that no action will be recommended to the Commission with respect to the proposed disposition;

                    (ii) There is then in effect a registration statement under the Securities Act covering the Exercise Shares and such disposition is made in accordance with said registration statement; or

                    (iii) The Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, for the Holder to the effect that such disposition will not require registration of such Warrant or Exercise Shares under the Securities Act or any applicable state securities laws; provided, that so long as the Holder provides the Company with a representation letter in customary form with respect to such Rule 144 disposition, no opinion shall be required for any disposition made or to be made in accordance with the provisions of Rule 144.

     5. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of

a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then Current Market Price (as of the applicable exercise date) of an Exercise Share by such fraction.

     6. CERTAIN EVENTS.

          6.1 Dividends, Subdivisions, Combinations and Reclassifications. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

          6.2 Corporate Transactions. In the event that the Company enters into a merger or acquisition in which the surviving or resulting “parent” entity is an entity other than the Company, then the Holder shall either exercise the Warrant or surrender the Warrant in exchange for a new warrant exercisable in return for shares or common stock of the Surviving Entity (as defined in the Warrant Purchase Agreement) (the “Replacement Warrant”), provided that:

               (i) in accordance with Section 7.08 of the Warrant Purchase Agreement, if the consideration for a merger or acquisition consists of a combination of cash and stock of the Surviving Entity, then the Replacement Warrant issued to the Holder shall be solely for common stock of the Surviving Entity at an exchange ratio reflecting the total consideration paid by the Surviving Entity at the time of such change in control as if the total consideration (including cash) for each share of the Common Stock was instead paid only in common stock of the Surviving Entity at the time of such change of control (as illustrated on Exhibit C to the Warrant Purchase Agreement), and the holders of the Replacement Warrants shall have the registration

rights for stock issuable upon exercise of the Replacement Warrants as provided under the Registration Rights Agreement; or

               (ii) in accordance with Section 7.08 of the Warrant Purchase Agreement, if prior to the end of the Term (as defined in the Warrant Purchase Agreement), a merger or acquisition shall occur and the consideration for such merger or acquisition shall be paid entirely in cash, then the Holder of this Warrant shall then have the option to irrevocably elect within fifteen (15) Business Days of the public announcement of the merger or acquisition by written notice of election to the Company, either (A) to retain the Warrant and the right to exercise the Warrant then outstanding for Exercise Shares in accordance with the terms of this Warrant, which exercise shall occur no later than immediately prior to the closing of such merger or acquisition, or (B) to surrender the Warrant to the Company in consideration of a cash payment for each share of the Common Stock subject to purchase under this Warrant in an amount equal to 40% of the per share cash consideration to be received by a holder of one share of the Common Stock to be tendered in the merger or acquisition, provided that the aggregate total cash payments to all holders of outstanding Warrants shall not exceed $10,000,000 (the “Warrant Surrender Price”). The Warrant Surrender Price shall be paid upon the surrender of the Warrants promptly following the closing of the all cash merger or acquisition. Any failure by the Holder to deliver a written notice of election to the Company pursuant to this Section 6.3(ii) shall be deemed an election of clause (B) of this Section 6.2(ii).

Following a merger or acquisition involving consideration of cash and stock in which the Surviving Entity is other than the Company, reference to the Common Stock shall instead be deemed a reference to the common stock of the Surviving Entity. For purposes of Section 6.2(i), “common stock of the Surviving Entity” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the occurrence of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 6.2 shall similarly apply to successive reorganizations, reclassifications, mergers, acquisitions, consolidations or disposition of assets.

          6.3 Adjustment of Exercise Price. The form of this Warrant need not be changed because of any adjustment in the number, class, and kind of shares subject to this Warrant. The Company shall promptly provide a certificate from its principal accounting officer notifying the Holder in writing of any adjustment in the Exercise Price and/or the total number, class, and kind of shares (and other securities or property) issuable upon exercise of this Warrant, which certificate shall specify the Exercise Price and number, class and kind of shares (and other securities or property) under this Warrant after giving effect to such adjustment and shall set forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

     7. NO STOCKHOLDER RIGHTS. Except to the extent specified in Section 6, this Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. Upon the exercise of this Warrant in accordance with Section 2, the Exercise Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the date of such exercise.

     8. TRANSFER OF WARRANT. Subject to applicable laws, the restriction on transfer set forth on the first page of this Warrant and the provisions of Article VI of the Warrant Purchase Agreement, this Warrant and all rights hereunder are transferable by the Holder, in person or by duly authorized attorney, upon delivery of this Warrant, the Assignment Form attached hereto and funds sufficient to pay any transfer taxes (in accordance with Section 2.5 hereof) payable upon the making of such transfer, to any transferee designated by Holder. The transferee will sign and deliver to the Company an investment letter in a form that is commercially reasonable, customary for use in similar transactions and reasonably satisfactory to the Company. Upon such delivery and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Exercise Shares without having a new Warrant issued.

     9. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

     10. MODIFICATIONS AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.

     11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to the Holder at the addresses on the Company records, or at such other address as the Company or Holder may designate by ten days’ advance written notice to the other party hereto.

     12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

     13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of New York without regard to the principles of conflict of laws. The Company and, by accepting this Warrant, the Holder, each irrevocably submits and consents to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     14. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

     15. SUCCESSORS AND ASSIGNS. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of the Holder.

     16. SEVERABILITY. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

     17. REGISTRATION RIGHTS. The holder of this Warrant and of the Exercise Shares shall be entitled to the registration rights and other applicable rights with respect to the Exercise Shares as and to the extent set forth in the Warrant Purchase Agreement and the Registration Rights Agreement.

     18. ENTIRE AGREEMENT. This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

[Signature Page Follows]

     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of December 1, 2006.

ALEXZA PHARMACEUTICALS, INC.
By:	/s/ Thomas B. King
Name:	Thomas B. King
Title:	President and CEO

Address:	1020 East Meadow Circle
	Palo Alto, CA 94303
	Attn: August J. Moretti
	Facsimile: (650) 687-3999
W/copy to:	Cooley Godward Kronish LLP
	Five Palo Alto Square
	3000 El Camino Real
	Palo Alto, CA 94306-2155
	Attn: Barbara A. Kosacz, Esq.
	Facsimile: (650) 849-7400

NOTICE OF EXERCISE

TO: ALEXZA PHARMACEUTICALS, INC.

     (1) The undersigned hereby elects to (check one box only):

          o purchase                      shares of the Common Stock of Alexza Pharmaceuticals, Inc. (the “Company”) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full for such shares.

          o purchase the number of shares of Common Stock of the Company by cashless exercise pursuant to the terms of the Warrant as shall be issuable upon cashless exercise of the portion of the Warrant relating to                      shares.

     (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

     (3) If the Warrant is not being exercised in full, please issue a certificate representing a new Warrant evidencing the right of the Holder to purchase the balance of the Exercise Shares purchasable under the Warrant, such certificate to be registered in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

     (4) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned not with a view to, or for resale in connection with, the distribution thereof in violation of the Securities Act of 1933, as amended (the “Securities Act”) and that the undersigned has no present intention of distributing or reselling such shares in violation of the Securities Act; (ii) the undersigned is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigned’s own interests; (iv) the

undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available, and (v) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.

(Date)	(Signature)
	(Print Name)

ASSIGNMENT FORM

(To assign the foregoing Warrant, subject to compliance with Section 4.3 hereof, execute this form and supply required information. Do not use this form to purchase shares.)

          FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

Name:

(Please Print)

Address:

(Please Print)

Dated: ____________________, 20__

Holder’s

Signature:

Holder’s

Address:

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-10.29

Exhibit 10.29

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

AMENDED AND RESTATED
RESEARCH AND DEVELOPMENT AGREEMENT

among

ALEXZA PHARMACEUTICALS, INC.,

SYMPHONY ALLEGRO HOLDINGS LLC

and

SYMPHONY ALLEGRO, INC.

Dated as of December 1, 2006

Table of Contents

		Page
1.	ASSIGNMENT		1
2.	OVERVIEW OF DEVELOPMENT		1
3.	DEVELOPMENT COMMITTEE		2
4.	DEVELOPMENT PLAN AND DEVELOPMENT BUDGET		2
	4.1 Generally		2
	4.2 Amendments		3
	4.3 Alexza’s Independent Staccato Technology Research		4
5.	REGULATORY MATTERS		5
	5.1 FDA Sponsor		5
	5.2 Correspondence		6
	5.3 Inspections and Meetings		6
	5.4 Transfer of FDA Sponsorship		7
6.	ALEXZA’S OBLIGATIONS		8
	6.1 Generally		8
	6.2 Subcontracting		9
	6.3 Reports and Correspondence		11
	6.4 Manufacturing		11
	6.5 Staffing		12
	6.6 QA Audit		13
	6.7 Financial Audit		13
	6.8 Insurance		13
7.	SYMPHONY ALLEGRO’S OBLIGATIONS		14
	7.1 Generally		14
	7.2 Subcontracting		14
	7.3 Reports		14
	7.4 Insurance		14
	7.5 Staffing		15

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Table of Contents

		Page
	7.6 Audit		15
8.	FUNDING AND PAYMENTS		15
	8.1 Use of Proceeds		15
	8.2 Reimbursement		16
	8.3 Budget Allocation and Deviations		16
	8.4 Employee Benefits		17
9.	COVENANTS		17
	9.1 Mutual Covenants		17
10.	CONFIDENTIALITY		18
11.	DISCONTINUATION OPTION		18
12.	REPRESENTATIONS AND WARRANTIES		19
	12.1 Alexza Representations and Warranties		19
	12.2 Symphony Allegro Representations and Warranties		21
13.	RELATIONSHIP BETWEEN ALEXZA AND SYMPHONY ALLEGRO		22
14.	CHANGE OF CONTROL		22
15.	NO RESTRICTIONS; INDEMNIFICATION		22
	15.1 No Restrictions		22
	15.2 Indemnification		22
16.	LIMITATION OF LIABILITIES		25
	16.1 Between the Parties		25
	16.2 Pursuant to the RRD Services Agreement		26
17.	TERM AND TERMINATION		26
	17.1 Term		26
	17.2 Termination for Alexza’s Breach		26
	17.3 Termination for Symphony Allegro’s or Holdings’ Breach		27
	17.4 Termination of License Agreement		27
	17.5 Survival		27
18.	MISCELLANEOUS		27
	18.1 No Petition		27

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Table of Contents

	Page
18.2 Notices		27
18.3 Governing Law; Consent to Jurisdiction and Service of Process		29
18.4 WAIVER OF JURY TRIAL		29
18.5 Entire Agreement		29
18.6 Amendment; Successors; Assignment; Counterparts		30
18.7 Severability		30
18.8 Third Party Beneficiary		30

Annex A — Certain Definitions
Annex B — Development Committee Charter
Annex C — Initial Development Plan and Initial Development Budget
Annex D — {Intentionally Omitted.}
Annex E — Payment Terms

Schedule 6.2 — Subcontracting Agreements
Schedule 6.5 — Alexza Key Personnel
Schedule 12.1(f) — Material Disclosed Contracts

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

AMENDED AND RESTATED

RESEARCH AND DEVELOPMENT AGREEMENT

     This Amended And Restated Research And Development Agreement (this “Agreement”) is entered into as of December 1, 2006 (the “Closing Date”) by and among Alexza Pharmaceuticals, Inc., a Delaware corporation (“Alexza”), Symphony Allegro, Inc., a Delaware corporation (“Symphony Allegro”) (each of Alexza and Symphony Allegro being a “Party,” and collectively, the “Parties”), and Symphony Allegro Holdings LLC, a Delaware limited liability company (“Holdings”). Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in Annex A attached hereto.

PRELIMINARY STATEMENT

     Alexza and Holdings have entered into that certain Research and Development Agreement, dated as of December 1, 2006 (the “Research and Development Agreement”). Pursuant to this Agreement, Holdings desires to assign all of its rights and delegate its obligations under the Research and Development Agreement to Symphony Allegro, and Alexza and Symphony Allegro desire to amend and restate the terms and conditions of the Research and Development Agreement.

     In the Novated and Restated Technology License Agreement, Alexza grants Symphony Allegro an exclusive license to develop and commercialize the Products. Symphony Allegro wishes for Alexza to continue to develop such Products. Symphony Allegro and Alexza desire to establish, and agree on the responsibilities of, a Development Committee to oversee such development. Alexza and Symphony Allegro further desire to comply with and perform certain agreements and obligations related thereto.

     The Parties hereto agree as follows:

     1. Assignment. The Parties agree that from and after the Closing Date, all of the rights and obligations of Holdings under the Research and Development Agreement will be assigned and transferred to, and assumed by, Symphony Allegro.

     2. Overview of Development.

               (a) The Parties shall develop the Programs in a collaborative and efficient manner as set forth in this Article 2. Representatives of the Parties shall engage in joint decision-making for the Programs as set forth in Articles 3 and 4 hereof. Symphony Allegro shall have overall responsibility for all matters set forth in the Development Plan (pursuant to Article 7 hereof), and shall engage Alexza (pursuant to Article 6 hereof), RRD (pursuant to the RRD Services Agreement), and such independent contractors and agents as it may retain with RRD’s assistance or as Alexza may retain on Symphony Allegro’s behalf (which contractors include entities retained by Alexza prior to the Closing Date pursuant to the Subcontracting Agreements set forth on Schedule 6.2), to act on behalf of Symphony Allegro and carry out the duties set forth therein and herein, including management, supervisory and accounting functions,

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

1.

pre-clinical and clinical development, manufacturing, scientific and technical services associated with such development, and patent work under the Programs.

               (b) Alexza hereby acknowledges and agrees to Symphony Allegro’s engagement of RRD to act on its behalf and to carry out the duties assigned to RRD herein and in the RRD Services Agreement, including, but not limited to (i) providing personnel and support to the Development Committee and the Symphony Allegro Board, (ii) the management and administration of Symphony Allegro, (iii) supervising and monitoring Alexza’s implementation of the Programs, and (iv) subject to Section 6.1(a) and without limiting Alexza’s role thereunder, such other development-related work as Symphony Allegro may reasonably delegate to RRD in accordance with the Development Plan.

               (c) With respect to the AZ-002 Program and the AZ-004 Program, Alexza shall be responsible for the execution of all pre-clinical and clinical development, all scientific and technical services associated with such development, and all patent work, including all related matters set forth in the Development Plan for such Programs.

               (d) Nothing in Section 2(c) shall in any way limit the authority of the Development Committee (as defined below) or the Symphony Allegro Board hereunder, and the engagements and delegations set forth therein shall be subject to the terms and conditions of this Agreement and the RRD Services Agreement, and the satisfactory performance by RRD and Alexza of their obligations pursuant hereto and thereto. The allocations of responsibility described in this Article 2 shall remain subject to further modification in accordance with the terms and conditions of this Agreement and the RRD Services Agreement.

     3. Development Committee. The Parties shall establish and maintain a committee (the “Development Committee”) to oversee the development of the Programs (including the continued development and refinement of the Development Plan and the Development Budget). The Development Committee shall be established, operated and governed in accordance with the policies and procedures set forth in Annex B hereto (the “Development Committee Charter”). The Development Committee Charter may be amended only with the unanimous approval of the Development Committee Members and the consent of the Symphony Allegro Board, Holdings and Alexza. In no event shall the Development Committee have the power to amend the terms of any Operative Document.

     4. Development Plan and Development Budget.

          4.1 Generally. The Parties have agreed, as of the Closing Date, to an Initial Development Plan and an Initial Development Budget, which are attached hereto and incorporated herein as Annex C, and which shall be further developed and refined from time to time in accordance herewith. The Initial Development Plan consists (and the Development Plan shall consist) of detailed provisions governing all research, pre-clinical, clinical, development, manufacturing, scientific, technical, regulatory and patent work to be performed under the Operative Documents. Following the Closing Date, the Development Committee shall, on an ongoing basis, further develop the Development Plan to include, without limitation, (i) an outline of the plan for the development of each Program; (ii) outlines of non-clinical activities, key regulatory and quality activities, and CMC activities for each Program; and (iii) a forecast for

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2.

amounts of Clinical Trial Materials required for each Program and a timeline for manufacturing such Clinical Trial Materials. The Initial Development Budget consists (and the Development Budget shall consist) of two (2) components: (x) a budget for the Development Plan (the “Clinical Budget Component”), and (y) a budget for the management and administrative functions of Symphony Allegro, as set forth in Section 1(a) of the RRD Services Agreement. The Clinical Budget Component shall be further divided into separate budgets for each Program, and, following the Closing Date, the Development Committee shall further develop and refine the Clinical Budget Component to include, without limitation, (1) budget spreadsheets summarizing anticipated costs of engaging third party service providers and the scope of work to be performed by such third parties; and (2) the number of FTEs to be dedicated to the Programs (by function and work responsibilities, on a Program-by-Program basis). All presently anticipated or actual expenditures of Symphony Allegro, including, without limitation, compensation of members of the Symphony Allegro Board and compensation to RRD, are included in the Initial Development Budget attached hereto, and will continue to be included in any amendments thereof. The Development Committee shall, at the request of the Symphony Allegro Board, submit the Development Plan and the Development Budget (as each shall have been developed and refined up to such point) to the Symphony Allegro Board for its review at the first meeting of the Symphony Allegro Board. Following the Symphony Allegro Board’s review, the Development Committee shall work diligently to incorporate any comments generated by the Symphony Allegro Board’s review and update the Development Plan and the Development Budget as soon as practicable, and submit the updated Development Plan and the updated Development Budget to the Symphony Allegro Board for further review.

     4.2 Amendments.

               (a) All amendments of, and all material deviations from, the Development Plan and Development Budget (including amendments or deviations made at the request of Alexza or RRD, in accordance with Section 8.3 hereof or Section 2(b) of the RRD Services Agreement, respectively) shall be made in accordance with the procedures described in this Article 4 and in the Development Committee Charter, including obtaining the approval of the Symphony Allegro Board, as may be required by the Development Committee Charter. No amendment of the Development Plan that alters the forecast for the amounts of Clinical Trial Materials provided by Alexza and required for either Program within six (6) months after the amendment effective date shall be made without (i) amending the Development Budget to compensate Alexza for costs associated with accommodating such alteration and (ii) receiving written confirmation from Alexza that it can complete delivery of the revised forecasts within the applicable time periods specified in such amendment to the Development Plan. Any proposed amendment of the Development Budget which increases the Management Fee or the Development Fee shall require the written consent of Alexza, not to be unreasonably withheld. Any proposed amendment of the Development Budget which has the effect of increasing, in aggregate, by $50,000 or more for a given contract year, those aggregate Cross Program Expenses set forth in line items 7 through 12 of page 2 of the Development Budget attached hereto shall require Alexza’s prior consent (such consent not to be unreasonably withheld). The Development Committee shall approve all amendments to the Development Plan and Development Budget that are proposed by Alexza to implement changes to the Product configurations or specifications to make them consistent with other Staccato Technology-

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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employing products being manufactured by or on behalf of Alexza unless such amendments, individually or in the aggregate, have or could reasonably be expected to have a materially adverse impact on timelines within the Development Plan or on manufacturing or other costs set forth in the Development Budget.

          (b) The Development Committee shall review the Development Plan and Development Budget in their entirety on a semi-annual basis to determine whether any changes are required, and shall comply with all procedures required to amend the Development Plan or Development Budget to implement such changes. Furthermore, following the Closing Date, the Development Committee shall, on an ongoing basis, continue to develop the Development Plan, including, without limitation, as set forth in Section 4.1 and in response to requests, proposals or reports from Alexza and RRD to the Development Committee.

          (c) A Program may only be discontinued in the event that either (i) the Parties mutually agree to discontinue such Program based on (A) a Medical Discontinuation Event, or (B) scientific evidence (regardless of whether such evidence is generated by a Party or a third party) that the likelihood of success for a particular Program is not enough to warrant further development (a “Scientific Discontinuation Event”) that arises in the course of developing such Program; or (ii) upon recommendation of the Development Committee, the Symphony Allegro Board resolves to discontinue such Program by (A) if the Symphony Allegro Board shall have less than five (5) members, the unanimous consent of all the members of the Symphony Allegro Board, or (B) if the Symphony Allegro Board shall have five (5) members, an affirmative vote of at least four-fifths (4/5ths) of the members of the Symphony Allegro Board; provided, that notwithstanding the foregoing, the Symphony Allegro Board may at any time, by the applicable vote described in this clause (ii), discontinue a Program upon a Medical Discontinuation Event without a prior recommendation of the Development Committee. The Development Committee shall promptly thereafter amend the Development Plan to reflect such discontinuation and amend the Development Budget to reallocate to any or all of the remaining Programs some or all of the funds previously allocated to the discontinued Program (with any funds not then allocated to be held for reallocation by the Development Committee).

          (d) The Development Plan shall never be amended in any manner that would require Alexza or Symphony Allegro (or any Person acting on behalf of Alexza or Symphony Allegro (including RRD and its RRD Personnel)) to perform any assignments or tasks in a manner that would violate any applicable law or regulation. In the event of a change in any applicable law or regulation, the Development Committee shall consider amending the Development Plan to enable Alexza or Symphony Allegro (or any Person acting on behalf of Alexza or Symphony Allegro (including RRD and its RRD Personnel)), as the case may be, to comply fully with such law or regulation. If such amendment is not approved, the affected Party shall be excused from performing any activity specified herein or in the Development Plan that would violate or result in a violation of any applicable law or regulation.

          4.3 Alexza’s Independent Staccato Technology Research.

          (a) Symphony Allegro and Holdings acknowledge that Alexza may perform work on the Staccato Technology that is outside the scope of the Development Plan and may use Alprazolam and Loxapine in the course of such work, including performing tests

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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designed to evaluate the technical and commercial feasibility and other characteristics of potential new Product configurations that employ improvements to the Staccato Technology; provided however, that Alexza cannot directly or indirectly conduct any clinical trials with respect to Alprazolam or Loxapine in the course of performing such independent work.

          (b) If the Development Committee is interested in pursuing any such Staccato Technology improvement in one or both Programs, the Development Committee shall give notice thereof to Alexza and Alexza shall provide such Staccato Technology improvement to Symphony Allegro and the Development Plan shall be amended to reflect the work to be performed on such alternate Product configuration(s), and the Development Budget shall be amended (i) to reimburse Alexza for a reasonable proportion of the costs previously incurred by Alexza but not otherwise reimbursed by Symphony Allegro with respect to the development and testing of such Staccato Technology improvement, with such proportion (the “Past Staccato Technology Proportion”) to be negotiated in good faith by Symphony Allegro and Alexza and determined based upon commercially reasonable terms no less favorable than those terms offered by Alexza to third parties; provided that if the parties are unable to agree on such proportion within [ * ], it shall be determined in accordance with clause (c) below, and (ii) to cover a proportion of future costs associated with such alternate Product configurations and the manufacture and quality assurance thereof, including any capital improvements made to facilitate such manufacture and quality assurance, such proportion (the “Future Staccato Technology Proportion”) negotiated in good faith by Symphony Allegro and Alexza and determined based upon commercially reasonable terms no less favorable than those terms offered by Alexza to third parties; provided that if the parties are unable to agree on such proportion within [ * ], it shall be determined in accordance with clause (c) below.

          (c) If Alexza and Symphony Allegro cannot agree on the Past Staccato Technology Proportion or the Future Staccato Technology Proportion (each such non-agreed proportion, the “Disputed Staccato Technology Proportion”), then such parties shall jointly select an independent nationally recognized expert to resolve any disagreements regarding the Disputed Staccato Technology Proportion(s). The Parties shall use commercially reasonable efforts to cause such expert to make its determination of the Disputed Staccato Technology Proportion(s) within [ * ] of accepting its selection. The expert’s determination of the Disputed Staccato Technology Proportion(s) shall, absent manifest error, be final, binding and conclusive and Alexza shall provide to Symphony Allegro such Staccato Technology improvement in accordance with the terms thereof. All costs and expenses of the expert shall be shared equally between Alexza and Symphony Allegro. Notwithstanding the foregoing, in any case, each Party shall be responsible for the payment of its respective costs and expenses, including any attorneys’ fees.

     5. Regulatory Matters.

          5.1 FDA Sponsor. Notwithstanding any governance provision contained herein or in any Operative Document, the Parties agree that, until the termination or unexercised expiration of the Purchase Option, Alexza shall be the FDA sponsor, and shall serve the equivalent role with respect to any corresponding recognized regulatory authority outside of the United States, for the Programs, except any Programs which were the subject of a Discontinuation Option that was not exercised by Alexza (the “FDA Sponsor”). As the FDA

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Sponsor, Alexza shall have the responsibility and the authority to act as the sponsor and make those decisions and take all actions necessary to assure compliance with all regulatory requirements. Alexza agrees to be bound by, and perform all obligations set forth in, 21 C.F.R. § 312 and any and all similar obligations imposed by a recognized foreign regulatory authority related to Alexza’s role as the FDA Sponsor. Notwithstanding anything to the contrary in Article 4 or the Development Committee Charter, Alexza, in its capacity as FDA Sponsor, may discontinue or modify any Program without the approval of the Development Committee or the Symphony Allegro Board in the event such actions are: (a) attributable to an event that is reportable to the FDA or corresponding recognized regulatory authority outside of the United States; and (b) reasonably necessary to avoid the imposition of criminal or civil liability; provided, however, that to the extent commercially reasonable, Alexza shall (i) pursuant to Section 5.2, advise and consult with the Development Committee prior to taking such action and (ii) forward a copy of all regulatory correspondence relevant to such discontinuation or modification to the members of the Symphony Allegro Board.

          5.2 Correspondence. Each Party hereto acknowledges that Alexza, in its capacity as FDA Sponsor, shall be the Party responding to any regulatory correspondence or inquiry regarding one or both Programs. Alexza shall: (a) notify at least one (1) Development Committee Member designated by Holdings within twenty-four (24) hours of any FDA or other governmental or regulatory inspection or inquiry concerning any study or project under the Programs, including, but not limited to, inspections of investigational sites or laboratories; and (b) forward to the Development Committee copies of any correspondence from any regulatory or governmental agency relating to such a study or project, including, but not limited to, Form FD-483 notices and FDA refusal to file, action or warning letters, even if they do not specifically mention Symphony Allegro. Subject to the following sentence, Symphony Allegro shall not have any right to initiate any regulatory correspondence with respect to the Programs. In the event that Symphony Allegro receives a request or notification from a Governmental Authority with respect to the Programs, Symphony Allegro shall: (i) notify Alexza within twenty-four (24) hours of receipt of such request or communication and (ii) to the extent practicable, submit any proposed response to Alexza for review and approval; provided, that such approval shall not be unreasonably withheld and shall not prevent Symphony Allegro from complying with any legal requirements. Furthermore, Alexza shall be the Party responsible for responding to or handling any FDA or regulatory inspection with respect to one or both Programs; provided, that Alexza shall notify at least one (1) of the Development Committee Members designated by Holdings (i) within twenty-four (24) hours of receiving notice of the commencement of a clinical hold for any Protocol, and (ii) concurrently with its submission to the FDA of any IND safety reports for the Programs.

          5.3 Inspections and Meetings. Each Party agrees that, during an inspection by the FDA or other Regulatory Authority concerning any study or project under the Programs, it will not disclose to such agency any information and materials (including but not limited to (x) financial data and pricing data including, but not limited to, budget and payment schedules, (y) sales data (other than shipment data), and (z) personnel data (other than data as to qualification of technical and professional persons performing functions subject to regulatory requirements)) that are not required to be disclosed to such agency without first obtaining the consent of the other Party, which consent shall not be unreasonably withheld or delayed, except to the extent

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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that such Party may be required by law to disclose such information and materials. Alexza shall be the Party responsible for arranging and participating in any meetings with any Regulatory Authority concerning one or both Programs. To the extent practicable, Alexza shall provide prompt and reasonable prior notice of any such meetings to at least one (1) of the Development Committee Members designated by Holdings, and shall, upon a request from Symphony Allegro, and to the extent reasonably possible, facilitate the attendance of at least one (1) of the Development Committee Members designated by Holdings at any such meeting reasonably anticipated to pertain in a material way to a Program. Following any meeting that pertains to a Program, but that was not attended for any reason by at least one (1) of the Development Committee Members designated by Holdings, Alexza shall provide at least one (1) of the Development Committee Members designated by Holdings with an oral summary of that portion of the meeting relevant to such Program within twenty-four (24) hours of such meeting and a written summary of that portion within five (5) Business Days of such meeting.

          5.4 Transfer of FDA Sponsorship.

               (a) On or prior to the thirtieth (30th) day after the unexercised expiration or termination of the Purchase Option, Alexza shall cease to act as the FDA Sponsor for the Programs for which Alexza has not exercised the Discontinuation Option, and Alexza and Symphony Allegro shall, at Symphony Allegro’s expense, take all actions necessary to effect the transfer of (x) the Regulatory Files (excluding Drug Master Files, but subject to Symphony Allegro’s rights under Section 2.7 of the Novated and Restated Technology License Agreement) related to such Programs to Symphony Allegro or its designee in accordance with Section 2.7 of the Novated and Restated Technology License Agreement, and (y) any and all materials necessary for Symphony Allegro to practice or exploit the license granted to it under the Novated and Restated Technology License Agreement, by such date. In conjunction with such transfer, Alexza shall assign to Symphony Allegro or its designee, at Symphony Allegro’s expense and as of the date specified in the first sentence of this Section 5.4(a), all of the material Development Subcontracting Agreements to which Alexza is a party and that: (i) are solely related to such Programs or are directly but not solely related to such Programs to the extent the rights related to or used in connection with such Programs are severable or otherwise separately assignable; (ii) provide Alexza with preclinical or clinical services from third party suppliers and subcontractors; (iii) are not related to the manufacture of a Product or the improvement of the Staccato Technology; and (iv) are assignable to Symphony Allegro or its designee without consent from the other party to the agreement. The Parties shall negotiate in good faith regarding the assignment, or other mechanism, of providing Symphony Allegro with the rights, benefits and obligations of other Development Subcontracting Agreements to the extent related to or used in connection with the Programs and that meet the criteria set forth in (i), (ii), (iii) and (iv) above; provided that Alexza shall use commercially reasonable efforts to cause the assignment of any non-assignable material Development Subcontracting Agreement or portion thereof that meet the criteria set forth in (i), (ii) and (iii) above. If it is not successful in causing such assignment, Alexza shall act as Symphony Allegro’s agent, at Symphony Allegro’s reasonable request and expense, in procuring all goods and services under such agreements until such time as Symphony Allegro enters into alternative arrangements to procure such services, provided that Symphony Allegro uses commercially reasonable efforts to enter into such alternative arrangements as soon as possible. Alexza agrees to take such commercially reasonable actions as Symphony Allegro

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may request in furtherance of the foregoing, at the expense of Symphony Allegro. Such efforts shall not include any obligation for Alexza to incur any out-of-pocket costs. Alexza shall provide copies of all such Development Subcontracting Agreements to Symphony Allegro, at Symphony Allegro’s expense, in connection with such transfer. For clarity, Alexza shall not have any obligation pursuant to this Section 5.4(a) to: (A) transfer to Symphony Allegro or its designee any Drug Master File or equivalent thereof for the manufacture of any Product, (B) assign to Symphony Allegro or its designee any material agreement that pertains to the manufacture of any Product or to any product that is not a Product except in accordance with this Section 5.4(a), (C) deliver to Symphony Allegro or its designee any units of finished Product that Symphony Allegro did not pay for prior to the expiration or termination of the unexercised Purchase Option, other than units of finished Product for which an order is outstanding (and payment is made) as of the expiration or termination of the unexercised Purchase Option, or (D) deliver to Symphony Allegro or its designee any components (including bulk Alprazolam and Loxapine) of the Products or any partially assembled or partially finished Products.

               (b) Except as provided in the Amended and Restated Technology License Agreement, upon the discontinuation of any of the Programs pursuant to Section 4.2(c), Alexza shall have no further obligations with respect to such Programs under the Operative Documents. If such Program is transferred or licensed to a third party in accordance with Section 11 (such third party, the “Transferee”), then Alexza shall cooperate with Symphony Allegro and the Transferee to effect the assignment to the Transferee of the sponsorship to the Regulatory Files (excluding Drug Master Files, but subject to Symphony Allegro’s rights under Section 2.7(a)(i) of the Novated and Restated Technology License Agreement) that are solely related to such Program; provided, however, that Alexza shall not be obligated to take any action pursuant to this Section 5.4(b) for which it will not receive full reimbursement from Symphony Allegro or another party. The assignment of such Regulatory Files to the Transferee does not include an assignment of any Licensed Intellectual Property.

     6. Alexza’s Obligations.

          6.1 Generally.

               (a) Alexza shall have primary responsibility for and “prime contractor” status with respect to the implementation of the Programs. Without limiting the foregoing, Alexza shall specifically be responsible for (i) performing all pre-clinical and clinical development for the AZ-002 Program and the AZ-004 Program in accordance with the Development Plan, (ii) manufacturing of Clinical Trial Materials for the Programs, and carrying out the quality assurance therefor, in each case in accordance with the Development Plan, (iii) making improvements to the Staccato Technology for potential incorporation into the Products and testing such improvements with Alprazolam and/or Loxapine, as applicable, and implementing changes to manufacturing processes and facilities to enable manufacture of new Product conformations incorporating such improvements, in each case in accordance with the Development Plan, and (iv) executing all other matters set forth in the Development Plan that are delegated to Alexza by Symphony Allegro pursuant to the Development Plan (collectively, the “Alexza Obligations”).

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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               (b) On account of Alexza’s prime contractor status, the Development Committee shall first offer Alexza the opportunity to perform any activity included in the Development Plan (other than those types and categories of activities allocated to a party other than Alexza in the Initial Development Plan) and shall only allocate such activity to RRD (other than activities set forth in the RRD Services Agreement) or a third party if Alexza is not willing or able to perform such activity or lacks the resources to perform such activity in accordance with industry standards and on commercially reasonable terms as determined by the Development Committee. Alexza agrees that it will work diligently and use commercially reasonable efforts to discharge the Alexza Obligations in a manner consistent with the standards customary in the biopharmaceutical industry for comparable high quality services and in accordance with the Development Plan, the Development Budget, and the terms of this Agreement. In the event that either Party is concerned that Alexza may be unable to execute any of the aforementioned development activities which comprise the Alexza Obligations, such Party shall bring such concern to the attention of the Development Committee. The Development Committee shall evaluate the concern and consider in good faith commercially reasonable amendments to the Development Plan and Development Budget that would facilitate Alexza’s ability to perform such Alexza Obligations and shall explore the feasibility and expense of Alexza engaging a new subcontractor to perform such Alexza Obligations in lieu of Alexza or its current subcontractor. If the Development Committee (A) decides by majority vote that the concern is valid and compelling but is unable to agree upon a solution that addresses such concern, or (B) is unable to decide by at least a majority as to whether such concern is valid and compelling, then, in each case, the Parties will follow the dispute resolution procedures set forth in Paragraph 11 of the Development Committee Charter. If such procedures do not result in a solution that resolves such concern, then the Symphony Allegro Board shall have the power to instruct the Development Committee to re-assign such development activities in a manner to be determined by the Development Committee, and Alexza shall, at the reasonable request of the Development Committee and at the expense of Symphony Allegro, transfer and deliver to Symphony Allegro (or RRD on behalf of Symphony Allegro) copies of any and all consents, materials, documents, files and other information (excluding Drug Master Files, but subject to Symphony Allegro’s rights under Section 2.7(a)(i) of the Novated and Restated Technology License Agreement) that relate to such development activities and that are necessary for another entity to perform such development activities; provided, that Alexza shall be permitted to retain the originals of such transferred materials, documents, files and other information relating to such development activities as necessary in order to comply with any requirements of a Governmental Authority or to use such items for purposes other than the relevant Program.

          6.2 Subcontracting.

               (a) Alexza agrees that it will not enter into any non-written Subcontracting Agreements. Each and every Subcontracting Agreement in effect as of the Closing Date (other than certain stand-alone purchase orders to be reviewed by the Development Committee after the Closing Date) is disclosed on Schedule 6.2 hereto. Other than the Subcontracting Agreements set forth on Schedule 6.2, there are no other written or oral agreements, contracts, understandings, arrangements or other commitments in effect as of the Closing Date that are related to the performance of the Alexza Obligations by third parties (other than certain stand-alone purchase orders to be reviewed by the Development Committee after the

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Closing Date). The Subcontracting Agreements set forth on Schedule 6.2 shall be deemed to be acceptable to the Parties in all respects.

               (b) Following the Closing Date, if Alexza wishes to enter into a work order, change order, purchase order or the like (collectively, a “Work Order”) for the performance of Alexza Obligations (other than manufacturing-related obligations) pursuant to a master services agreement entered into prior to the Closing Date and set forth on Schedule 6.2, Alexza shall provide the Development Committee with a copy of such draft Work Order, shall consider in good faith all comments with respect to such draft Work Order received from Development Committee Members within five (5) Business days and shall obtain the Development Committee’s approval of the final Work Order before entering into the Work Order. Such final Work Order shall be deemed a “Development Subcontracting Agreement” at the time of entry but the corresponding master services agreement shall not be subject to further review as a Development Subcontracting Agreement.

               (c) Following the Closing Date, Alexza shall provide the Development Committee, for its review and approval, a copy of Alexza’s template agreements for clinical sites, principal investigators and other third parties that routinely accept other companies’ forms and the template agreements of any other third party contractors. When negotiating the terms of a Development Subcontracting Agreement with such a third party, Alexza shall use commercially reasonable efforts to obtain the terms set forth in the relevant Development Committee-approved template agreement. Alexza may enter into a Development Subcontracting Agreement based on a Development Committee-approved template without obtaining the prior approval of the Development Committee provided that the terms of such agreement are not materially different from or less favorable to Alexza or Symphony Allegro than the terms of the applicable template.

               (d) Following the Closing Date, Alexza shall obtain the approval of the Development Committee prior to: (i) entering into any Development Subcontracting Agreement not addressed in Section 6.2(b) or (c) or (ii) amending or terminating any Development Subcontracting Agreement, in each case such approval is not to be unreasonably withheld and shall be deemed given if not objected to by any Development Committee Member within five (5) Business Days of the Development Committee’s receipt of a final copy of such agreement; provided that during such five (5) Business Day period Alexza shall make appropriate representatives available to the Development Committee to discuss such Subcontracting Agreement in good faith and reasonable detail and shall provide any information as may be reasonably requested by the Development Committee or any member thereof.

               (e) At each meeting of the Development Committee, or at such other time as may be agreed among the Parties, Alexza shall update the Development Committee on the status of any negotiations or discussions with respect to any material Subcontracting Agreements and, if requested, provide draft copies of any such material Subcontracting Agreement.

               (f) Subject to the foregoing, Alexza shall have full discretion to enter into Manufacturing Subcontracting Agreements after the Closing Date; provided that Alexza

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shall give prior notice to the Development Committee of any such material Manufacturing Subcontracting Agreements.

               (g) The terms of all Subcontracting Agreements shall be deemed the Confidential Information of Alexza and be subject to the rights and obligations set forth in the Confidentiality Agreement. Alexza shall monitor the performance of its Alexza Subcontractors and shall promptly notify the Development Committee with respect to any Alexza Subcontractor performance issues that may have a material adverse effect on the Programs.

               (h) The Development Committee shall have the authority to direct Alexza to terminate any Development Subcontracting Agreement (i) that Alexza has the right to terminate, pursuant to the terms thereof, without cost or other obligation, and (ii) any other Development Subcontracting Agreement, provided that the Development Budget shall be amended to cover all costs or other obligations associated with or arising from such termination.

          6.3 Reports and Correspondence. Alexza shall keep the Development Committee informed of its activities under the Development Plan through regular reports, as set forth in this Section 6.3. At each Scheduled Meeting of the Development Committee, Alexza shall, to the extent reasonably required by the Development Committee, provide the Development Committee with a summary of Alexza’s activities and developments with respect to the Programs for the period following the most recent preceding Scheduled Meeting. Such summary shall include: (i) updates regarding (A) patient enrollment, any adverse events (to the extent Alexza has been notified of such adverse events) or serious adverse events, any added or terminated clinical trial sites, any significant Protocol deviation, any interim analyses, statistical reports, updated Investigator Brochures or final clinical study reports or any new Protocols, Protocol amendments or studies synopses being drafted, all to the extent relating to clinical trials under the Development Plan; and (B) CMC status, non-clinical program status, regulatory and quality program status, communications with regulatory agencies, results of meetings of Alexza’s standing or ad hoc clinical advisors, safety monitoring boards or other similar oversight bodies (if and when formed) for a particular Program, and results of meetings with consultants for the Programs, all to the extent related to the Alexza Obligations; (ii) a copy of each standard clinical study progress report for the Programs received by Alexza during the preceding month from any of the clinical research organizations engaged by Alexza pursuant to any Subcontracting Agreements and a copy of any final preclinical study reports for such Programs; (iii) a financial report, in a format agreed upon by the Development Committee, itemizing actual spending under the Development Plan as well as any variation from planned spending; (iv) if the portion of the Development Budget related to a particular Program is altered to the extent that available funding for such Program no longer appears to be adequate to complete the Program, an updated budget forecast; and (v) such other information as the Development Committee may reasonably request. Alexza shall notify at least one (1) of the Development Committee Members designated by Holdings within twenty-four (24) hours of the occurrence of any event that has, or could reasonably be expected to have, a material adverse effect on the Development Plan or the Development Budget and shall keep the Development Committee regularly updated and informed with respect to any such event.

          6.4 Manufacturing.

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               (a) Subject to Section 6.4(d), if Clinical Trial Materials manufactured by or on behalf of Alexza for a Program do not conform with the applicable specifications, then Alexza shall use commercially reasonable efforts to replace such Clinical Trial Materials at Alexza’s sole expense.

               (b) Subject to Section 6.4(d), if Alexza foresees or experiences difficulty in supplying Clinical Trial Materials for the Programs, it shall notify Symphony Allegro and confer with the Development Committee regarding the source of the problem and Alexza’s plans to address such problem.

               (c) Subject to Section 6.4(d), if on two (2) separate occasions during the Term Alexza materially breaches its Clinical Trial Materials supply obligation hereunder by failing to supply at least [ * ] of the amount ordered or failing to replace non-conforming Clinical Trial Material on time and fails to cure such breach within [ * ] of Symphony Allegro’s written notice thereof, then upon Symphony Allegro’s written notice that Alexza has materially breached for a third (3rd) time, its Clinical Trial Materials supply obligation hereunder by failing to supply at least [ * ] of the amount ordered or failing to replace non-conforming Clinical Trial Material on time, the Parties shall negotiate in good faith to agree upon a mechanism for Symphony Allegro to obtain an alternate source of Clinical Trial Material supply (including seeking to validate an alternate manufacturing source and granting such licenses as may be required). In the event that, despite such good faith negotiations, Symphony Allegro and Alexza fail to reach an agreement regarding an alternate source within [ * ] after Symphony Allegro’s notice regarding such third (3rd) breach, then upon Symphony Allegro’s request, the Parties shall amend the Novated and Restated Technology License Agreement to expand the license granted to Symphony Allegro pursuant to Section 2.2 thereof to include the non-exclusive right to manufacture, or have manufactured, the Product(s) affected by such breach.

               (d) If a force majeure event causes Alexza to materially default on or breach its obligations hereunder to manufacture Clinical Trial Materials for the Program, Alexza shall promptly notify Symphony Allegro of such force majeure event and shall keep Symphony Allegro apprised of the status of its efforts to eliminate the effects of such force majeure event or otherwise regain its ability to fulfill its Clinical Trial Material manufacturing obligation. If such a force majeure event persists for six (6) months or more, then upon Symphony Allegro’s request, the Parties shall amend the Novated and Restated Technology License Agreement to expand the license granted to Symphony Allegro pursuant to Section 2.2 thereof to include the non-exclusive right to manufacture, or have manufactured, the Product(s) affected by such force majeure.

               (e) In the event that the Parties amend the Novated and Restated Technology License Agreement pursuant to Section 6.4(c) or 6.4(d), Alexza shall, at the reasonable request of the Development Committee and at the expense of Symphony Allegro, transfer and deliver to Symphony Allegro (or RRD on behalf of Symphony Allegro) copies of any and all consents, materials, documents, files and other information (excluding Drug Master Files, but subject to Symphony Allegro’s rights under Section 2.7(a)(i) of the Novated and Restated Technology License Agreement) that are necessary for another entity to manufacture such Product(s); provided, that Alexza shall be permitted to retain the originals of such

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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transferred materials, documents, files and other information relating to such development activities and to use such originals for all purposes.

          6.5 Staffing. Alexza shall provide such sufficient and competent staff and Personnel (including, without limitation, such employees or agents of, or independent contractors retained by, Alexza) that have the skill and expertise necessary to perform the Alexza Obligations. Alexza shall notify Symphony Allegro in advance, if practicable, and in any event promptly thereafter, of any change in Key Personnel involved in the Programs.

          6.6 QA Audit. During the Term, Alexza will permit Symphony Allegro’s representatives (such representatives to be identified by Symphony Allegro in advance and reasonably acceptable to Alexza and to enter into a confidentiality agreement with Alexza) to examine and audit, during regular business hours, the work performed by Alexza hereunder and the Alexza facilities at which such work is conducted to determine that the project assignment is being conducted in accordance with the agreed upon services (“QA Audits”). Symphony Allegro shall give Alexza reasonable advance notice of such QA Audits specifying the scope of the audit. Symphony Allegro shall reimburse Alexza for its time associated with QA Audits; provided, however, that should a particular QA Audit reveal a material deficiency in Alexza’s quality assurance procedures, then Alexza will be responsible for all costs of such QA Audit, including Symphony Allegro’s reasonable costs associated with such QA Audit, the work to be re-performed and the costs or expenses associated with curing such material deficiencies. Symphony Allegro and Alexza shall meet to discuss the results of the QA Audit and, if required, jointly agree upon any actions that will be required as a result of such QA Audit including defining material deficiencies to be addressed. Alexza shall make commercially reasonable efforts to reconcile all such deficiencies found by Symphony Allegro during such QA Audit.

          6.7 Financial Audit. During the Term, Alexza will permit Symphony Allegro’s representatives (such representatives to be identified by Symphony Allegro in advance and reasonably acceptable to Alexza and to enter into a confidentiality agreement with Alexza), to verify Alexza’s invoices, other receipts, and FTE records that are related to Alexza’s performance of the work under the Programs (“Financial Audits”), which review shall be conducted during regular business hours and will take place no more than once per year, unless otherwise agreed to by the Parties. Symphony Allegro shall give Alexza reasonable advance notice of such Financial Audits specifying the scope of the audit, which shall not include work that has previously undergone Financial Audits. Symphony Allegro shall reimburse Alexza for its time associated with Financial Audits; provided, however, that should a particular Financial Audit reveal an aggregate variance of more than [ * ] between such financial records and the reports submitted by Alexza to Symphony Allegro for reimbursement purposes during the period covered by such Financial Audit, then Alexza will be responsible for all costs of such Financial Audit, including Symphony Allegro’s reasonable costs associated therewith. Symphony Allegro and Alexza shall meet to discuss the results of the Financial Audit and, if required, jointly agree upon any actions that will be required as a result of such Financial Audit including defining material discrepancies to be addressed. Alexza shall make commercially reasonable efforts to reconcile all such discrepancies found by Symphony Allegro during such Financial Audit. In addition, Alexza shall, during regular business hours, cooperate with, and promptly respond to, inquiries from the Symphony Allegro Auditors, if the Symphony Allegro Auditors shall

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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reasonably conclude that they require additional information or clarification regarding any invoices, other receipts or FTE records submitted by Alexza.

          6.8 Insurance. Alexza shall carry and maintain throughout the Term clinical trial liability insurance (including errors and omissions coverage and product coverage), at Alexza’s sole expense, with limits of at least $10,000,000 per occurrence, and property insurance covering Products, at Alexza’s sole expense, with limits of at least $1,000,000. Upon Symphony Allegro’s request, Alexza shall instruct its insurance carrier(s) to promptly furnish to Symphony Allegro certificates reflecting such coverage and a representation indicating that such coverage shall not be canceled or otherwise terminated during the Term without thirty (30) days’ prior written notice to Symphony Allegro. Notwithstanding anything to the contrary herein, this Section 6.8 shall survive for a period of two (2) years following termination or expiration of this Agreement.

     7. Symphony Allegro’s Obligations.

          7.1 Generally. Symphony Allegro shall have overall responsibility for all matters set forth in the Development Plan, and shall be responsible for (i) executing or delegating its management and administration responsibilities; and (ii) executing or delegating the clinical development and manufacturing activities set forth in the Development Plan. Symphony Allegro shall, and shall instruct all Persons whom it engages pursuant to Article 2 hereof to, perform its obligations hereunder and under the Development Plan in good faith and in accordance with the applicable provisions of the Development Plan and the Development Budget, and the terms of this Agreement.

          7.2 Subcontracting. Symphony Allegro is subcontracting, and will in the future subcontract, certain of its responsibilities under the Development Plan to Alexza (pursuant hereto), to RRD (pursuant to the RRD Services Agreement) and to other vendors and service providers (pursuant to subcontracting agreements to be approved by the Development Committee); provided, that Symphony Allegro shall remain responsible for the performance of its obligations hereunder notwithstanding any such arrangement. Each subcontracting agreement entered into by Symphony Allegro (except for the RRD Services Agreement) shall include a provision permitting assignment at any time of the subcontracting agreement from Symphony Allegro to Alexza without the subcontractor’s consent; provided that Symphony Allegro may not assign its obligations under any such subcontracting agreement to Alexza without Alexza’s prior written consent.

          7.3 Reports. Symphony Allegro shall keep the Development Committee informed of its activities under the Development Plan that are subcontracted to RRD or any Person other than Alexza, through regular reports as set forth in this Section 7.3. At each Scheduled Meeting of the Development Committee, Symphony Allegro shall, to the extent reasonably required by the Development Committee, provide the Development Committee with a summary of such subcontractors’ activities and developments with respect to the Programs for the period following the most recent preceding Scheduled Meeting. Such summary shall include such information as the Development Committee may reasonably request. Symphony Allegro shall notify at least one (1) Development Committee Member nominated by Alexza within twenty-four (24) hours of the occurrence of any event that has, or could reasonably be expected

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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to have, a material adverse effect on the Development Plan or the Development Budget and shall keep the Development Committee regularly updated and informed with respect to any such event.

          7.4 Insurance. Symphony Allegro shall maintain insurance with creditworthy insurance companies against such risks and in such amounts as are usually maintained or insured against by other companies of established repute engaged in the same or a similar business.

          7.5 Staffing. Symphony Allegro shall use commercially reasonable efforts to provide, or cause to be provided on its behalf (including Personnel retained by RRD), sufficient and competent staff and Personnel that have the skill and expertise necessary to perform Symphony Allegro’s obligations under this Agreement, the RRD Services Agreement, the Development Plan and the Development Budget, including, but not limited to, (i) carrying out its management and administrative functions pursuant to the RRD Services Agreement, and (ii) carrying out its clinical development duties in accordance with this Agreement, the Development Plan and the Development Budget. Symphony Allegro shall notify Alexza in advance, if practicable, and in any event promptly thereafter, of any change in the key RRD Personnel involved in the Programs.

          7.6 Audit. Symphony Allegro shall permit each of Alexza, Holdings, Investors and each Symphony Fund and their duly authorized representatives at all reasonable business hours to inspect (1) Symphony Allegro’s books, records and other reasonably requested materials and (2) any and all properties of Symphony Allegro, and it shall provide to each of Alexza, Holdings, Investors and each Symphony Fund all books, records and other materials related to any meeting of the Symphony Allegro Board or Shareholders and to permit Holdings, Investors and each Symphony Fund to make copies or extracts therefrom; provided, that each aforementioned party may conduct one such inspection in each calendar year without cost to such party, and that any party conducting additional inspections shall reimburse the Manager for its reasonable costs and expenses in facilitating such additional inspections unless such additional inspections were performed to determine whether previously identified material deficiencies have been addressed. Symphony Allegro and Alexza shall meet to discuss the results of the audit and, if required, jointly agree upon any actions that will be required as a result of such audit including defining material discrepancies to be addressed. Symphony Allegro shall make commercially reasonable efforts to reconcile all such discrepancies found by Alexza, Holdings, Investors or any Symphony Fund during such audit.

     8. Funding and Payments.

          8.1 Use of Proceeds. Symphony Allegro shall use any and all (x) proceeds received by Symphony Allegro as a result of the Financing, (y) indemnity payments received by Symphony Allegro, and (z) payments received by Symphony Allegro pursuant to first and third party covered insurance claims, for the development of the Programs and general corporate purposes of Symphony Allegro, including the payment of all fees and expenses in accordance with the Development Plan and the Development Budget, as may be modified from time to time pursuant to Section 4.2, and the payment of any indemnification obligations of Symphony Allegro under the Operative Documents and agreements with third party contractors.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Notwithstanding the foregoing, Symphony Allegro agrees that any agreement under which Symphony Allegro indemnifies any Person shall contain appropriate provisions to cause such Person who receives payments from Symphony Allegro as a result of Symphony Allegro’s indemnification obligations under the Operative Documents, and who is subsequently reimbursed from insurance proceeds with respect to such losses, costs, interest, awards, judgments, fees, liabilities, damages and expenses for which such Person received the indemnity payments from Symphony Allegro, to then reimburse Symphony Allegro the amounts paid to such Person by Symphony Allegro to the extent of the insurance proceeds. Symphony Allegro further agrees to use all commercially reasonable means to enforce such provisions.

          8.2 Reimbursement.

               (a) Symphony Allegro shall compensate Alexza for its Development Plan-associated activities and services, including, without limitation, its research, clinical and manufacturing services and any other activities delegated to and by Alexza in accordance with this Agreement. Such compensation shall be made in accordance with the provisions of this Article 8 and the payment terms attached hereto as Annex E (the “Payment Terms”), the terms of which are hereby adopted and incorporated herein; provided that Alexza shall be directly responsible for compensation and reimbursement of third parties with respect to all development activities and services performed by third parties on Alexza’s behalf in accordance with the Development Plan and all expenses incurred by third parties in connection with such development activities and services, it being understood that the cost shall be passed through to Symphony Allegro. With respect to costs for travel, unless the Development Committee provides Alexza with prior approval, all Alexza personnel shall adhere to Alexza’s travel policy.

               (b) To the extent included in the Development Plan and Development Budget as such Development Plan and Development Budget may be modified upon approval of the Development Committee, reimbursement for Alexza’s manufacturing services shall include compensation for Alexza’s fully burdened costs for all materials and services supporting pre-clinical testing, clinical trial requirements and regulatory submissions, including, without limitation, costs associated with procurement of Alprazolam, Loxapine, and Product components, Product manufacture, testing, packaging, storage, transportation and insurance, allowed overage, percent retention, quality assurance, CMC compliance, and stability programs.

          8.3 Budget Allocation and Deviations. Alexza shall have the discretion to incur out-of-pocket fees, expenses and costs and allocate its resources in a manner consistent with the Development Plan and the Development Budget. If Alexza reasonably anticipates that the actual cost for any particular activity will exceed that portion of the Development Budget allocated over any twelve (12) month period for such activity by $50,000 or more (or such greater amount as the Symphony Allegro Board may subsequently determine), then Alexza may request that the Development Committee amend the Development Budget, either at its next Scheduled Meeting or at an Ad Hoc Meeting, to reflect such cost increase. Alexza shall be fully reimbursed, pursuant to Section 8.2, for all out-of-pocket amounts incurred with respect to an activity performed pursuant to the Development Plan, as such Development Plan may be modified upon approval of the Development Committee, provided that such amounts (x) are set forth in the Development Budget and do not exceed the amounts set forth in the Development Budget by the criteria set forth in this Section 8.3, or (y) are otherwise approved in advance by

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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the Development Committee. Without the prior approval of the Development Committee, Alexza shall not be reimbursed for expenditures that exceed the amounts set forth in the Development Budget by the criteria set forth in the second sentence of this Section 8.3. If the Development Committee denies a request made by Alexza pursuant to this Section 8.3 to amend the Development Budget, then Alexza shall no longer be obligated to perform such incremental activity that is expected to give rise to such additional expenditures.

          8.4 Employee Benefits. Symphony Allegro shall not be responsible for providing or paying any benefits (including, but not limited to, unemployment, disability, insurance, or medical, and any pension or profit sharing plans) to Alexza or to any employees of Alexza or any persons retained or used by Alexza to perform activities pursuant to the Development Plan, including independent contractors, Subcontractors and agents (collectively, “Alexza Personnel”). As to Alexza or any Alexza Personnel, Symphony Allegro shall not be responsible for: (a) any federal, state or local income tax withholding; (b) Federal Insurance Contributions Act contributions; (c) contributions to state disability funds or liability funds or similar withholdings; (d) payment of any overtime wages; (e) workers’ compensation; or (f) compliance with any laws, rules or regulations governing employees. Alexza agrees that, as between Symphony Allegro and Alexza, Alexza is and will continue to be solely responsible for: (i) all matters relating to the payment of compensation and provision of benefits to Alexza Personnel; and (ii) compliance with all applicable laws, rules and regulations governing Alexza’s employees. Alexza acknowledges that Alexza is not entitled for reimbursement with respect to any amounts related to the services of Alexza Personnel in excess of the fully burdened FTE rates in accordance with Annex E attached hereto and Symphony Allegro acknowledges that the FTE rates used as the basis for reimbursing Alexza for the services of Alexza Personnel include Alexza’s costs associated with providing such benefits and fulfilling such responsibilities.

     9. Covenants.

          9.1 Mutual Covenants. Each of Alexza and Symphony Allegro covenants and agrees that, with respect to the Programs and any other rights and obligations set forth in the Operative Documents, it shall:

               (a) perform all of its obligations pursuant to this Agreement in material compliance with: (i) all applicable federal and state laws, statutes, rules, regulations and orders (including all applicable approval and qualification requirements thereunder), including, without limitation, the Federal Food, Drug and Cosmetic Act and the regulations promulgated pursuant thereto; (ii) all applicable good clinical practices and guidelines; (iii) all applicable standard operating procedures; (iv) all applicable Protocols; and (v) the provisions of this Agreement;

               (b) keep complete, proper and separate books of record and account, including a record of all costs and expenses incurred, all charges made, all credits made and received, and all income derived in connection with the operation of its business, all in accordance with GAAP;

               (c) not employ (or, to the best of its Knowledge, shall not use any contractor or consultant who is or that employs) any individual or entity debarred by the FDA (or

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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subject to a similar sanction of any other Regulatory Authority), or, to the best of its Knowledge, any individual who or entity which is the subject of an FDA debarment investigation or proceeding (or similar proceeding of any other Regulatory Authority), in the conduct of the Programs;

               (d) promptly deliver to the other, upon receipt thereof, notice of all actions, suits, investigations, litigation and proceedings before any Governmental Authority, which would reasonably be expected to affect such Party’s ability to perform its obligations under this Agreement;

               (e) upon its acquiring Knowledge of any breach by it of any representation, warranty, covenant or any other term or condition of this Agreement or acquiring Knowledge of a material event or development that is, or is reasonably expected to be, adverse to the other Party with respect to any Program or the transactions contemplated hereby, such Party shall promptly notify the other Party in writing within three (3) Business Days of acquiring such Knowledge; provided, that the failure to provide such notice shall not impair or otherwise be deemed a waiver of any rights any Party may have arising from such breach, material event or development and that notice under this Section 9.1(e) shall not in itself constitute notice of any breach of any of the Operative Documents, unless explicitly stated in such notice; and

               (f) with reasonable promptness, deliver to the other Party such data and information relating to the ability of such Party to perform its obligations hereunder as from time to time may be reasonably requested by the other Party (subject to the maintenance of the confidentiality of any such information by the receiving Party). For the avoidance of doubt, this Section 9.1(f) includes Alexza’s obligations to provide financial and other necessary information in respect of such Programs to Symphony Allegro and RRD to enable Symphony Allegro to fulfill its obligations to Alexza under Section 5(d) of the Purchase Option Agreement, and to enable RRD to fulfill its obligations to Symphony Allegro and Alexza under Sections 5(a) and 5(b) of the RRD Services Agreement.

     10. Confidentiality. It is understood that during the course of this Agreement each of the Parties shall be bound by the terms of the Confidentiality Agreement.

     11. Discontinuation Option.

               (a) A Program may only be discontinued in accordance with Section 4.2(c). In the event of such a Program discontinuation during the Term, (i) Symphony Allegro shall so notify Alexza promptly and in writing of such discontinuation, and (ii) Alexza shall have the right and option (a “Discontinuation Option”), exercisable for [ * ] after receipt of such written notice from Symphony Allegro of such discontinuation, to buy back the Licensed Intellectual Property related to such discontinued Program for a price (payable by wire transfer to Symphony Allegro) that is the sum of (x) the funds expended on such discontinued Program and (y) a share of all non-Program-specific expenditures that is in the same proportion to the total of all non-Program-specific expenditures as the amount in clause (x) of this sentence is to the aggregate of all Program-specific expenditures (such sum, the “Discontinuation Price”), to be reasonably determined between the Parties, or, if the Parties are unable to come to a resolution within [ * ] after receipt of such written notice from Symphony Allegro of such discontinuation,

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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to be determined in accordance with Section 11(b) hereof. If the Discontinuation Price is determined in accordance with Section 11(b), then the [ * ] period for Alexza’s exercise of the Discontinuation Option shall be extended by the time needed for such determination so that Alexza has at least [ * ] after such determination to decide whether it wishes to exercise the Discontinuation Option. Following the unexercised expiration of the Discontinuation Option, Symphony Allegro may transfer or license its rights to such Program to a third party at any time prior to the expiration of the Term. Under no circumstances may Symphony Allegro or Alexza (unless Alexza has exercised its Discontinuation Option for such Program) reinitiate work on a discontinued Program prior to the expiration or termination of the Purchase Option. Any Discontinuation Price paid to Symphony Allegro by Alexza and subsequently divided or otherwise distributed to Holdings shall reduce the Purchase Price in the amount of such dividends or other distributions.

               (b) If Alexza and Symphony Allegro cannot agree on the Discontinuation Price within [ * ] after receipt of such written notice from Symphony Allegro of such discontinuation, then at Alexza’s request, the Chief Executive Officer of Alexza and Chairman of the Symphony Allegro Board shall make good faith efforts to resolve the disagreement(s) regarding the calculation of the Discontinuation Price. If the Chief Executive Officer of Alexza and Chairman of the Symphony Allegro Board do not agree on the Discontinuation Price within [ * ] after Alexza’s request, then the Parties shall jointly select a nationally recognized expert to resolve any remaining disagreements regarding calculation of the Discontinuation Price. The Parties shall use their respective commercially reasonable efforts to cause such expert to make its determination of the Discontinuation Price within [ * ] of accepting its selection. The expert’s determination of the Discontinuation Price shall, absent manifest error, be (i) binding and conclusive and (ii) the Discontinuation Price at which the Discontinuation Option shall be exercised by Alexza. All costs and expenses of the expert shall be shared equally between Alexza and Symphony Allegro. Notwithstanding the foregoing, in any case, each Party shall be responsible for the payment of its respective costs and expenses, including any attorneys’ fees.

     12. Representations and Warranties.

          12.1 Alexza Representations and Warranties. Alexza hereby represents and warrants to Symphony Allegro and Holdings that, as of the Closing Date:

               (a) Organization. Alexza is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.

               (b) Authority and Validity. Alexza has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Novated and Restated Technology License Agreement and to consummate the transactions contemplated thereby. The execution, delivery and performance by Alexza of this Agreement and the Novated and Restated Technology License Agreement and the consummation of the transactions contemplated thereby have been duly and validly authorized by all necessary action required on the part of Alexza, and no other proceedings on the part of Alexza are necessary to authorize this Agreement or the Novated and Restated Technology License Agreement or for Alexza to perform its obligations under this Agreement or the Novated and Restated Technology

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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License Agreement. This Agreement and the Novated and Restated Technology License Agreement constitute the lawful, valid and legally binding obligations of Alexza, enforceable in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

               (c) No Violation or Conflict. The execution, delivery and performance of this Agreement and the Novated and Restated Technology License Agreement and the transactions contemplated thereby do not and will not (i) violate, conflict with or result in the breach of any provision of the Organizational Documents of Alexza, (ii) conflict with or violate any law or Governmental Order applicable to Alexza or any of its assets, properties or businesses, or (iii) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Alexza, pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Alexza is a party except, in the case of clauses (ii) and (iii), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza or a material adverse effect on the Programs.

               (d) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Novated and Restated Technology License Agreement by Alexza do not, and the consummation of the transactions contemplated thereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza or a material adverse effect on the Programs.

               (e) Litigation. Except as disclosed on the Alexza S 1, there are no actions by or against Alexza pending before any Governmental Authority or, to the Knowledge of Alexza, threatened to be brought by or before any Governmental Authority, that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza. There are no pending or, to the Knowledge of Alexza, threatened actions, to which Alexza is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the Operative Documents or the consummation of the transactions contemplated hereby or thereby by any party hereto or thereto. Alexza is not subject to any Governmental Order (nor, to the Knowledge of Alexza, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Alexza or a material adverse effect on the Programs.

               (f) No Contracts. Except as disclosed on Schedule 12.1(f) hereto, there are no material contracts between Alexza and any third party other than (i) licenses of intellectual property that are in turn licensed to Symphony Allegro under the Novated and Restated Technology License Agreement and (ii) contracts that relate solely to the Staccato

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Technology and are not related to the Programs or solely to products other than the Products, used with or otherwise necessary for the Programs, and all such contracts are assignable to Symphony Allegro. Except as disclosed on Schedule 12.1(f) hereto, each such contract is assignable to Symphony Allegro without the prior consent of the applicable third party, or the absence of such contract (due to the inability or impracticability of assigning such contract to Symphony Allegro following a termination of this Agreement without the exercise of the Purchase Option) would not have a material adverse effect on any of the Programs or on Symphony Allegro’s rights under the Novated and Restated Technology License Agreement.

          12.2 Symphony Allegro Representations and Warranties. Symphony Allegro hereby represents and warrants to Alexza that, as of the Closing Date:

               (a) Organization. Symphony Allegro is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware.

               (b) Authority and Validity. Symphony Allegro has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Novated and Restated Technology License Agreement and to consummate the transactions contemplated thereby. The execution, delivery and performance by Symphony Allegro of this Agreement and the Novated and Restated Technology License Agreement and the consummation of the transactions contemplated thereby have been duly and validly authorized by all necessary action required on the part of Symphony Allegro, and no other proceedings on the part of Symphony Allegro are necessary to authorize this Agreement or the Novated and Restated Technology License Agreement or for Symphony Allegro to perform its obligations under this Agreement or the Novated and Restated Technology License Agreement. This Agreement and the Novated and Restated Technology License Agreement constitute the lawful, valid and legally binding obligations of Symphony Allegro, enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles regardless of whether such enforceability is considered in a proceeding at law or in equity.

               (c) No Violation or Conflict. The execution, delivery and performance of this Agreement and the Novated and Restated Technology License Agreement and the transactions contemplated thereby do not and will not (i) violate, conflict with or result in the breach of any provision of the Organizational Documents of Symphony Allegro, (ii) conflict with or violate any law or Governmental Order applicable to Symphony Allegro or any of its assets, properties or businesses, or (iii) conflict with, result in any breach of, constitute a default (or event that with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of Symphony Allegro, pursuant to any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Symphony Allegro is a party except, in the case of clauses (ii) and (iii), to the extent that such conflicts, breaches, defaults or other matters would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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               (d) Governmental Consents and Approvals. The execution, delivery and performance of this Agreement and the Novated and Restated Technology License Agreement by Symphony Allegro do not, and the consummation of the transactions contemplated thereby do not and will not, require any Governmental Approval which has not already been obtained, effected or provided, except with respect to which the failure to so obtain, effect or provide would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro.

               (e) Litigation. There are no actions by or against Symphony Allegro pending before any Governmental Authority or, to the Knowledge of Symphony Allegro, threatened to be brought, by or before any Governmental Authority that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro. There are no pending or, to the Knowledge of Symphony Allegro, threatened actions to which Symphony Allegro is a party (or is threatened to be named as a party) to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby by any party hereto. Symphony Allegro is not subject to any Governmental Order (nor, to the knowledge of Symphony Allegro, is there any such Governmental Order threatened to be imposed by any Governmental Authority) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Symphony Allegro or a material adverse effect on the Programs.

     13. Relationship Between Alexza and Symphony Allegro. Nothing contained in this Agreement or any acts or omissions hereunder shall constitute or be construed so as to create any joint venture or partnership relationship between Alexza and Symphony Allegro, and the Parties acknowledge and agree that Alexza is acting as an independent contractor in the performance of its obligations under this Agreement.

     14. Change of Control. Holdings has the Change of Control Put Option described in Section 2A of the Purchase Option Agreement following a Change of Control with respect to Alexza.

     15. No Restrictions; Indemnification.

          15.1 No Restrictions. Nothing in this Agreement shall limit or restrict the right of any director, officer or employee of Alexza or any director, officer, or employee of any of its subsidiaries or its Affiliates to engage in any other business or to devote his or her time and attention to the management or other aspects of any other business, whether of a similar or dissimilar nature, nor limit or restrict the right of Alexza or any of its affiliates to engage in any other business or to render services of any kind to any other Person.

          15.2 Indemnification.

               (a) To the greatest extent permitted by applicable law, Alexza shall indemnify and hold harmless Symphony Allegro, Holdings and RRD and each of their respective Affiliates, officers, directors, employees, agents, members, managers, successors and assigns (each, a “Symphony Indemnified Party”), and Symphony Allegro shall indemnify and hold harmless Alexza, and its Affiliates and each of their respective officers, directors, employees,

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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agents (other than Alexza Subcontractors), members, managers, successors and assigns (each, an “Alexza Indemnified Party”), from and against any and all claims, losses, costs, interest, awards, judgments, fees (including reasonable fees for attorneys and other professionals), court costs, liabilities, damages and expenses incurred by any Symphony Indemnified Party or Alexza Indemnified Party (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought) (hereinafter, a “Loss”) to the extent resulting from, arising out of, or relating to any and all third party suits, claims, actions, proceedings or demands based upon:

                    (i) in the case of Alexza being the Indemnifying Party, (A) any breach of any representation or warranty made by Alexza herein or in any other Operative Document, (B) any breach of any covenant, agreement or obligation of Alexza contained herein or in any other Operative Document, except to the extent such covenant, agreement or obligation relates to Alexza’s performance under the Development Plan, (C) any gross negligence or willful misconduct of Alexza (and not that of any Alexza Subcontractors) in connection with Alexza’s performance of its obligations under this Agreement (including the Development Plan), (D) any action undertaken or performed by or on behalf of Alexza prior to, and including, the Closing Date that relates to the Programs or the Products, or (E) in the event Alexza exercises a Discontinuation Option for a Program, any action undertaken and/or performed by or on behalf of Alexza after the Discontinuation Option Closing Date and relating to the Product that was the subject of such Program (including the development, manufacture, use, handling, storage, sale or other disposition of such Product); in each case, except (1) with respect to Losses for which Alexza is entitled to indemnification under this Article 15 or (2) to the extent such Loss arises from the gross negligence or willful misconduct of a Symphony Indemnified Party; and

                    (ii) in the case of Symphony Allegro being the Indemnifying Party, (A) any breach of any representation or warranty made by Symphony Allegro herein or in any other Operative Document, (B) any breach of any covenant, agreement or obligation of Symphony Allegro contained herein or in any other Operative Document, (C) any gross negligence or willful misconduct of Symphony Allegro (and not that of its direct subcontractors) in connection with Symphony Allegro’s performance of its obligations under this Agreement, or (D) the development, manufacture, use, handling, storage, sale or other disposition of the Products (including in the course of conducting the Programs) during the Term (except with respect to the development, manufacture, use, handling, storage, sale or other disposition, after Alexza’s exercise of the Discontinuation Option, of Products covered under Section 15.2(a)(i)(E)); in each case, except (1) with respect to Losses for which Symphony Allegro is entitled to indemnification under this Article 15, or (2) Losses deemed to have arisen from the breach by Alexza of any covenant, agreement or obligation under this Agreement that relates to Alexza’s performance under the Development Plan, as determined by a court, arbitrator or pursuant to a settlement agreement, or (3) to the extent such Loss arises from the gross negligence or willful misconduct of an Alexza Indemnified Party.

     To the extent that the foregoing undertaking by Alexza or Symphony Allegro may be unenforceable for any reason, such Party shall make the maximum contribution to the payment and satisfaction of any Loss that is permissible under applicable law.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

23.

               (b) Notice of Claims. Any Indemnified Party that proposes to assert a right to be indemnified under this Section 15.2 shall notify Alexza or Symphony Allegro, as applicable (the “Indemnifying Party”), promptly after receipt of notice of commencement of any action, suit or proceeding against such Indemnified Party (an “Indemnified Proceeding”) in respect of which a claim is to be made under this Section 15.2, or the incurrence or realization of any Loss in respect of which a claim is to be made under this Section 15.2, of the commencement of such Indemnified Proceeding or of such incurrence or realization, enclosing a copy of all relevant documents, including all papers served and claims made, but the omission so to notify the applicable Indemnifying Party promptly of any such Indemnified Proceeding or incurrence or realization shall not relieve (x) such Indemnifying Party from any liability that it may have to such Indemnified Party under this Section 15.2 or otherwise, except, as to such Indemnifying Party’s liability under this Section 15.2, to the extent, but only to the extent, that such Indemnifying Party shall have been prejudiced by such omission, or (y) any other indemnitor from liability that it may have to any Indemnified Party under the Operative Documents.

               (c) Defense of Proceedings. In case any Indemnified Proceeding shall be brought against any Indemnified Party, it shall notify the applicable Indemnifying Party of the commencement thereof as provided in Section 15.2(b), and such Indemnifying Party shall be entitled to participate in, and provided such Indemnified Proceeding involves a claim solely for money damages and does not seek an injunction or other equitable relief against the Indemnified Party and is not a criminal or regulatory action, to assume the defense of, such Indemnified Proceeding with counsel reasonably satisfactory to such Indemnified Party. After notice from such Indemnifying Party to such Indemnified Party of such Indemnifying Party’s election so to assume the defense thereof and the failure by such Indemnified Party to object to such counsel within ten (10) Business Days following its receipt of such notice, such Indemnifying Party shall not be liable to such Indemnified Party for legal or other expenses related to such Indemnified Proceedings incurred after such notice of election to assume such defense except as provided below and except for the reasonable costs of investigating, monitoring or cooperating in such defense subsequently incurred by such Indemnified Party reasonably necessary in connection with the defense thereof. Such Indemnified Party shall have the right to employ its counsel in any such Indemnified Proceeding, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless:

                    (i) the employment of counsel by such Indemnified Party at the expense of the applicable Indemnifying Party has been authorized in writing by such Indemnifying Party;

                    (ii) such Indemnified Party shall have reasonably concluded in its good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between the applicable Indemnifying Party and such Indemnified Party in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes of action available to such Indemnified Party (it being agreed that in any case referred to in this clause (ii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

24.

                    (iii) the applicable Indemnifying Party shall not have employed counsel reasonably acceptable to the Indemnified Party to assume the defense of such Indemnified Proceeding within a reasonable time after notice of the commencement thereof; provided, however, that (A) this clause (iii) shall not be deemed to constitute a waiver of any conflict of interest that may arise with respect to any such counsel, and (B) an Indemnified Party may not invoke this clause (iii) if such Indemnified Party failed to timely object to such counsel pursuant to the first paragraph of this Section 15.2(c) above (it being agreed that in any case referred to in this clause (iii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); or

                    (iv) any counsel employed by the applicable Indemnifying Party shall fail to timely commence or reasonably conduct the defense of such Indemnified Proceeding and such failure has prejudiced (or is in immediate danger of prejudicing) the outcome of such Indemnified Proceeding (it being agreed that in any case referred to in this clause (iv) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

in each of which cases the fees and expenses of counsel for such Indemnified Party shall be at the expense of such Indemnifying Party. Only one counsel shall be retained by all Indemnified Parties with respect to any Indemnified Proceeding, unless counsel for any Indemnified Party reasonably concludes in good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between such Indemnified Party and one or more other Indemnified Parties in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes or action available to such Indemnified Party.

               (d) Settlement. Without the prior written consent of such Indemnified Party, such Indemnifying Party shall not settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding, unless such settlement, compromise, consent or related judgment (i) includes an unconditional release of such Indemnified Party from all liability for Losses arising out of such claim, action, investigation, suit or other legal proceeding, (ii) provides for the payment of money damages as the sole relief for the claimant (whether at law or in equity), (iii) involves no admission of fact adverse to the Indemnified Party or finding or admission of any violation of law or the rights of any Person by the Indemnified Party, and (iv) is not in the nature of a criminal or regulatory action. No Indemnified Party shall settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding (A) in respect of which any payment would result hereunder or under any other Operative Document, (B) which includes an injunction that will adversely affect any Indemnifying Party, (C) which involves an admission of fact adverse to the Indemnifying Party or a finding or admission of any violation of law or the rights of any Person by the Indemnifying Party, or (D) which is in the nature of a criminal or regulatory action, without the prior written consent of the Indemnifying Party, such consent not to be unreasonably conditioned, withheld or delayed.

     16. Limitation of Liabilities.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

25.

          16.1 Between the Parties. TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, NEITHER PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, MEMBERS, MANAGERS, EMPLOYEES, INDEPENDENT CONTRACTORS OR AGENTS (INCLUDING RRD AND ITS MEMBERS, MANAGERS, EMPLOYEES, INDEPENDENT CONTRACTORS AND AGENTS) SHALL HAVE ANY LIABILITY OF ANY TYPE (INCLUDING, BUT NOT LIMITED TO, CLAIMS IN CONTRACT, NEGLIGENCE AND TORT LIABILITY) FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, THE LOSS OF OPPORTUNITY, LOSS OF USE OR LOSS OF REVENUE OR PROFIT IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR THE SERVICES PERFORMED HEREUNDER, EVEN IF SUCH DAMAGES MAY HAVE BEEN FORESEEABLE. THE FOREGOING SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 15.2 AND SHALL NOT APPLY TO BREACHES OF ITS CONFIDENTIALITY OBLIGATIONS PURSUANT TO ARTICLE 10.

          16.2 Pursuant to the RRD Services Agreement. Each Party hereby acknowledges and agrees that, pursuant to Sections 9(f) and (g) of the RRD Services Agreement, RRD has expressly disclaimed all liability for (a) any claim arising out of, or allegedly arising out of the activities carried out by (or within the authority of) Alexza (and such Alexza Subcontractors and vendors it may retain) hereunder, or for any liability arising under the Novated and Restated Technology License Agreement with respect to any license or sublicense thereunder in relation to the activities carried out by (or within the authority of) Alexza (and such Alexza Subcontractors and vendors it may retain) hereunder, with RRD to receive credit for any such damages to the extent such damages are disclaimed, and (b) supervising, compensating or discharging, or any other liability to or with respect to, any vendor retained by Alexza (or, in the case of a vendor engaged by both RRD and Alexza, to and for such vendor to the extent that such vendor performs services for Alexza), except that RRD shall make payments from Symphony Allegro’s funds to reimburse Alexza, in accordance with Article 8 and Annex E of this Agreement, for costs and expenses incurred by Alexza in connection with the engagement of such vendors by Alexza for the performance of services contemplated under the Development Plan.

     17. Term and Termination.

          17.1 Term. This Agreement shall be effective as of the Closing Date and shall expire on the last day of the Term, unless the Agreement is earlier terminated as specified in this Article 17.

          17.2 Termination for Alexza’s Breach.

               (a) Symphony Allegro may terminate this Agreement at any time upon written notice to Alexza if Alexza is in material default or breach of this Agreement, and such material default or breach continues unremedied for a period of [ * ] after written notice thereof is delivered to Alexza. Such cure period may be extended if (i) Alexza reasonably believes such breach can be cured within [ * ] of Alexza’s receipt of Symphony Allegro’s written notice of such breach (and notifies Symphony Allegro in writing of such belief and the basis for such

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

26.

belief), and (ii) Symphony Allegro, acting reasonably, agrees. If Alexza fails to remedy the default or breach within the applicable cure period, Symphony Allegro may by final notice of termination to Alexza terminate this Agreement.

               (b) In the event that Symphony Allegro terminates this Agreement pursuant to Section 17.2(a) above, Alexza may exercise its Purchase Option, pursuant to Section 1(c)(v) of the Purchase Option Agreement, within [ * ] of receiving such notice of termination from Symphony Allegro; provided, that if such termination occurs after a Change of Control with respect to Alexza due to the Surviving Entity’s material default or breach of this Agreement, and if the Surviving Entity does not exercise such Purchase Option, then Holdings may exercise its Put Option pursuant to Section 2A of the Purchase Option Agreement.

          17.3 Termination for Symphony Allegro’s or Holdings’ Breach. Alexza may terminate this Agreement at any time upon written notice to Symphony Allegro and Holdings if Symphony Allegro or Holdings is in material default or breach of this Agreement, and such material default or breach continues unremedied for a period of [ * ] after written notice thereof is delivered to Symphony Allegro and Holdings. Such cure period may be extended if (i) Symphony Allegro or Holdings reasonably believes such breach can be cured within [ * ] of Symphony Allegro’s and Holdings’ receipt of Alexza’s written notice of such breach (and notifies Alexza in writing of such belief and the basis for such belief), and (ii) Alexza, acting reasonably, agrees. If Symphony Allegro or Holdings fails to remedy the default or breach within the applicable cure period, Alexza may by final notice of termination to Symphony Allegro and Holdings terminate this Agreement.

          17.4 Termination of License Agreement. This Agreement shall automatically terminate upon the termination of the Novated and Restated Technology License Agreement.

          17.5 Survival.

               (a) The agreements and covenants of the Parties set forth in Articles 10, 11, 15, 16 and 18, and Sections 6.8 and 17.5 shall survive the expiration or termination of this Agreement. In addition, Section 8.2 shall, to the extent that the costs and expenses reimbursable thereunder have been incurred or become uncancellable prior to such termination, also survive such expiration.

               (b) If Alexza does not exercise the Purchase Option, in addition to the provisions specified in Section 17.5(a), Section 5.4 shall also survive such unexercised expiration.

     18. Miscellaneous.

          18.1 No Petition. Alexza covenants and agrees that, prior to the date which is one (1) year and one (1) day after the expiration of the Term, Alexza will not institute or join in the institution of any bankruptcy, insolvency, reorganization or similar proceeding against Symphony Allegro. The provisions of this Section 18.1 shall survive the termination of this Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

27.

          18.2 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any party shall be in writing addressed to the party at its address set forth below and shall be deemed given (i) when delivered to the party personally, (ii) if sent to the party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 18.2), when the transmitting party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by a return receipt:

     Alexza:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn: August J. Moretti
Facsimile: (650) 687-3999

     With a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Facsimile: (650) 849-7400

     Symphony Allegro:

Symphony Allegro, Inc.
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Frank L. Hurley, Ph.D.
Facsimile: (301) 762-6154

     Holdings:

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Robert L. Smith, Jr.
Facsimile: (301) 762-6154

     with copies to:

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

28.

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

     and

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

     or to such other address as such party may from time to time specify by notice given in the manner provided herein to each other party entitled to receive notice hereunder.

          18.3 Governing Law; Consent to Jurisdiction and Service of Process.

               (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

               (b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in The City of New York, Borough of Manhattan, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by law, in such federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Party may otherwise have to bring any action or proceeding relating to this Agreement.

               (c) Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court. Each of the Parties irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

          18.4 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

29.

          18.5 Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments hereto) constitutes the entire agreement between the Parties with respect to the matters covered hereby, and no oral or written statement may be used to interpret or vary the meaning of the terms and conditions hereof. This Agreement supersedes all prior and contemporaneous agreements, correspondence, discussion and understanding with respect to such matters between the Parties, including the Research and Development Agreement, but excluding the Operative Documents.

          18.6 Amendment; Successors; Assignment; Counterparts.

               (a) The terms of this Agreement shall not be altered, modified, amended, waived or supplemented in any manner whatsoever except by a written instrument signed by each of the Parties and Holdings.

               (b) Nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any Person, other than the Parties (and, to the extent of Section 18.8, RRD), any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the Parties (and, to the extent of Section 18.8, RRD) and their successors and permitted assigns.

               (c) This Agreement may not be assigned by either Party hereto without the prior written consent of the other Party; provided that, in the event Alexza undergoes a Change of Control in compliance with Article 14 hereof, Alexza may assign this Agreement to its Successor Entity.

               (d) This Agreement may be executed in one or more counterparts, each of which, when executed, shall be deemed an original but all of which taken together shall constitute one and the same Agreement.

          18.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

          18.8 Third Party Beneficiary. Each of the Parties agrees that RRD shall be a third party beneficiary of Articles 2, 8 and 16, and Sections 4.1, 4.2(a), 4.2(b), 7.1, 7.4, 9.1(f), 15.2 and 18.6(b) of this Agreement.

{SIGNATURES FOLLOW ON NEXT PAGE}

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

30.

     In Witness Whereof, the parties hereto have caused this Agreement to be executed as of the day and year above written.

SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P., its Manager
By:	Symphony Capital GP, L.P., its member
By:	Symphony GP, LLC, its member
By:	/s/ Mark Kessel
	Name:	Mark Kessel
	Title:	Managing Member
SYMPHONY ALLEGRO, INC.
By:	/s/ Neil J. Sandler
	Name:	Neil J. Sandler
	Title:	Chairman of the Board
ALEXZA PHARMACEUTICALS, INC.
By:	/s/ August J. Moretti
	Name:	August J. Moretti
	Title:	Senior Vice President and
		Chief Financial Officer

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

ANNEX A

CERTAIN DEFINITIONS

{See attached.}

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex A-1

CERTAIN DEFINITIONS

     “$” means United States dollars.

     “Accredited Investor” has the meaning set forth in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.

     “Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq.

     “Ad Hoc Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Additional Party” has the meaning set forth in Section 14 of the Confidentiality Agreement.

     “Additional Regulatory Filings” means such Governmental Approvals as required to be made under any law applicable to the purchase of the Symphony Allegro Equity Securities under the Purchase Option Agreement.

     “Adjusted Capital Account Deficit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Affected Member” has the meaning set forth in Section 27 of the Investors LLC Agreement.

     “Affiliate” means, with respect to any Person (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any officer, director, general partner, member or trustee of such Person, or (iii) any Person who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, managers, general partners, or persons exercising similar authority with respect to such Person or entities.

     “Alexza” means Alexza Pharmaceuticals, Inc., a Delaware corporation.

     “Alexza Accounting Advisor” means Ernst & Young LLP.

     “Alexza Common Stock” means the common stock, par value $0.0001 per share, of Alexza.

     “Alexza Common Stock Valuation” has the meaning set forth in Section 2(e) of the Purchase Option Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex A-1

     “Alexza Obligations” has the meaning set forth in Section 6.1(a) of the Amended and Restated Research and Development Agreement.

     “Alexza Personnel” has the meaning set forth in Section 8.4 of the Amended and Restated Research and Development Agreement.

     “Alexza Public Filings” means all publicly available filings made by Alexza with the SEC.

     “Alexza Subcontractor” means a third party that has entered into a Subcontracting Agreement with Alexza.

     “Allegro Relevant Infringement” means an infringement, misappropriation, illegal use or misuse of the Licensed Patent Rights or other Licensed Intellectual Property due to the manufacture, use, sale or importation of a pharmaceutical product or device that delivers Alprazolam (provided that Alexza has not exercised a Discontinuation Option for the AZ-002 Program) or Loxapine (provided that Alexza has not exercised a Discontinuation Option for the AZ-004 Program), as applicable.

     “Alprazolam” means: (a) alprazolam and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Amended and Restated Research and Development Agreement” means the Amended and Restated Research and Development Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Asset Value” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Auditors” means an independent certified public accounting firm of recognized national standing.

     “AZ-002 Product” means a pharmaceutical product in which Alprazolam is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-002 Program” means the development, manufacture and/or use of any AZ-002 Product in accordance with the Development Plan.

     “AZ-004 Product” means a pharmaceutical product in which Loxapine is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-004 Program” means the development, manufacture and/or use of any AZ-004 Product in accordance with the Development Plan.

     “Balance Sheet Deficiency” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Balance Sheet Deficiency Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

2.

     “Balance Sheet Deficiency Threshold” shall have the meaning set forth in Section 2(b) of the Research Cost Sharing and Extension Agreement.

     “Bankruptcy Code” means the United States Bankruptcy Code.

     “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York or the City of San Francisco are authorized or required by law to remain closed.

     “Capital Contributions” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

     “Cash Available for Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Chair” has the meaning set forth in Paragraph 4 of Annex B to the Amended and Restated Research and Development Agreement.

     “Change of Control” means and includes the occurrence of any of the following events, but specifically excludes (i) acquisitions of capital stock directly from Alexza for cash, whether in a public or private offering, (ii) sales of capital stock by stockholders of Alexza, and (iii) acquisitions of capital stock by or from any employee benefit plan or related trust:

     (a) the merger, reorganization or consolidation of Alexza into or with another corporation or legal entity in which Alexza’s stockholders holding the right to vote with respect to matters generally immediately preceding such merger, reorganization or consolidation, own less than fifty percent (50%) of the voting securities of the surviving entity; or

     (b) the sale of all or substantially all of Alexza’s assets or business.

     “Change of Control Put Option” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Change of Control Put Option Exercise Notice” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Class A Member” means a holder of a Class A Membership Interest.

     “Class A Membership Interest” means a Class A Membership Interest in Holdings.

     “Class B Member” means a holder of a Class B Membership Interest.

     “Class B Membership Interest” means a Class B Membership Interest in Holdings.

     “Class C Member” means a holder of a Class C Membership Interest.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

3.

     “Class C Membership Interest” means a Class C Membership Interest in Holdings.

     “Class D Member” means a holder of a Class D Membership Interest.

     “Class D Membership Interest” means a Class D Membership Interest in Holdings.

     “Client Schedules” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Clinical Budget Component” has the meaning set forth in Section 4.1 of the Amended and Restated Research and Development Agreement.

     “Clinical Trial Material” means Product and placebo for administration to animals for pre-clinical testing or to humans for clinical testing.

     “Closing Date” means any time after the close of business in New York on December 1, 2006.

     “CMC” means the chemistry, manufacturing and controls documentation as required for filings with a Regulatory Authority relating to the manufacturing, production and testing of drug products.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Committed Capital” means $50,000,000.00.

     “Common Stock” means the common stock, par value $0.01 per share, of Symphony Allegro.

     “Company Expenses” has the meaning set forth in Section 5.09 of the Holdings LLC Agreement.

     “Company Property” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Confidential Information” has the meaning set forth in Section 2 of the Confidentiality Agreement.

     “Confidentiality Agreement” means the Confidentiality Agreement, dated as of the Closing Date, among Symphony Allegro, Holdings, Alexza, SCP, SSP, Investors, Symphony Capital and RRD, as such agreement may be amended or amended and restated from time to time.

     “Conflict Transaction” has the meaning set forth in Article X of the Symphony Allegro Charter.

     “Control” means, with respect to any material, information or intellectual property right, that a Party owns or has a license to such item or right, and has the ability to grant the other Party

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4.

access, a license or a sublicense (as applicable) in or to such item or right as provided in the Operative Documents without violating the terms of any agreement or other arrangement with any third party.

     “Cross Program Expenses” are: (i) the Management Fee plus the Development Fee pursuant to Section 6(a) of the RRD Services Agreement; (ii) actual expenses associated with RRD carrying out its duties related to creating and maintaining the books of account, records, financial statements and audit and tax preparation for Symphony Allegro pursuant to Section 5 of the RRD Services Agreement; and (iii) actual expenses for insurance procured for Symphony Allegro pursuant to Section 1(a)(xi) of the RRD Services Agreement, reasonable legal expenses incurred on behalf of Symphony Allegro, and travel and miscellaneous out of pocket expenses of the Symphony Allegro Board, all as and to the extent reimbursable to RRD pursuant to Section 6(b) of the RRD Services Agreement.

     “Current Products” has the meaning set forth in Section 5.1(g) of thef Novated and Restated Technology License Agreement.

     “Debt” of any Person means, without duplication:

(a) all indebtedness of such Person for borrowed money,

     (b) all obligations of such Person for the deferred purchase price of property or services (other than any portion of any trade payable obligation that shall not have remained unpaid for 91 days or more from the later of (A) the original due date of such portion and (B) the customary payment date in the industry and relevant market for such portion),

     (c) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments,

     (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (whether or not the rights and remedies of the seller or lender under such agreement in an event of default are limited to repossession or sale of such property),

(e) all Capitalized Leases to which such Person is a party,

     (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities,

     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person,

(h) the net amount of all financial obligations of such Person in respect of Hedge Agreements,

     (i) the net amount of all other financial obligations of such Person under any contract or other agreement to which such Person is a party,

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

5.

     (j) all Debt of other Persons of the type described in clauses (a) through (i) above guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and

     (k) all Debt of the type described in clauses (a) through (i) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned or held or used under lease or license by such Person, even though such Person has not assumed or become liable for payment of such Debt.

     “Development Budget” means the budget (comprised of the Management Budget Component and the Clinical Budget Component) for the implementation of the Development Plan (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Committee” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Charter” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Member” has the meaning set forth in Paragraph 1 of Annex B to the Amended and Restated Research and Development Agreement.

     “Development Plan” means the development plan covering all the Programs (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Product” means an AZ-002 Product or an AZ-004 Product that is administered in a clinical trial performed pursuant to the Development Plan.

     “Development Services” has the meaning set forth in Section 1(b) of the RRD Services Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

6.

     “Development Subcontracting Agreement” means a Subcontracting Agreement that is directly related to one or both of the Programs and is not a Manufacturing Subcontracting Agreement.

     “Director(s)” means the Persons identified as such in the Preliminary Statement of the Indemnification Agreement (including such Persons as may become parties thereto after the date hereof).

     “Disclosing Party” has the meaning set forth in Section 4 of the Confidentiality Agreement.

     “Discontinuation Option” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Option Closing Date” means the date of expiration of the Discontinuation Option pursuant to Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Price” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinued Program” has the meaning set forth in Section 2.10 of the Novated and Restated Technology License Agreement.

     “Disinterested Directors” has the meaning set forth in Article IX of the Symphony Allegro Charter.

     “Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Drug Master Files” means all Regulatory Files with respect to the manufacture or design of a Product, including without limitation drug master files, design history files and similar files.

     “Early Purchase Option Exercise” has the meaning set forth in Section 1(c)(v) of the Purchase Option Agreement.

     “Effective Registration Date” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

     “Encumbrance” means (i) any security interest, pledge, mortgage, lien (statutory or other), charge or option to purchase, lease or otherwise acquire any interest, (ii) any adverse claim, restriction, covenant, title defect, hypothecation, assignment, deposit arrangement, license or other encumbrance of any kind, preference or priority, or (iii) any other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement).

     “Equity Securities” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

7.

interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

     “ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.

     “Excepted Debt” has the meaning set forth in Section 5(c)(iii) of the Purchase Option Agreement.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Existing Confidentiality Agreement” has the meaning set forth in Section 2(a) of the Confidentiality Agreement.

     “Exiting Product” means, with respect to a particular Program, any Development Product that was administered in a clinical trial pursuant to the Development Plan at any time prior to (a) the termination of the Discontinuation Option with respect to such Program without exercise by Licensor or (b) the expiration or termination of the Purchase Option without exercise by Licensor, whichever comes first.

     “Extension Funding” has the meaning set forth in Section 2 of the Research Cost Sharing and Extension Agreement.

     “External Directors” means, at any time, up to two (2) Persons elected to the Symphony Allegro Board after the Closing Date (who shall be neither employees of Symphony Capital nor of Alexza) in accordance with the Symphony Allegro Charter, the Symphony Allegro By-laws and Section 4(b)(iv) of the Purchase Option Agreement.

     “FDA” means the United States Food and Drug Administration or its successor agency in the United States.

     “FDA Sponsor” has the meaning set forth in Section 5.1 of the Amended and Restated Research and Development Agreement.

     “Final Termination Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Financial Audits” has the meaning set forth in Section 6.7 of the Amended and Restated Research and Development Agreement.

     “Financing” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

8.

     “Fiscal Year” has the meaning set forth in each Operative Document in which it appears.

     “Form S-3” means the Registration Statement on Form S-3 as defined under the Securities Act.

     “FTE” means the time and effort of one or more qualified scientists working on the AZ-002 Program or the AZ-004 Program that is equivalent to 1850 hours per year devoted exclusively to the Programs by one (1) full-time employee. The portion of an FTE year devoted by any one scientist to the Programs shall be determined by dividing the number of hours during any twelve (12) month period devoted by such scientist to one or both Programs by 1850 hours, not to exceed 1.0 in any case.

     “Funds Termination Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Funds Termination Notice” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time.

     “Governmental Approvals” means authorizations, consents, orders, declarations or approvals of, or filings with, or terminations or expirations of waiting periods imposed by any Governmental Authority.

     “Governmental Authority” means any United States or non-United States federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

     “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

     “Hedge Agreement” means any interest rate swap, cap or collar agreement, interest rate future or option contract, currency swap agreement, currency future or option contract or other similar hedging agreement.

     “Holdings” means Symphony Allegro Holdings LLC, a Delaware limited liability company.

     “Holdings Claims” has the meaning set forth in Section 5.01 of the Warrant Purchase Agreement.

     “Holdings LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of Holdings dated as of the Closing Date.

     “HSR Filings” means the pre-merger notification and report forms required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

9.

     “IND” means an Investigational New Drug Application, as described in 21 U.S.C. § 355(i)(1) and 21 C.F.R. § 312 in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

     “Indemnification Agreement” means the Indemnification Agreement among Symphony Allegro and the Directors named therein, dated as of the Closing Date, as such agreement may be amended or amended and restated from time to time.

     “Indemnified Party” has the meaning set forth in each Operative Document in which it appears.

     “Indemnified Proceeding” has the meaning set forth in each Operative Document in which it appears.

     “Indemnifying Party” has the meaning set forth in each Operative Document in which it appears.

     “IND-Enabling GLP Inhalation Toxicology Studies” means the pharmacokinetic and toxicology studies required for filing an IND.

     “Initial Development Budget” means the initial development budget prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Development Plan” means the initial development plan prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Holdings LLC Agreement” means the Agreement of Limited Liability Company of Holdings, dated October 24, 2006.

     “Initial Investors LLC Agreement” means the Agreement of Limited Liability Company of Investors, dated October 24, 2006.

     “Initial LLC Member” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Interest Certificate” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Investment Company Act” means the Investment Company Act of 1940, as amended.

     “Investment Overview” means the investment overview describing the transactions entered into pursuant to the Operative Documents.

     “Investment Policy” has the meaning set forth in Section 1(a)(vi) of the RRD Services Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

10.

     “Investors” means Symphony Allegro Investors LLC.

     “Investors LLC Agreement” means the Amended and Restated Agreement of Limited Liability Company of Investors dated as of the Closing Date.

     “IRS” means the U.S. Internal Revenue Service.

     “Key Personnel” means those Alexza Personnel listed on Schedule 6.5 to the Amended and Restated Research and Development Agreement, as such schedule may be updated from time to time by mutual agreement of the parties to the Amended and Restated Research and Development Agreement.

     “Know-How” means findings, discoveries, inventions, know-how, information, results and data of any type whatsoever, including without limitation, technical information, techniques, results of experimentation and testing, diagnostic and prognostic assays, specifications, databases, manufacturing processes or protocols, any and all laboratory, research, pharmacological, toxicological, analytical, quality control, pre-clinical and clinical data.

     “Knowledge” of Alexza, Symphony Allegro or Holdings, as the case may be, means the actual (and not imputed) knowledge of the executive officers or managing member of such Person without the duty of inquiry or investigation.

     “Law” means any law, statute, treaty, constitution, regulation, rule, ordinance, order or Governmental Approval, or other governmental restriction, requirement or determination, of or by any Governmental Authority.

     “License” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

     “Licensed Intellectual Property” means the Licensed Patent Rights and the Licensed Know-How.

     “Licensed Know-How” means any and all Know-How that is Controlled by Licensor on or after the Closing Date and prior to the unexercised expiration or termination of the Purchase Option that:

     (a) is necessary or useful to practice the inventions claimed in the Licensed Patent Rights; or

     (b) is a Symphony Allegro Enhancement;

     provided, however, that Licensed Know-How shall not include any Licensed Patent Rights or any Know-How for the manufacture of a Product, including Know-How associated with Product quality control or stability testing.

     “Licensed Patent Rights” means any and all patents and patent applications Controlled by Licensor that:

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

11.

     (a) are listed on Annex D of the Novated and Restated Technology License Agreement;

     (b) are reissues, continuations, divisionals, continuations-in-part, reexaminations, renewals, substitutes, extensions or foreign counterparts of the patents and patent applications described in (a) and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Know-How conceived and reduced to practice prior to such expiration or termination;

     (c) contain a claim that covers an invention disclosed in an invention disclosure listed on Annex D of the Novated and Restated Technology License Agreement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such invention;

     (d) contain a claim that covers a Symphony Allegro Enhancement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such Symphony Allegro Enhancement; or

     (e) contain a claim that covers a Development Product or the manufacture or use thereof and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Development Product-related Know-How conceived and reduced to practice prior to such expiration or termination.

     “Licensor” means Alexza.

     “Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Liquidating Event” has the meaning set forth in Section 8.01 of the Holdings LLC Agreement.

     “LLC Agreements” means the Initial Holdings LLC Agreement, the Holdings LLC Agreement, the Initial Investors LLC Agreement and the Investors LLC Agreement.

     “Loss” has the meaning set forth in each Operative Document in which it appears.

     “Loxapine” means: (a) loxapine and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Management Fee” has the meaning set forth in Section 6(a) of the RRD Services Agreement.

     “Management Services” has the meaning set forth in Section 1(a) of the RRD Services Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

12.

     “Manager” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, RRD in its capacity as manager of Symphony Allegro.

     “Manager Event” has the meaning set forth in Section 3.01(g) of the Holdings LLC Agreement.

     “Manufacturing Subcontracting Agreement” means a Subcontracting Agreement that is directly related to the manufacture of Product (including procurement of components and development of improved manufacturing methods) or the improvement of the Staccato Technology.

     “Material Adverse Effect” means, with respect to any Person, a material adverse effect on (i) the business, assets, property or condition (financial or otherwise) of such Person or, (ii) its ability to comply with and satisfy its respective agreements and obligations under the Operative Documents or, (iii) the enforceability of the obligations of such Person of any of the Operative Documents to which it is a party.

     “Material Subsidiary” means, at any time, a Subsidiary of Alexza having assets in an amount equal to at least 5% of the amount of total consolidated assets of Alexza and its Subsidiaries (determined as of the last day of the most recent reported fiscal quarter of Alexza) or revenues or net income in an amount equal to at least 5% of the amount of total consolidated revenues or net income of Alexza and its Subsidiaries for the 12-month period ending on the last day of the most recent reported fiscal quarter of Alexza.

     “Medical Discontinuation Event” means a series of adverse events, side effects or other undesirable outcomes that, when collected in a Program, would cause a reasonable FDA Sponsor to discontinue such Program.

     “Membership Interest” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, the meaning set forth in the Holdings LLC Agreement.

     “NASDAQ” means the Nasdaq Stock Market, Inc.

     “NDA” means a New Drug Application, as defined in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

     “Non-Alexza Capital Transaction” means any (i) sale or other disposition of all or part of the Symphony Allegro Shares or all or substantially all of the operating assets of Symphony Allegro, to a Person other than Alexza or an Affiliate of Alexza or (ii) distribution in kind of the Symphony Allegro Shares following the unexercised expiration or termination of the Purchase Option.

     “Novated and Restated Technology License Agreement” means the Novated and Restated Technology License Agreement, dated as of the Closing Date, among Alexza, Symphony Allegro and Holdings.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

13.

     “Operative Documents” means, collectively, the Indemnification Agreement, the Holdings LLC Agreement, the Purchase Option Agreement, the Warrant Purchase Agreement, the Registration Rights Agreement, the Subscription Agreement, the Technology License Agreement, the Novated and Restated Technology License Agreement, the RRD Services Agreement, the Research and Development Agreement, the Research Cost Sharing and Extension Agreement, the Amended and Restated Research and Development Agreement, the Confidentiality Agreement, and each other certificate and agreement executed in connection with any of the foregoing documents.

     “Organizational Documents” means any certificates or articles of incorporation or formation, partnership agreements, trust instruments, bylaws or other governing documents.

     “Partial Stock Payment” has the meaning set forth in Section 3(a)(iii) of the Purchase Option Agreement.

     “Party(ies)” means, for each Operative Document or other agreement in which it appears, the parties to such Operative Document or other agreement, as set forth therein. With respect to any agreement in which a provision is included therein by reference to a provision in another agreement, the term “Party” shall be read to refer to the parties to the document at hand, not the agreement that is referenced.

     “Payment Terms” has the meaning set forth in Section 8.2 of the Amended and Restated Research and Development Agreement.

     “Percentage” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Investments” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

     “Personnel” of a Party means such Party, its employees, subcontractors, consultants, representatives and agents.

     “Prime Rate” means the quoted “Prime Rate” at JPMorgan Chase Bank or, if such bank ceases to exist or is not quoting a base rate, prime rate reference rate or similar rate for United States dollar loans, such other major money center commercial bank in New York City selected by the Manager.

     “Products” means an AZ-002 Product and/or an AZ-004 Product.

     “Profit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Programs” means the AZ-002 Program and/or the AZ-004 Program.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

14.

     “Program-Specific Claim” means any claim in a patent or patent application in the Licensed Patent Rights that is directed exclusively to AZ-002 Products and/or AZ-004 Products.

     “Program-Specific Patents” means any and all Licensed Patent Rights that contain at least one Program-Specific Claim.

     “Protocol” means a written protocol that meets the substantive requirements of Section 6 of the ICH Guideline for Good Clinical Practice as adopted by the FDA, effective May 9, 1997, and is included within the Development Plan or later modified or added to the Development Plan pursuant to the Amended and Restated Research and Development Agreement.

     “Public Companies” has the meaning set forth in Section 5(e) of the Purchase Option Agreement.

     “Purchase Option” has the meaning set forth in Section 1(a) of the Purchase Option Agreement.

     “Purchase Option Agreement” means the Purchase Option Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Purchase Option Closing” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Closing Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Commencement Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Option Exercise Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Exercise Notice” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Offset Amount” shall mean, following the termination of the Amended and Restated Research and Development Agreement by Alexza pursuant to Section 17.3 thereof, those unpaid amounts actually owed to Alexza as a result of the material breach or default of any payment obligation of Symphony Allegro to Alexza pursuant to the Amended and Restated Research and Development Agreement by Symphony Allegro or Holdings that was the basis for such termination of the Amended and Restated Research and Development Agreement by Alexza.

     “Purchase Option Period” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Price” has the meaning set forth in Section 2(b) of the Purchase Option Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

15.

     “QA Audits” has the meaning set forth in Section 6.6 of the Amended and Restated Research and Development Agreement.

     “Quarterly Price” has the meaning set forth in Section 2(b)(i) of the Purchase Option Agreement.

     “Registration Rights Agreement” means the Registration Rights Agreement dated as of the Closing Date, between Alexza and Holdings.

     “Registration Statement” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

     “Regulatory Allocation” has the meaning set forth in Section 3.06 of the Holdings LLC Agreement.

     “Regulatory Authority” means the United States Food and Drug Administration, or any successor agency in the United States, or any health regulatory authority(ies) in any other country that is a counterpart to the FDA and has responsibility for granting registrations or other regulatory approval for the marketing, manufacture, storage, sale or use of drugs in such other country.

     “Regulatory Files” means any IND, NDA or any other filings filed with any Regulatory Authority with respect to the Programs.

     “Representative” of any Person means such Person’s shareholders, principals, directors, officers, employees, members, managers and/or partners.

     “Research Cost Sharing and Extension Agreement” means the Research Cost Sharing and Extension Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Research and Development Agreement” means the Research and Development Agreement dated as of the Closing Date, between Alexza and Holdings.

     “RRD” means RRD International, LLC, a Delaware limited liability company.

     “RRD Indemnified Party” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Loss” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Personnel” has the meaning set forth in Section 1(a)(ii) of the RRD Services Agreement.

     “RRD Services Agreement” means the RRD Services Agreement between Symphony Allegro and RRD, dated as of the Closing Date.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

16.

     “Schedule K-1” has the meaning set forth in Section 9.02(a) of the Holdings LLC Agreement.

     “Scheduled Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Scientific Discontinuation Event” has the meaning set forth in Section 4.2(c) of the Amended and Restated Research and Development Agreement.

     “SCP” means Symphony Capital Partners, L.P., a Delaware limited partnership.

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Selling Stockholder Questionnaire” has the meaning set forth in Section 4(a) of the Registration Rights Agreement.

     “Shareholder” means any Person who owns any Symphony Allegro Shares.

     “Solvent” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “SSP” means Symphony Strategic Partners, LLC, a Delaware limited liability company.

     “Staccato Technology” means Alexza’s proprietary technology for the vaporization of a pharmaceutical composition via rapid-heating to form a condensation aerosol that allows rapid systemic drug delivery to humans through lung inhalation.

     “Stock Payment Date” has the meaning set forth in Section 2 of the Subscription Agreement.

     “Stock Purchase Price” has the meaning set forth in Section 2 of the Subscription Agreement.

     “Subcontracting Agreement” means (a) any written agreement between Alexza and a third party pursuant to which the third party performs any Alexza Obligations or (b) any work order, change order, purchase order or the like entered into pursuant to Section 6.2(b) of the Amended and Restated Research and Development Agreement.

     “Sublicense Obligations” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Sublicensed Intellectual Property” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Subscription Agreement” means the Subscription Agreement between Symphony Allegro and Holdings, dated as the Closing Date.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

17.

     “Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

     “Surviving Entity” means the surviving legal entity which is surviving entity to Alexza after giving effect to a Change of Control.

     “Symphony Allegro” means Symphony Allegro, Inc., a Delaware corporation.

     “Symphony Allegro Auditors” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Symphony Allegro Board” means the board of directors of Symphony Allegro.

     “Symphony Allegro By-laws” means the By-laws of Symphony Allegro, as adopted by resolution of the Symphony Allegro Board on the Closing Date.

     “Symphony Allegro Charter” means the Amended and Restated Certificate of Incorporation of Symphony Allegro, dated as of the Closing Date.

     “Symphony Allegro Director Event” has the meaning set forth in Section 3.01(h)(i) of the Holdings LLC Agreement.

     “Symphony Allegro Enhancements” means any and all Know-How, whether or not patentable, that is made by or on behalf of Symphony Allegro during the Term, including Know-How generated or derived by RRD and assigned to Symphony Allegro pursuant to Section 12 of the RRD Services Agreement.

     “Symphony Allegro Equity Securities” means the Common Stock and any other stock or shares issued by Symphony Allegro.

     “Symphony Allegro Loss” has the meaning set forth in Section 10(b) of the RRD Services Agreement.

     “Symphony Allegro Shares” has the meaning set forth in Section 2.02 of the Holdings LLC Agreement.

     “Symphony Capital” means Symphony Capital LLC, a Delaware limited liability company.

     “Symphony Fund(s)” means Symphony Capital Partners, L.P., a Delaware limited partnership, and Symphony Strategic Partners, LLC, a Delaware limited liability company.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

18.

     “Tangible Materials” means any tangible technical, medical, regulatory or marketing documentation, whether written or electronic, existing as of the Closing Date or made by or on behalf of Symphony Allegro during the Term, that (a) is Controlled by the Licensor and (b) embodies or relates solely to the Regulatory Files (other than Drug Master Files), Exiting Products or the Programs; provided, however, that Tangible Materials shall not include any manufacturing-related documentation or any documentation related to Licensed Intellectual Property.

     “Tax Amount” has the meaning set forth in Section 4.02 of the Holdings LLC Agreement.

     “Technology License Agreement” means the Technology License Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Term” has the meaning set forth in Section 4(b)(iii) of the Purchase Option Agreement, unless otherwise stated in any Operative Document.

     “Territory” means the world.

     “Third Party IP” has the meaning set forth in Section 2.9 of the Novated and Restated Technology License Agreement.

     “Third Party Licensor” means a third party from which Alexza has received a license or sublicense to Licensed Intellectual Property.

     “Transaction Event” has the meaning set forth in Section 6.05 of the Warrant Purchase Agreement.

     “Transfer” has for each Operative Document in which it appears the meaning set forth in such Operative Document.

     “Transferee” has, for each Operative Document in which it appears, the meaning set forth in such Operative Document.

     “Voluntary Bankruptcy” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Warrant Closing” has the meaning set forth in Section 2.03 of the Warrant Purchase Agreement.

     “Warrant Date” has the meaning set forth in Section 2.02 of the Warrant Purchase Agreement.

     “Warrant Purchase Agreement” means the Warrant Purchase Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Warrant Shares” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

19.

     “Warrant Surrender Price” has the meaning set forth in Section 7.08 of the Warrant Purchase Agreement.

     “Warrants” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

20.

ANNEX B

SYMPHONY ALLEGRO, INC.

DEVELOPMENT COMMITTEE CHARTER

     Purpose

     The Development Committee (the “Development Committee”) is established by Symphony Allegro, Inc. (“Symphony Allegro”) to oversee a clinical development plan (the “Development Plan”) and a development budget (the “Development Budget”) for the Programs (each as defined in that certain Novated and Restated Technology License Agreement (“TLA”), dated as of December 1, 2006, among Symphony Allegro, Alexza Pharmaceuticals, Inc. (“Alexza”) and Symphony Allegro Holdings LLC (“Holdings”, and together with Alexza, the “Parties” and each a “Party”), and to develop and commercialize the AZ-002 Product and the AZ-004 Product (each as defined in the TLA). Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in Annex A to the Amended and Restated Research and Development Agreement, dated as of December 1, 2006, among Symphony Allegro, Holdings and Alexza.

     Composition

     1. The Development Committee shall initially have six (6) members, and shall at all times have an even number of members and consist of an equal number of members designated by each Party (the “Development Committee Members”). Each Party may bring additional employees or representatives to each meeting as non-voting observers, but only if such employees or representatives are bound by confidentiality obligations at least as stringent as those described in the Confidentiality Agreement. The size and composition of the Development Committee provided herein may not be changed without the consent of both Holdings and Alexza.

     2. One-half (1/2) of the Development Committee Members shall be designated by Alexza and one-half (1/2) shall be designated by Holdings.

     3. Each Development Committee Member shall have the requisite background, experience and training to carry out the duties and obligations of the Development Committee. Development Committee Members need not be directors of Symphony Allegro, Holdings or Alexza.

     4. The chair of the Development Committee shall be, initially, James V. Cassella, Ph.D., the Senior Vice President, Research and Development, of Alexza, and any succeeding chair shall be such person as may be appointed to the position of Senior Vice President, Research and Development, of Alexza (or an equivalent successor position) (the “Chair”). If Alexza wishes to appoint a Chair other than the then-current Senior Vice President, Research and Development, of Alexza (or the holder of an equivalent successor position), then such appointment shall require the consent of the Symphony Allegro Board; provided, that (x) if the

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex B-1

Symphony Allegro Board shall have less than five (5) members, the unanimous consent of all the members of the Symphony Allegro Board shall be required, or (y) if the Symphony Allegro Board shall have five (5) members, an affirmative vote of at least three-fifths (3/5ths) of the members of the Symphony Allegro Board shall be required.

     5. By written notice to Alexza, Holdings may remove or replace one or more Development Committee Members designated by Holdings. By written notice to Holdings, Alexza may remove or replace one or more Development Committee Members designated by Alexza.

     Operations

     6. The Development Committee shall meet once per month during the Term, unless and until the Development Committee determines that such meetings should occur once per quarter (in either case, each a “Scheduled Meeting”). Scheduled Meetings may be held in person or by teleconference when appropriate. Each of Holdings and Alexza shall be solely responsible for the costs associated with its employees and/or representatives attending and participating in such Scheduled Meetings. In addition, any two (2) Development Committee Members may jointly call for an ad hoc meeting of the Development Committee to be held by teleconference at any time during regular business hours, by giving the other members of the Development Committee advance written notice of at least [ * ] (each, an “Ad Hoc Meeting”). An Ad Hoc Meeting may be called to address any time-sensitive matter, including additional expenditure requests pursuant to Section 8.3 of the Amended and Restated Research and Development Agreement or Section 2 of the RRD Services Agreement.

     7. The Chair shall, in consultation with other Development Committee Members and the management of Symphony Allegro, develop and set the Development Committee’s agenda for each Scheduled Meeting. The Chair shall include on such agenda each item requested by a Development Committee member at least [ * ] before the applicable Scheduled Meeting. The agenda and information concerning the business to be conducted at each Scheduled Meeting shall be communicated in writing to the Development Committee Members at least [ * ] in advance of such Scheduled Meeting to permit meaningful review. Such an agenda shall not be required for an Ad Hoc Meeting.

     8. Each Party’s Development Committee Members shall collectively have three (3) votes, regardless of the number of its Development Committee Members participating in any Scheduled Meeting or Ad Hoc Meeting. No votes shall be taken unless there is at least one (1) Development Committee Member representing each of Alexza and Holdings participating in such Scheduled Meeting or Ad Hoc Meeting, as the case may be. Each Party may allocate its three (3) votes among its attending Development Committee Members in any manner, at such Party’s discretion. If only one (1) Development Committee Member is attending on behalf of a given Party, such Development Committee Member may cast all the votes allocated to such Party. Unless otherwise specified herein, all actions taken by the Development Committee as a committee shall be by majority vote. If the Development Committee Members reach a deadlock

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex B-2

on any vote, then such deadlock shall be resolved in accordance with Paragraph 11 of this Development Committee Charter.

     9. Notwithstanding anything herein to the contrary, during the Term, this Development Committee Charter may be amended only with the unanimous approval of the Development Committee Members and the consent of the Symphony Allegro Board, Holdings and Alexza.

     10. The Chair, or such person as the Chair may designate, shall prepare, and distribute to all Development Committee Members, draft committee minutes within a reasonable period of time following each Scheduled Meeting or Ad Hoc Meeting. As part of the agenda of the first Scheduled Meeting, the Development Committee Members shall agree upon a standard procedure for review and approval of such draft committee minutes by the Development Committee Members.

     11. If the Development Committee is unable to decide by a majority vote on any issue within the scope of its authority and duties, then the Development Committee shall promptly raise such issue to the chief executive officer (or equivalent officer) of Alexza and the chairman of the Symphony Allegro Board. The chief executive officer and chairman shall have [ * ] to mutually agree on how to resolve such issue. If such parties are unable to resolve such issue within the [ * ] period, then such issue shall be brought to the Symphony Allegro Board, and the Symphony Allegro Board shall promptly resolve such issue, which resolution shall be binding on Holdings and Alexza.

     Authority and Duties

     12. The Development Committee shall, using the Initial Development Plan and the Initial Development Budget as a basis, continue to develop and refine the Development Plan and Development Budget, and shall, at the request of the Symphony Allegro Board, submit each to the Symphony Allegro Board at the first meeting of the Symphony Allegro Board, as provided in Section 4.1 of the Amended and Restated Research and Development Agreement. Following the Symphony Allegro Board’s review, the Development Committee shall work diligently to incorporate the comments generated by such review in order to update the Development Plan and Development Budget as soon as practicable and shall then submit the updated Development Plan and Development Budget to the Symphony Allegro Board for review. The Development Committee shall thereafter continue to develop and refine the Development Plan and the Development Budget as needed, and shall conduct a comprehensive review of each on a semi-annual basis. In addition, the Development Committee shall decide on any other matters relating to the Development Plan and the Development Budget that may arise, including (i) responding to requests from RRD or Alexza for amendments to the Development Plan and/or the Development Budget, and (ii) addressing all other matters that are identified in the Operative Documents or the Symphony Allegro Charter as requiring the approval of the Development Committee (including, but not limited to, the approval of any new, or the amendment or termination of any existing, Development Subcontracting Agreement). Unless otherwise approved pursuant to Paragraph 11 hereof, or discontinued or modified pursuant to Sections 4.2(c) or 5.1 of the Amended and

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex B-3

Restated Research and Development Agreement, no material change to the Development Plan or Development Budget will be adopted by Symphony Allegro unless and until the Development Committee approves such change.

     13. The Development Committee shall report at least quarterly to the Symphony Allegro Board regarding progress relative to the Development Plan and the Development Budget, and any changes in the Development Plan and/or Development Budget, and shall respond promptly to any reasonable requests for additional information made by the Symphony Allegro Board. The Development Committee shall also submit its material decisions regarding the Development Plan and Development Budget to the Symphony Allegro Board, including regulatory strategies and discontinuation or modification of the Programs.

     14. The Development Committee shall continuously evaluate the funding requirements of the Programs, and may, in the event of a shortfall in the funds allocated to one or more Programs, and subject to the approval of the Symphony Allegro Board, reallocate funds within the Development Budget to compensate for such shortfall.

     The foregoing list of duties is not exhaustive, and the Development Committee may, in addition, perform such other functions as may be necessary or appropriate for the performance of its duties and the furtherance of the development of Programs, including as may be required under any Operative Document. In no event shall the Development Committee have the power to amend any of the Operative Documents. The Development Committee shall have the power to delegate its authority and duties to sub-committees as it deems appropriate; provided, however, that each such sub-committee shall have at least one (1) Development Committee Member who is designated by Holdings and at least one (1) Development Committee Member who is designated by Alexza.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex B-4

ANNEX C

INITIAL DEVELOPMENT PLAN AND INITIAL DEVELOPMENT BUDGET

{See attached.}

[ * ]

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex C-1

ANNEX D

{Intentionally Omitted}

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex D-1

ANNEX E

PAYMENT TERMS

     1. With respect to the development activities and services provided by Alexza pursuant to this Agreement, and in accordance with the terms of this Agreement, the Development Plan and the Development Budget, Alexza will invoice Symphony Allegro, and Symphony Allegro will pay Alexza, as follows:

          (a) fees for any development activities or services for which billings and/or payment provisions are specified within other sections of this Agreement shall be billed and paid in accordance with such sections of this Agreement,

          (b) an annual fee of [ * ], paid in equal monthly installments, for activities and services to be provided by Alexza Key Personnel in connection with preparation for, and attendance at, Development Committee meetings, and other activities associated with the oversight and management of the development activities by Alexza pursuant to this Agreement; provided however, that there shall be no FTE allocation or reimbursement with respect to activities and services provided by such Alexza Key Personnel, and

          (c) fees for any other development activities and services by non-senior management Alexza personnel and out-of-pocket fees, associated personnel costs, expenses and pass-through costs actually incurred by Alexza or Alexza personnel in performing the development activities and services pursuant to this Agreement, which fees, personnel costs, expenses and pass-through costs have been estimated in the Development Budget, as such Development Budget may be modified upon approval of the Development Committee, shall be invoiced by Alexza to Symphony Allegro following the end of the month in which such development activities and services were performed or such out-of-pocket fees, personnel costs, expenses or pass-through costs incurred, and shall be paid by Symphony Allegro within [ * ] of receipt of a valid invoice from Alexza, and

          (d) fees for any manufacturing-related activities shall be:

               (i) for Clinical Trial Material and devices produced in Design Verification Testing (DVT), [ * ]; and

               (ii) for all other devices (including DVT and DCT production runs), direct cost of all components plus FTE costs associated with such manufacture, quality testing, etc.

     2. Alexza’s monthly invoices must include receipts, third party invoices or other reasonable documentation for all fees, personnel costs, expenses and pass-through costs of Alexza and Alexza personnel. Personnel costs in item 1(c) shall be reimbursed at an annual fully burdened FTE rate of [ * ]. Alexza’s invoices not in accordance with the requirements of this section may incur delays in payment. Alexza shall not charge any administrative fees to

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex E-1

Symphony Allegro in connection with any fees, personnel costs (other than as set forth in item 1(b) of this Annex E), expenses or pass-through costs.

     3. All fees, personnel costs, expenses and pass-through costs will be payable in US Dollars. If Symphony Allegro disputes in good faith any portion of an invoice, then Symphony Allegro shall pay the undisputed amounts as set forth in the preceding sentence and the parties shall use good faith efforts to reconcile the disputed amount as soon as practicable.

     4. Alexza will transmit invoices to Symphony Allegro at the following address:

Symphony Allegro, Inc.
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Accounts Payable

     5. All payments to Alexza shall be sent to Alexza, as follows:

If mailed:	Alexza Pharmaceuticals, Inc.
	1020 East Meadow Circle
	Palo Alto, CA 94303
	Attn: Accounts Receivable

If wired:	Name of bank:	[ * ]
	Bank number:	[ * ]
	Routing number:	[ * ]
	Alexza account number:	[ * ]
	Bank address:	[ * ]
		[ * ]
		[ * ]
		[ * ]

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Annex E-2

SCHEDULE 6.2

SUBCONTRACTING AGREEMENTS

1.                [ * ]

Development Agreement between Alexza and Autoliv ASP, Inc. dated October 3, 2005.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCHEDULE 6.5

ALEXZA KEY PERSONNEL

[ * ]

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCHEDULE 12.1(f)

MATERIAL DISCLOSED CONTRACTS

Development Agreement between Alexza and Autoliv ASP, Inc. dated October 3, 2005.

[ * ]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EX-10.30

Exhibit 10.30

EXECUTION COPY

REGISTRATION RIGHTS AGREEMENT

between

ALEXZA PHARMACEUTICALS, INC.

and

SYMPHONY ALLEGRO HOLDINGS LLC

Dated as of December 1, 2006

Table of Contents

Section		Page
Section 1.	Definitions		1
Section 2.	Registration		2
Section 3.	Related Obligations		4
Section 4.	Obligations of the Investor(s)		7
Section 5.	Expenses of Registration		8
Section 6.	Indemnification		8
Section 7.	Contribution		13
Section 8.	Reports Under The Exchange Act		13
Section 9.	Assignment of Registration Rights		13
Section 10.	Amendment		14
Section 11.	Miscellaneous		14

Exhibit A — Form of Selling Stockholder Questionnaire

i 

REGISTRATION RIGHTS AGREEMENT

          REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of December 1, 2006, by and between ALEXZA PHARMACEUTICALS, INC., a Delaware corporation (“Alexza”), and SYMPHONY ALLEGRO HOLDINGS LLC, a Delaware limited liability company (together with its permitted successors, assigns and transferees, “Holdings”).

RECITALS:

          WHEREAS, in connection with the exercise by Alexza of the Purchase Option under the Purchase Option Agreement, by and among Alexza, Holdings and Symphony Allegro, Inc., a Delaware corporation (“Symphony Allegro”), of even date herewith (the “Purchase Option Agreement”), Alexza may elect to issue shares of Alexza’s common stock, par value $0.0001 per share (“Alexza Common Stock”) (such shares of Alexza Common Stock when and if issued, the “Purchase Option Shares”) to Holdings in partial payment of the Purchase Price in accordance with the terms of the Purchase Option Agreement;

          WHEREAS, in connection with the Warrant Purchase Agreement by and between the parties hereto of even date herewith (the “Warrant Purchase Agreement”), Alexza has agreed, upon the terms and subject to the conditions of the Warrant Purchase Agreement, to issue and sell on the date hereof to Holdings certain warrants (the “Warrants”) which will be exercisable to purchase shares of Alexza Common Stock (such shares of Alexza Common Stock as exercised, the “Warrant Shares”) in accordance with the terms of the Warrants; and

          WHEREAS, to induce Holdings to execute and deliver the Purchase Option Agreement and the Warrant Purchase Agreement, Alexza has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws with respect to the Purchase Option Shares;

          NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Alexza and Holdings (the “Parties”) hereby agree as follows:

          Section 1. Definitions.

     (a) Capitalized terms used but not defined herein are used as defined in the Purchase Option Agreement (including Annex A thereto).

     (b) As used in this Agreement, the following terms shall have the following meanings:

     (i) “Effective Registration Date” means the date that the Registration Statement (as defined below) is first declared effective by the SEC.

Registration Rights Agreement

     (ii) “Investor(s)” means Holdings, any transferee or assignee thereof to whom Holdings assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.

     (iii) “Purchase Option Related Registrable Securities” means (i) the Purchase Option Shares, and (ii) any Alexza Common Stock issued with respect to the Purchase Option Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise.

     (iv) “register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the Securities Act and pursuant to Rule 415, and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.

     (v) “Registrable Securities” means, collectively, the Warrant Related Registrable Securities and the Purchase Option Related Registrable Securities; provided, however, that such securities will cease to be Registrable Securities on the earlier of (A) the date as of which the Investor(s) may sell such securities without restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the Securities Act, or (B) the date on which the Investor(s) shall have sold all such securities.

     (vi) “Registration Statement” means a registration statement or registration statements of Alexza filed under the Securities Act covering the Registrable Securities.

     (vii) “Rule 144” has the meaning set forth in Section 8 of this Agreement.

     (viii) “Rule 415” means Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis.

     (ix) “Warrant Related Registrable Securities” means (i) the Warrant Shares issued or issuable upon exercise of the Warrants; and (ii) any shares of capital stock issued or issuable with respect to the Warrant Shares or the Warrants as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, and in the case of the Warrants, without regard to any limitations on exercise.

          Section 2. Registration.

     (a) Right to Registration.

     (i) Purchase Option Related Registration. In the event Alexza elects to exercise the Purchase Option as set forth in the Purchase Option

Registration Rights Agreement

2

Agreement, and in so doing elects to issue Purchase Option Related Registrable Securities, Alexza shall prepare and, in accordance with Section 2(a)(ii)(B) of the Purchase Option Agreement, file with the SEC a Registration Statement on Form S-3 covering the resale of the Purchase Option Related Registrable Securities. The Registration Statement prepared pursuant hereto shall register for resale that number of shares of Alexza Common Stock equal to the number of Purchase Option Related Registrable Securities as would be issued pursuant to the terms of the Purchase Option Agreement. Alexza shall use commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable following the Purchase Option Exercise Date.

     (ii) Warrant Related Registration. Alexza shall prepare, and, as soon as practicable but in no event later than one hundred and eighty (180) days after the Closing Date, file with the SEC a Registration Statement on Form S-3 covering the resale of all of the Warrant Related Registrable Securities. The Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Alexza Common Stock equal to the number of Warrant Related Registrable Securities as of the trading day immediately preceding the date the Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 2(c). Alexza shall use commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable following the Closing Date.

          (b) Ineligibility for Form S-3. In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, Alexza shall (i) register the resale of the Registrable Securities on another appropriate form reasonably acceptable to Holdings (which acceptable forms shall include Form S-1) (in the case of the resale of Purchase Option Related Registrable Securities, in accordance with Section 2(a)(ii)(B) of the Purchase Option Agreement); and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available; provided that Alexza shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC.

          (c) Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities required to be covered by such Registration Statement, Alexza shall amend the applicable Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least 100% of the number of such Registrable Securities as of the trading day immediately preceding the date of the filing of such amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after Alexza becomes aware of the necessity therefor. Alexza shall use commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed “insufficient to cover all of the Registrable Securities” if at any time the number of shares of Alexza Common Stock available for resale under such

Registration Rights Agreement

3

Registration Statement is less than the number of Registrable Securities. The calculation set forth in the foregoing sentence shall be made without regard to any limitations on the exercise of the Warrants and such calculation shall assume that the Warrants are then exercisable into shares of Alexza Common Stock.

          Section 3. Related Obligations. At such time as Alexza is obligated to file a Registration Statement with the SEC pursuant to Section 2(a), (b) or (c), Alexza will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto (except at such times as Alexza may be required to suspend the use of a prospectus forming a part of the Registration Statement pursuant to Section 3(1), at which time Alexza’s obligations under Sections 3(a), (b), (c), (d), (i) and (k) may also be suspended, as required), Alexza shall have the following obligations:

     (a) Alexza shall keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investor(s) may sell all of the Registrable Securities covered by such Registration Statement without restriction pursuant to Rule 144(k) (or successor thereto) promulgated under the Securities Act, or (ii) the date on which the Investor(s) shall have sold all the Registrable Securities covered by such Registration Statement (the “Registration Period”).

     (b) Alexza shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of Alexza covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of Alexza filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Exchange Act, Alexza shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for Alexza to amend or supplement such Registration Statement.

     (c) Alexza shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one (1) copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, and each preliminary prospectus; (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request); and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to

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time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

     (d) Alexza shall use commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by Investor(s) of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as Investor(s) reasonably request; (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period; and (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period; provided, however, that Alexza shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. Alexza shall promptly notify each Investor who holds Registrable Securities of the receipt by Alexza of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

     (e) Alexza shall notify each Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, subject to Section 3(l) hereof, promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission. Alexza shall also promptly notify each Investor in writing when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective.

     (f) Alexza shall use commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment.

     (g) In the event that any Investor is deemed to be an “underwriter” with respect to the Registrable Securities, upon the written request of such Investor in connection with such Investor’s due diligence requirements, if any, Alexza shall make available for inspection by (i) such Investor, and (ii) any legal counsel, accountants or other agents retained by the Investor (collectively, “Inspectors”), all pertinent financial and other records, and pertinent corporate documents and properties of Alexza (collectively, “Records”), as shall be reasonably deemed necessary by each

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Inspector, and cause Alexza’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector and such Investor shall agree in writing to hold in strict confidence and shall not make any disclosure (except with respect to an Inspector, to the relevant Investor) or use of any Record or other information which Alexza determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction. Each Investor agrees that it shall, upon learning that disclosure of such Records is required or is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to Alexza and allow Alexza, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between Alexza and any Investor) shall be deemed to limit the Investor(s)’ ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

     (h) Alexza shall hold in confidence and not make any disclosure of information concerning an Investor provided to Alexza unless (i) disclosure of such information is necessary to comply with federal or state securities laws or the rules of any securities exchange or trading market on which the Alexza Common Stock is listed or traded, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, or (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction. Alexza agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

     (i) Alexza shall use commercially reasonable efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by Alexza are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by a Registration Statement on the NASDAQ Global Market. Alexza shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(i).

     (j) Alexza shall cooperate with the Investor(s) who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor(s) may reasonably request and registered in such names as the Investor(s) may request.

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          (k) If requested by an Investor, Alexza shall (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as an Investor reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering and (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment.

          (l) Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the SEC, Alexza may delay or suspend the effectiveness of any Registration Statement or the use of any prospectus forming a part of the Registration Statement due to the non-disclosure of material, non-public information concerning Alexza the disclosure of which at the time is not, in the good faith opinion of Alexza, in the best interest of Alexza (a “Grace Period”); provided, that Alexza shall promptly notify the Investor(s) in writing of the existence of a Grace Period in conformity with the provisions of this Section 3(l) and the date on which the Grace Period will begin (such notice, a “Commencement Notice”); and, provided further, that no Grace Period shall exceed thirty (30) consecutive days, and such Grace Periods shall not exceed an aggregate total of ninety (90) days during any three hundred sixty five (365) day period. For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date specified by Alexza in the Commencement Notice and shall end on and include the date the Investor(s) receive written notice of the termination of the Grace Period by Alexza (which notice may be contained in the Commencement Notice). The provisions of Section 3(f) hereof shall not be applicable during any Grace Period. Upon expiration of the Grace Period, Alexza shall again be bound by the first sentence of Section 3(e) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, Alexza shall cause its transfer agent to deliver unlegended shares of Alexza Common Stock to a transferee of an Investor in accordance with the terms of the Warrant Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale, and delivered a copy of the prospectus included as part of the applicable Registration Statement, prior to the Investor’s receipt of the notice of a Grace Period and for which the Investor has not yet settled.

                    Section 4. Obligations of the Investor(s).

          (a) At least seven (7) Business Days prior to the first anticipated filing date of a Registration Statement, Alexza shall notify each Investor in writing of the information Alexza requires from each such Investor if such Investor elects to have any of such Investor’s Registrable Securities included in such Registration Statement and provide each such Investor with a copy of Alexza’s then-current selling stockholder questionnaire (a copy of which is attached hereto as Exhibit A hereto, a “Selling Stockholder Questionnaire”). It shall be a condition precedent to the obligations of Alexza to complete the registration pursuant to this Agreement with respect to the

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Registrable Securities of a particular Investor that such Investor shall furnish to Alexza a completed Selling Stockholder Questionnaire, along with such other information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as may reasonably be required to effect the effectiveness of the registration of such Registrable Securities, and shall execute other such documents in connection with such registration as Alexza may reasonably request.

     (b) Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with Alexza as reasonably requested by Alexza in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified Alexza in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from such Registration Statement.

     (c) Each Investor agrees that, upon receipt of any notice from Alexza of the happening of any event of the kind described in Section 3(f) or the first sentence of Section 3(e), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by the second sentence of Section 3(e) or receipt of notice that no supplement or amendment is required.

     (d) Each Investor covenants and agrees that it will comply with any applicable prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

          Section 5. Expenses of Registration. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3 hereof, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for Alexza shall be paid by Alexza. All underwriting discounts and selling commissions applicable to the sale of the Registrable Securities shall be paid by the Investor(s), provided, however, that Alexza shall reimburse the Investor(s) for the reasonable actual fees and disbursements of one legal counsel designated by the holders of at least a majority of the Registrable Securities in connection with registration, filing or qualification pursuant to Sections 2 and 3 of this Agreement, which amount shall be limited to $25,000 in total over the term of this Agreement.

          Section 6. Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement:

     (a) To the fullest extent permitted by law, Alexza will, and hereby does, indemnify and hold harmless each Investor, the directors, officers, partners, members, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities Act or the Exchange Act (each, an “Investor Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”), incurred in

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investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an Indemnified Person is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject to the extent that such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the Effective Registration Date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if Alexza files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading; (iii) any violation or alleged violation by Alexza of any federal, state or common law, rule or regulation applicable to Alexza in connection with any Registration Statement, prospectus or any preliminary prospectus, any amendment or supplement thereto, or the issuance of any Registrable Securities to Holdings; or (iv) any material violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”). Subject to Section 6(c), Alexza shall reimburse the Investor Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (A) shall not apply to a Claim by an Investor Indemnified Person arising out of or based upon a Violation that occurs in reliance upon and in conformity with information furnished in writing to Alexza by or on behalf of any such Investor Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto if such information was timely made available by Alexza pursuant to Section 3(c); (B) with respect to any preliminary prospectus, shall not inure to the benefit of any such Person from whom the Person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any Person controlling such Person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by Alexza pursuant to Section 3(d), and the Investor Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Investor Indemnified Person, notwithstanding such advice, used it or failed to deliver the correct prospectus as required by the Securities Act and such correct prospectus was timely made available pursuant to Section 3(d); (C) shall not be available to the extent such Claim is based on a failure of the Investor Indemnified Person to deliver or to cause to be delivered the prospectus made available by Alexza,

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including a corrected prospectus, if such prospectus or corrected prospectus was timely made available by Alexza pursuant to Section 3(d); and (D) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of Alexza, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain full force and effect regardless of any investigation made by or on behalf of the Investor Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor(s) pursuant to Section 9.

     (b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, and hold harmless, to the same extent and in the same manner as is set forth in Section 6(a), Alexza, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls Alexza within the meaning of the Securities Act or the Exchange Act, and Alexza’s general counsel to the extent that such counsel delivers one or more legal opinions in conjunction with the preparation and filing of the Registration Statement (each, a “Company Indemnified Person”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to Alexza by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse, promptly as such expenses are incurred and are due and payable, any legal or other expenses reasonably incurred by a Company Indemnified Person in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or delayed; provided, further, however, that an Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Company Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor(s) pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Company Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

     (c) If either an Investor Indemnified Person or a Company Indemnified Person (an “Indemnified Person”) proposes to assert a right to be indemnified under this Section 6, such Indemnified Person shall notify either Alexza or the relevant Investor(s), as applicable (the “Indemnifying Person”), promptly after receipt of notice of commencement of any action, suit or proceeding against such Indemnified Person (an “Indemnified Proceeding”) in respect of which a Claim is to be made under

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this Section 6, or the incurrence or realization of any Indemnified Damages in respect of which a Claim is to be made under this Section 6, of the commencement of such Indemnified Proceeding or of such incurrence or realization, enclosing a copy of all relevant documents, including all papers served and claims made, but the omission to so notify the applicable Indemnifying Person promptly of any such Indemnified Proceeding or incurrence or realization shall not relieve (x) such Indemnifying Person from any liability that it may have to such Indemnified Person under this Section 6 or otherwise, except, as to such Indemnifying Person’s liability under this Section 6, to the extent, but only to the extent, that such Indemnifying Person shall have been prejudiced by such omission, or (y) any other Indemnifying Person from liability that it may have to any Indemnified Person under the Operative Documents.

     (d) In case any Indemnified Proceeding shall be brought against any Indemnified Person and it shall notify the applicable Indemnifying Person of the commencement thereof as provided by Section 6(c) and such Indemnifying Person shall be entitled to participate in, and provided such Indemnified Proceeding involves a claim solely for money damages and does not seek an injunction or other equitable relief against the Indemnified Person and is not a criminal or regulatory action, to assume the defense of, such Indemnified Proceeding with counsel reasonably satisfactory to such Indemnified Person, and after notice from such Indemnifying Person to such Indemnified Person of such Indemnifying Person’s election so to assume the defense thereof and the failure by such Indemnified Person to object to such counsel within ten (10) Business Days following its receipt of such notice, such Indemnifying Person shall not be liable to such Indemnified Person for legal or other expenses related to such Indemnified Proceedings incurred after such notice of election to assume such defense except as provided below and except for the reasonable costs of investigating, monitoring or cooperating in such defense subsequently incurred by such Indemnified Person reasonably necessary in connection with the defense thereof. Such Indemnified Person shall have the right to employ its counsel in any such Indemnified Proceeding, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless:

                         (i) the employment of counsel by such Indemnified Person at the expense of the applicable Indemnifying Person has been authorized in writing by such Indemnifying Person;

                         (ii) such Indemnified Person shall have reasonably concluded in its good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between the applicable Indemnifying Person and such Indemnified Person in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes of action available to such Indemnified Person (it being agreed that in any case referred to in this clause (ii) such Indemnifying Person shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Person);

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     (iii) the applicable Indemnifying Person shall not have employed counsel reasonably acceptable to the Indemnified Person, to assume the defense of such Indemnified Proceeding within a reasonable time after notice of the commencement thereof; provided, however, that (A) this clause (iii) shall not be deemed to constitute a waiver of any conflict of interest that may arise with respect to any such counsel, and (B) an Indemnified Person may not invoke this clause (iii) if such Indemnified Person failed to timely object to such counsel pursuant to the first paragraph of this Section 6(d) above (it being agreed that in any case referred to in this clause (iii) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); or

     (iv) any counsel employed by the applicable Indemnifying Person shall fail to timely commence or reasonably conduct the defense of such Indemnified Proceeding, and such failure has prejudiced (or is in immediate danger of prejudicing) the outcome of such Indemnified Proceeding (it being agreed that in any case referred to in this clause (iv) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

in each of which cases the fees and expenses of counsel for such Indemnified Person shall be at the expense of such Indemnifying Person. Only one counsel shall be retained by all Indemnified Persons with respect to any Indemnified Proceeding, unless counsel for any Indemnified Person reasonably concludes in good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between such Indemnified Person and one or more other Indemnified Persons in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes or action available to such Indemnified Person.

     (e) Without the prior written consent of such Indemnified Person, such Indemnifying Person shall not settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding, unless such settlement, compromise, consent or related judgment (i) includes an unconditional release of such Indemnified Person from all liability for Losses arising out of such claim, action, investigation, suit or other legal proceeding, (ii) provides for the payment of money damages as the sole relief for the claimant (whether at law or in equity), (iii) involves no admission of fact adverse to such Indemnified Person or finding or admission of any violation of law or the rights of any Person by the Indemnified Person, and (iv) is not in the nature of a criminal or regulatory action. No Indemnified Person shall or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding (A) in respect of which any payment would result hereunder or under any other Operative Document, (B) which includes an injunction that will adversely affect any Indemnifying Person, (C) which involves an admission of fact adverse to any Indemnifying Person or finding or admission of any violation of law or the rights of any Person by the Indemnifying Person, or (D) which is in the nature of a criminal or regulatory action, without the prior written consent of the Indemnifying Person, such consent not to be unreasonably conditioned, withheld or delayed.

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     (f) The indemnification required by this Section 6 shall be made by periodic payments of the amount of Claims during the course of the investigation or defense, as and when Indemnified Damages are incurred.

          Section 7. Contribution. To the extent any indemnification by an Indemnifying Person is prohibited or limited by law, such Indemnifying Person agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning Section 11(f) of the Securities Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.

          Section 8. Reports Under The Exchange Act. With a view to making available to the Investor(s) the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor(s) to sell securities of Alexza to the public without registration (“Rule 144”), Alexza agrees to use commercially reasonable efforts to:

     (a) make and keep public information available, as those terms are understood and defined in Rule 144;

     (b) file with the SEC in a timely manner all reports and other documents required of Alexza under the Securities Act and the Exchange Act so long as Alexza remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

     (c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by Alexza, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of Alexza and such other reports and documents so filed by Alexza, and (iii) such other information as may be reasonably requested to permit the Investor(s) to sell such securities pursuant to Rule 144 without registration.

          Section 9. Assignment of Registration Rights. The rights under this Agreement with respect to the Warrant Related Registrable Securities shall be automatically assignable by the Investor(s) to any transferee of all or at least 30,000 shares of such Investor’s Registrable Securities (or if an Investor shall hold less than 30,000 such shares, then a transfer of all such shares) if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to Alexza within a reasonable time after such assignment; (ii) Alexza is, within a reasonable time after such transfer or assignment, furnished with written notice of (A) the name and address of such transferee or assignee, and (B) the securities with

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respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws; (iv) at or before the time Alexza receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with Alexza to be bound by all of the provisions contained herein and has provided Alexza with a completed Selling Stockholder Questionnaire; and (v) such transfer shall have been made in accordance with the applicable transfer requirements set forth in Article VI of the Warrant Purchase Agreement.

          Section 10. Amendment.

     (a) The terms of this Agreement shall not be altered, modified, amended, waived or supplemented in any manner whatsoever except by a written instrument signed by each of (i) Alexza and (ii) Investor(s) holding a majority of the Registrable Securities (other than in the case of any alteration, modification, amendment, waiver or supplement which affects any individual Investor in a manner that is less favorable or more detrimental to such Investor than to the other Investor(s) solely based on the face of such alteration, modification, amendment, waiver or supplement and without regard to the number of Registrable Securities held by such Investor, in which case, such alteration, modification, amendment, waiver or supplement must also be approved by such less favorably or more detrimentally treated Investor).

     (b) Notwithstanding Section 10(a), any party hereto may waive, solely with respect to itself, any one or more of its rights hereunder without the consent of any other party hereto; provided that no such waiver shall be effective unless set forth in a written instrument executed by the party against whom such waiver is to be effective.

          Section 11. Miscellaneous.

     (a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If Alexza receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, Alexza shall act upon the basis of instructions, notice or election received from the such record owner of such Registrable Securities.

     (b) Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing addressed to the Party at its address set forth below and shall be deemed given (i) when delivered to the Party personally, (ii) if sent to the Party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 11(b)), when the transmitting Party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving Party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day

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delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail, when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by return receipt:

If to Alexza:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn: August J. Moretti
Fax: (650) 687-3999

with a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Fax: (650) 849-7400

If to Holdings:

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Robert L. Smith, Jr.
Fax: (301) 762-6154

with a copy to:

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Fax: (212) 632-5401

and

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Fax: (212) 632-5401

or to such other address as such party may from time to time specify by notice given in the manner provided herein to each other party entitled to receive notice hereunder.

Registration Rights Agreement

15

     (c) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York; except to the extent that this Agreement pertains to the internal governance of Holdings, and to such extent this Agreement shall be governed and construed in accordance with the laws of the State of Delaware.

     (d) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court, any Delaware State court or federal court of the United States of America sitting in the City of New York, Borough of Manhattan or Wilmington, Delaware, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court, any such Delaware State court or, to the fullest extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement.

     (e) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court, or any Delaware State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereby consent to service of process by mail.

     (f) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

     (g) Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments hereto) constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior and contemporaneous agreements, correspondence, discussion and understandings with respect to such matters between the parties hereto, excluding the Operative Documents.

     (h) Successors; Assignment; Counterparts.

          (i) Nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any Person, other than the parties hereto,

Registration Rights Agreement

16

any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their successors and permitted assigns provided, however, that, subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

     (ii) This Agreement may be executed in one or more counterparts, each of which, when executed, shall be deemed an original but all of which taken together shall constitute one and the same Agreement.

     (i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

     (j) All consents and other determinations required to be made by the Investor(s) pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investor(s) holding at least a majority of the Registrable Securities.

[SIGNATURES FOLLOW ON NEXT PAGE]

Registration Rights Agreement

17

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers or other representatives thereunto duly authorized, as of the date first above written.

ALEXZA PHARMACEUTICALS, INC.
By:	/s/ August J. Moretti
	Name:	August J. Moretti
	Title:	Senior Vice President and Chief Financial Officer
SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P., its Manager
By:	Symphony Capital GP, L.P., its member
By:	Symphony GP, LLC, its member
By:	/s/ Mark Kessel
	Name:	Mark Kessel
	Title:	Managing Member

Registration Rights Agreement

EXHIBIT A

FORM OF SELLING STOCKHOLDER QUESTIONNAIRE

NOTICE

          The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby gives notice to Alexza Pharmaceuticals, Inc. (the “Company”) of its intention to sell or otherwise dispose of Registrable Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) pursuant to the Registration Statement, pursuant to the terms of the Registration Rights Agreement (the “Registration Rights Agreement”) dated as of December 1, 2006, by and between Alexza and Symphony Allegro Holdings LLC (“Holdings”). Capitalized terms used but not defined herein are used as defined in Registration Rights Agreement.

          The undersigned hereby gives notice to the Company of its intention to sell the Registrable Securities listed in Item 3 below, pursuant to the Registration Statement and, provides the following information to the Company and represents and warrants that such information is accurate and complete:

QUESTIONNAIRE

1. Full legal name of Selling Securityholder:                                         

(a)	Full legal name of registered holder of the Registrable Securities (if not the same as (a) above) through which Registrable Securities listed in Item 3 below are held:
(b)	Full legal name of DTC participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item 3 below are held:
(c)	Status (yes/no) of Selling Securityholder as a registered broker-dealer or an affiliate of a registered broker-dealer (please describe to the extent applicable):

2. Address for notices to Selling Securityholder:                                         

     Telephone:                                         

     Fax:                                         

     Contact Person:                                         

3. Beneficial Ownership of Registrable Securities:

(a)	Type and number of Registrable Securities beneficially owned:
(b)	CUSIP No(s). of such Registrable Securities beneficially owned:

Exhibit A to the
Registration Rights Agreement

4. Beneficial ownership of other securities of the Company owned by the Selling Securityholder.

     Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

(a)	Type and amount of other securities beneficially owned by the Selling Securityholder:
(b)	CUSIP No(s). of such other securities beneficially owned:

5. Relationships with the Company:

     Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% or more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

6. Plan of Distribution:

     Except as set forth below, the undersigned (including its donees, distributees or pledgees) intends to distribute the Registrable Securities listed above in Item 3 pursuant to the Registration Statement only as follows (if at all). Such Registrable Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters, broker-dealers or agents. If the Registrable Securities are sold through underwriters, broker-dealers or agents, the Selling Securityholder will be responsible for any related underwriting discounts or commissions or agents’ commissions. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may sell their shares by one or more of or a combination of the following methods: (i) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus; (ii) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (iii) block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (iv) an over-the-counter distribution in accordance with the rules of the Nasdaq Global Market; (v) in privately negotiated transactions; and (vi) in options transactions. The undersigned may also sell Registrable Securities short and

Exhibit A to the
Registration Rights Agreement

2

deliver Registrable Securities to close out short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.

State any exceptions here:

     Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Registrable Securities without the prior agreement of the Company.

     The undersigned acknowledges its obligation to comply with the provisions of the Exchange Act and the rules thereunder relating to stock manipulation, particularly Regulation M thereunder (or any successor rules or regulations), in connection with any offering of Registrable Securities pursuant to the Registration Rights Agreement. The undersigned agrees that neither it nor any person acting on its behalf will engage in any transaction in violation of such provisions.

     In the event that the Selling Securityholder transfers all or a portion of the Registrable Securities listed in Item 3 above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Questionnaire and the Registration Rights Agreement.

     The Selling Securityholder hereby acknowledges its obligations under the Registration Rights Agreement to indemnify and hold harmless certain persons as set forth therein.

     Pursuant to the Registration Rights Agreement, the Company has agreed under certain circumstances to indemnify the Selling Securityholder against certain liabilities.

     In accordance with the undersigned’s obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Registration Statement, the undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective, including, without limitation, any change in the undersigned’s beneficial ownership of Registrable Securities.

     All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing to the Selling Securityholder at the address set forth in Section 2 above, and to the Company at the address set forth below.

     By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 above and the inclusion of such

Exhibit A to the
Registration Rights Agreement

3

information in the Registration Statement and the related prospectus. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

     Once this Questionnaire is executed by the Selling Securityholder and delivered to the Company, the terms of this Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item 3 above). This Agreement shall be governed in all respects by the laws of the State of New York.

     IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:	Beneficial Owner:
	By:
	Name:
	Title:

PLEASE RETURN THE COMPLETED AND EXECUTED QUESTIONNAIRE
TO ALEXZA PHARMACEUTICALS, INC. AT:

1020 East Meadow Circle
Palo Alto, CA 94303
Attn: General Counsel

WITH A COPY TO:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.

Exhibit A to the
Registration Rights Agreement

4

EX-10.31

Exhibit 10.31

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

NOVATED AND RESTATED

TECHNOLOGY LICENSE AGREEMENT

dated as of December 1, 2006

among

ALEXZA PHARMACEUTICALS, INC.,

SYMPHONY ALLEGRO, INC.

and

SYMPHONY ALLEGRO HOLDINGS LLC

TABLE OF CONTENTS

	Page
ARTICLE 1 DEFINITIONS		1
ARTICLE 2 GRANT OF RIGHTS		1
2.1           Assignment		1
2.2           License Grant		2
2.3           Sublicense to Licensor		2
2.4           Right to Sublicense		2
2.5           Partial Reversion of License upon Licensor’s Exercise of Discontinuation Option		3
2.6           Reservation of Rights		3
2.7           Regulatory Files After Expiration or Termination of Term or Discontinuation Option		4
2.8           Delivery of Materials After Expiration or Termination of Term		5
2.9           License Opportunities		5
2.10         Separate Third Party License for Discontinued Program		6
2.11         Supply of Product After Expiration or Termination of Term		7
ARTICLE 3 SUBLICENSE TO CERTAIN THIRD PARTY INTELLECTUAL PROPERTY		8
3.1          Third Party Sublicense Payments		8
3.2           Sublicensed Intellectual Property		8
ARTICLE 4 INTELLECTUAL PROPERTY		9
4.1           Ownership		9
4.2           Marking		9
4.3           Prosecution and Maintenance		9
4.4           Abandonment		10
4.5           Infringement		10
4.6           Enforcement Right During Term		10
4.7           Post-Term Enforcement		12
4.8           Withdrawal of Enforcement		13
4.9           Recoveries		13
4.10         Enforcement For Other Activities		13
ARTICLE 5 REPRESENTATIONS AND WARRANTIES		13
5.1           Representations and Warranties of Licensor		13
5.2           Disclaimer and Acknowledgement		14
ARTICLE 6 INDEMNIFICATION AND LIMITATION OF LIABILITY		15

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

i 

6.1           Indemnity	15
6.2           Notice of Claims	16
6.3           Defense of Proceedings	16
6.4           Settlement	18
6.5           Limitation of Liability	18
6.6           Insurance	18
ARTICLE 7 TERM AND TERMINATION	18
7.1           Term	18
7.2           Termination	18
7.3           Survival	19
7.4           Bankruptcy	19
ARTICLE 8 MISCELLANEOUS	20
8.1           Notices	20
8.2           Entire Agreement	21
8.3           Assignment	21
8.4           Headings	21
8.5           Independent Contractor	22
8.6           Severability	22
8.7           No Third-Party Beneficiaries	22
8.8           Compliance with Laws	22
8.9           Amendment	22
8.10         Governing Law; Consent to Jurisdiction and Service of Process	22
8.11         WAIVER OF JURY TRIAL	23
8.12         Counterparts	23
8.13         No Waiver	23

ANNEX A DEFINITIONS

ANNEX B CERTAIN ROYALTY AND MILESTONE PAYMENTS

ANNEX C KEY SUPPLY AGREEMENT TERMS

ANNEX D LICENSED PATENT RIGHTS

SCHEDULE 2.2 CERTAIN RESTRICTIONS RELATING TO LICENSED INTELLECTUAL PROPERTY LICENSED TO LICENSOR BY A THIRD PARTY

SCHEDULE 5.1(a) REGULATORY FILES

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

ii 

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.31

NOVATED AND RESTATED
TECHNOLOGY LICENSE AGREEMENT

     This NOVATED AND RESTATED TECHNOLOGY LICENSE AGREEMENT (this “Agreement”) is made and effective as of December 1, 2006, by and among Alexza Pharmaceuticals, Inc., a Delaware corporation (the “Licensor”), Symphony Allegro, Inc., a Delaware corporation (“Symphony Allegro”) (each of Licensor and Symphony Allegro being a “Party,” and collectively, the “Parties”), and Symphony Allegro Holdings LLC, a Delaware limited liability company (“Holdings”).

     WHEREAS, Licensor and Holdings have entered into that certain Technology License Agreement, dated December 1, 2006 (the “Original Agreement”);

     WHEREAS, Holdings desires to assign its right, title and interest in, and delegate and novate its obligations under the Original Agreement to Symphony Allegro, and Licensor and Symphony Allegro desire to novate and restate the terms and conditions of the Original Agreement to effect such novation;

     WHEREAS, Licensor owns or has rights in certain technology, know-how, patents and other intellectual property rights related to the design, development, manufacture and/or use of the Products;

     WHEREAS, Licensor desires to grant to Symphony Allegro, and Symphony Allegro desires to acquire, the exclusive (or nonexclusive, as the case may be) right to use such technology, know-how, patents and other intellectual property rights to develop and commercialize Products on the terms and conditions of this Agreement; and

     WHEREAS, Licensor desires to receive, and Symphony Allegro desires to grant to Licensor, the exclusive right to use such technology, know-how, patents and other intellectual property rights to develop Products on behalf of Symphony Allegro on the terms and conditions of this Agreement.

     NOW THEREFORE, in consideration of the mutual promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

     Capitalized terms used herein and not defined shall have the meanings assigned to such terms in Annex A attached hereto.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.31

ARTICLE 2
GRANT OF RIGHTS

          2.1 Assignment. Holdings hereby assigns to Symphony Allegro all of its right, title and interest in and to the Original Agreement. The Parties agree that from and after the Closing Date, all of the right, title, interest and obligations of Holdings under the Original Agreement will be assigned, novated and transferred to, and assumed by, Symphony Allegro, as amended and restated by this Agreement.

          2.2 License Grant. Subject to Sections 2.3, 2.4, 2.5, 2.6 and 2.9 below, the limitations and restrictions set forth on Schedule 2.2, and the terms and conditions of this Agreement, Licensor hereby grants to Symphony Allegro a fully paid, worldwide, exclusive license, under the Licensed Intellectual Property, solely to develop, use, offer for sale, sell, and import (but not make or have made) Products.

          2.3 Sublicense to Licensor. Symphony Allegro hereby grants to Licensor a fully paid, worldwide, exclusive (even as to Symphony Allegro) sublicense under the Licensed Intellectual Property, with the right to grant further sublicense(s), to develop, use and import Products, or otherwise as necessary or useful to carry out Licensor’s obligations or exercise Licensor’s rights under the Operative Documents, including, without limitation, pursuant to Section 4.3 of the Amended and Restated Research and Development Agreement. Notwithstanding the foregoing, Licensor shall only exercise its sublicense rights in connection with and for the purpose of carrying out Licensor’s obligations or exercising Licensor’s rights under the Operative Documents, including, without limitation, pursuant to Section 4.3 of the Amended and Restated Research and Development Agreement. In the event of the expiration of a Discontinuation Option without exercise by Licensor, the sublicense set forth in this Section 2.3 shall expire with respect to the Products relating to the Program to which such Discontinuation Option pertained. Upon the expiration or termination of the Purchase Option without exercise by Licensor, the sublicense set forth in this Section 2.3 shall expire with respect to all Products relating to the Program(s) for which Licensor has not exercised the Discontinuation Option.

          2.4 Right to Sublicense. Subject to the limitations and restrictions set forth on Schedule 2.2, the license granted hereunder includes the right of Symphony Allegro to grant sublicenses under the Licensed Intellectual Property, provided, that:

               (a) subject to Sections 2.3 and 2.4(b), Symphony Allegro shall not sublicense any of the rights granted pursuant to Section 2.2 to any third party or any Affiliate during the Term;

               (b) notwithstanding (a), in the event of the expiration of a Discontinuation Option without exercise by Licensor, Symphony Allegro may grant, to third parties and Affiliates, sublicense(s) of the rights granted pursuant to Section 2.2 with respect to the Products relating to the Program to which such Discontinuation Option pertained;

2

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

               (c) each sublicense granted (i) is pursuant to a written contract, (ii) is consistent with the terms of this Agreement, (iii) does not grant any rights beyond the scope of the license rights granted herein, and (iv) is as protective of Licensor’s rights as set forth in this Agreement; and

               (d) upon Licensor’s written request, Symphony Allegro shall provide to Licensor copies of any sublicense agreements, provided that (i) Symphony Allegro may redact any financial or other proprietary information contained therein which does not affect Licensor’s rights and (ii) Licensor shall treat its copy of the sublicense agreements as Confidential Information of Symphony Allegro.

          2.5 Partial Reversion of License upon Licensor’s Exercise of Discontinuation Option. Licensor and Symphony Allegro acknowledge that Licensor may exercise its Discontinuation Option pursuant to Section 11 of the Amended and Restated Research and Development Agreement. Upon the Discontinuation Option Closing Date, as applicable, (i) the license set forth in Section 2.2 (and the corresponding sublicense under Section 2.3) shall expire with respect to the Products relating to the Program for which Licensor exercised its Discontinuation Option, as applicable; (ii) those patents, patent applications, Know-How and Symphony Allegro Enhancements that were previously part of the Licensed Intellectual Property and relate exclusively to such Program (including its Products) but not to the other Program, shall automatically cease to be Licensed Patent Rights or Licensed Know-How (as applicable), and accordingly, Symphony Allegro shall no longer be responsible for any obligations or costs (including royalties or fees to third parties, prosecution costs, maintenance costs and enforcement costs) accruing after such Discontinuation Option Closing Date with respect to such patents, patent applications, Know-How and Symphony Allegro Enhancements; and (iii) Symphony Allegro shall (a) at Licensor’s request and option, promptly return to Licensor or destroy all Tangible Materials relating solely to such Program; and (b) upon Licensor’s request, provide Licensor a copy of all Tangible Materials which relate to such Program (but not solely to such Program). The Parties shall, as necessary, promptly amend this Agreement, in connection with the exercise and consummation of the Discontinuation Option pursuant to Section 11 of the Amended and Restated Research and Development Agreement, to give Licensor all rights it needs to pursue the Program for which such option was exercised without any obligation to or dependency on Symphony Allegro and to limit this Agreement to the other Program.

          2.6 Reservation of Rights. All rights not expressly granted to a Party hereunder shall remain the exclusive property of the other Party. Symphony Allegro covenants and agrees not to use or exploit the Licensed Intellectual Property outside of the scope of the licenses granted herein. Licensor covenants and agrees not to use or exploit (a) the Licensed Intellectual Property or (b) for seven (7) years after the Closing Date, other intellectual property Controlled by Licensor on or after the Closing Date and prior to the unexercised expiration or termination of the Purchase Option, in each case (a) or (b) in connection with the development, use, manufacture, sale, or importation of Products after the expiration of all sublicenses granted pursuant to Section 2.3; provided, however, that such covenant by Licensor shall not apply (x) to any Program for which

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

3

Licensor exercises a Discontinuation Option, (y) to any Products relating to such Program or (z) to Licensor’s manufacture of Products pursuant to Section 2.11, the Operative Documents or an agreement between Licensor and Symphony Allegro or its sublicensee. For the avoidance of doubt, Licensor shall not be restricted from using or otherwise exploiting any Licensed Intellectual Property or other intellectual property relating to the Staccato Technology with respect to any product that is not a Product or any development, manufacture or use that is not part of a Program.

          2.7 Regulatory Files After Expiration or Termination of Term or Discontinuation Option.

               (a) As soon as reasonably practical after the expiration or termination of the Purchase Option without exercise by Licensor and as of a date to be agreed upon by Licensor and Symphony Allegro, Licensor and Symphony Allegro shall, at Symphony Allegro’s expense, take all actions necessary to effect the assignment to Symphony Allegro or its designee of the sponsorship to the Regulatory Files (except for any Drug Master Files) with respect to the Programs for which Licensor has not exercised its Discontinuation Option. After such Regulatory Files are assigned to Symphony Allegro, Licensor shall have no further rights therein or obligations thereunder; provided, however, that (i) Symphony Allegro shall have the right to reference any Drug Master File included in the Regulatory Files and (ii) during the one hundred eighty (180) days following such assignment of Regulatory Files, at Symphony Allegro’s reasonable request and expense, Licensor shall use commercially reasonable efforts to provide Symphony Allegro or its designee with assistance in respect of such Regulatory Files. Licensor shall, at the reasonable request of Symphony Allegro and at Symphony Allegro’s expense, perform any acts that Symphony Allegro may reasonably deem necessary or desirable to evidence or confirm Symphony Allegro’s ownership interest in such Regulatory Files, including, but not limited to, making further written assignments in a form determined by Symphony Allegro. Without limiting the license rights granted under this ARTICLE 2, the Parties understand and agree that the assignment of such Regulatory Files does not include an assignment of any Licensed Intellectual Property.

               (b) As soon as reasonably practical after the expiration of a Discontinuation Option without exercise by Licensor and as of a date to be agreed upon by Licensor and Symphony Allegro, Licensor and Symphony Allegro shall, at Symphony Allegro’s expense, take all actions necessary to effect the assignment to Symphony Allegro or its designee of the sponsorship to the Regulatory Files (except for Drug Master Files) with respect to the Program for which Licensor has not exercised its Discontinuation Option. After such Regulatory Files are assigned to Symphony Allegro, Licensor shall have no further rights therein or obligations thereunder; provided, however, that (i) Symphony Allegro shall have the right to reference any Drug Master File included in the Regulatory Files and (ii) during the one hundred eighty (180) days following such assignment of Regulatory Files, at Symphony Allegro’s reasonable request and expense, Licensor shall use commercially reasonable efforts to provide Symphony Allegro or its designee with assistance in respect of such Regulatory Files. Licensor shall, at the reasonable request of Symphony Allegro and at Symphony

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

4

Allegro’s expense, perform any acts that Symphony Allegro may reasonably deem necessary or desirable to evidence or confirm Symphony Allegro’s ownership interest in such Regulatory Files, including, but not limited to, making further written assignments in a form determined by Symphony Allegro. Without limiting the license rights granted under this ARTICLE 2, the Parties understand and agree that the assignment of such Regulatory Files does not include an assignment of any Licensed Intellectual Property.

          2.8 Delivery of Materials After Expiration or Termination of Term.

               (a) Upon the expiration or termination of the Purchase Option without exercise by Licensor, Licensor shall, at Symphony Allegro’s expense, promptly deliver to Symphony Allegro all copies of Tangible Materials existing as of the date of such unexercised expiration or termination that relate to the Programs for which Licensor has not exercised its Discontinuation Option; provided, however, that Licensor may also retain copies of (and the right to use) those Tangible Materials that are required to be delivered to Symphony Allegro hereunder but which also relate to (i) any Program for which Licensor has exercised its Discontinuation Option or (ii) any other product of Licensor.

               (b) In the event of the expiration of a Discontinuation Option without exercise by Licensor, Licensor shall, at Symphony Allegro’s expense, promptly deliver to Symphony Allegro all copies of Tangible Materials existing as of the date of such expiration that relate to the Program to which the Discontinuation Option pertained; provided, however, that Licensor may also retain copies of (and the right to use) those Tangible Materials that are required to be delivered to Symphony Allegro hereunder but which also relate to any other Program or any other product of Licensor.

               (c) Subsequent to any such expiration or termination of the Purchase Option without exercise by Licensor or expiration of a Discontinuation Option without exercise by Licensor, Licensor shall, upon reporting to the FDA, also promptly notify Symphony Allegro (and any subsequent partners, sublicensees or transferees of Symphony Allegro’s rights hereunder) regarding any safety or other related issues that relate to the Staccato Technology that Licensor reasonably determines may be relevant to a Product being developed by Symphony Allegro (or any such partner, sublicensee or transferee) hereunder, and if requested, provide access to the data supporting Licensor’s conclusions regarding such issues.

          2.9 License Opportunities. In the event that, during the Term, Licensor reasonably determines that it is necessary to license from any third party any intellectual property relating to the composition of matter, use, manufacture (including formulation) or exploitation of a Product (“Third Party IP”) and Licensor desires to license such Third Party IP during the Term, then (i) if Licensor desires Symphony Allegro to pay any or all of the financial obligations under such license, Licensor shall obtain Symphony Allegro’s written consent, which shall not be unreasonably withheld or delayed before acquiring such license; and (ii) if Symphony Allegro provides such consent, then unless otherwise agreed to by the Parties in writing or unless such Third Party IP pertains to the manufacture (including formulation) of a Product, Licensor shall

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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use commercially reasonable efforts to obtain, at the time such license is granted, the right to sublicense such Third Party IP to Symphony Allegro consistent with the terms of this Agreement as if such Third Party IP were Licensed Intellectual Property. Unless otherwise agreed to by the Parties in writing, the financial obligations under any license to Third Party IP obtained by Licensor with Symphony Allegro’s consent shall (1) be borne fully by Symphony Allegro if (A) such Third Party IP relates solely to the composition of matter, use, manufacture (including formulation) or exploitation of one or more Products or (B) such license is limited in scope to the composition of matter, use, manufacture (including formulation) or exploitation of one or more Products and, at the time of entering into such third party license, Licensor has not exercised its Discontinuation Option with respect to the Program to which such Third Party IP or license scope relates; or (2) be shared by the Parties in amounts and/or percentages to be agreed upon by the Parties prior to Licensor entering into such third party license, if such Third Party IP or the scope of such license relates (but does not relate solely) to the composition of matter, use, manufacture (including formulation) or exploitation of Products within Program(s) for which Licensor has not exercised its Discontinuation Option and also relates to either (x) the composition of matter, use, manufacture (including formulation) or exploitation of Products within Program(s) for which Licensor has exercised its Discontinuation Option or (y) the composition of matter, use, manufacture (including formulation) or exploitation of other products of Licensor; or (3) be borne fully by Licensor if such Third Party IP or the scope of such license relates solely to the composition of matter, use, manufacture (including formulation) or exploitation of Product(s) within a Program(s) for which Licensor has exercised its Discontinuation Option. Notwithstanding the foregoing, Licensor shall have no obligation to obtain any such third party licenses under this Agreement or, in the event that Symphony Allegro does not give such consent, to grant any sublicenses to Symphony Allegro or to otherwise provide the benefit of such licenses to Symphony Allegro. Upon obtaining a license to such Third Party IP and the right to sublicense to Symphony Allegro, the Parties will, as necessary, promptly amend this Agreement to include such sublicensed intellectual property within the license granted hereunder, incorporate any other limitations, royalties or other provisions required by such third party with respect to such sublicense, and address Symphony Allegro’s rights (if any) with respect to patent prosecution, maintenance and enforcement of patents and patent applications within such Third Party IP; provided, however, that this sentence shall not apply to any Third Party IP that pertains to the manufacture (including formulation) of a Product.

          2.10 Separate Third Party License for Discontinued Program. In the event of the expiration of a Discontinuation Option without exercise by Licensor, Symphony Allegro has the right to transfer to a third party Symphony Allegro’s rights to the Products relating to the Program to which such Discontinuation Option pertained (the “Discontinued Program”). If Symphony Allegro identifies a third party that wishes to obtain such rights, then upon Symphony Allegro’s request, (i) Licensor and Symphony Allegro shall amend this Agreement to terminate all of Symphony Allegro’s rights and obligations to the extent applicable to the Discontinued Program and (ii) Licensor shall enter into a separate license agreement with such third party in which all of such

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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terminated rights and obligations shall be conferred upon and undertaken by such third party. The terms and conditions of such license agreement shall be identical to those contained herein, to the extent that such terms are applicable to the Discontinued Program and not dependent on any Operative Document other than this Agreement. Such terms shall include but not be limited to (1) provisions allowing for termination of such license agreement upon a material, uncured breach of such license agreement by the third party on similar terms as provided herein with respect to Symphony Allegro and (2) a confidentiality provision that is not dependent on any of the Operative Documents. Termination of this Agreement shall not affect such license agreement and Licensor’s obligation to enter into such a license agreement shall survive termination of this Agreement.

          2.11 Supply of Product After Expiration or Termination of Term. In the event of expiration or termination of the Purchase Option without exercise by Licensor, Licensor shall provide and supply, or cause to be provided and supplied, to Symphony Allegro (as used in this Section 2.11, also including its successors in interest, sublicensees or transferees hereunder), finished dosage form of each Product, as and to the extent set forth in this Section 2.11 and Annex C.

               (a) Licensor shall supply Symphony Allegro’s requirements of finished dosage form of the relevant Exiting Product for the continued development (including clinical development) and commercialization of such Exiting Product pursuant to a separate supply agreement to be negotiated by and between Licensor and Symphony Allegro at the time of unexercised expiration or termination of the Purchase Option, which supply agreement shall contain the basic terms set forth in Annex C (the “Supply Agreement”). In addition, such Supply Agreement shall contain provisions pursuant to which Licensor shall supply services to Symphony Allegro with respect to the testing and quality assurance of such supplied Exiting Product.

               (b) To the extent Symphony Allegro desires to be supplied by Licensor with Symphony Allegro’s requirements of finished dosage form of Product other than the Exiting Product form of such Product (an “Other Product”), for the continued development (including clinical development) and commercialization of such Other Product, Licensor agrees to negotiate in good faith the terms of such supply pursuant to a separate supply agreement to be negotiated by and between Licensor and Symphony Allegro at the time of unexercised expiration or termination of the Purchase Option. Such supply agreement shall contain the basic terms set forth in Annex C, except that, to the extent the manufacture by or on behalf of Licensor of the finished dosage form of such Other Product requires the investment of capital for additional lines, facilities or other equipment or personnel in order to manufacture and supply such Other Product (the “Additional Manufacturing Costs”), Licensor and Symphony Allegro shall also negotiate commercially reasonable terms (the “Capital Recovery Terms”) pursuant to which Symphony Allegro shall fund such Additional Manufacturing Costs either by paying for such capital costs as they are incurred or by making an irrevocable commitment to purchase sufficient Other Product within three (3) years to cover such capital costs plus interest, in each case prorating such capital costs to the extent that

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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Alexza is reasonably anticipated to use such lines, facilities, equipment or personnel for other products. If Licensor and Symphony Allegro cannot agree as to the Capital Recovery Terms within forty-five (45) days after Licensor’s delivery to Symphony Allegro of written notice providing a detailed proposal for the Capital Recovery Terms, then at Symphony Allegro’s request, the Chief Executive Officer of Licensor and Chairman of the Symphony Allegro Board shall make good faith efforts to resolve the disagreement(s) regarding the Capital Recovery Terms. If the Chief Executive Officer of Licensor and Chairman of the Symphony Allegro Board do not agree to the Capital Recovery Terms within thirty (30) days after Symphony Allegro’s request, then such parties shall jointly select a nationally recognized expert in the field of pharmaceutical product supply to resolve any remaining disagreements regarding the Capital Recovery Terms. The Parties shall use their respective commercially reasonable efforts to cause such expert to make its determination of the Capital Recovery Terms within sixty (60) days of accepting its selection. The expert’s determination of the Capital Recovery Terms shall, absent manifest error, be (i) binding and conclusive and (ii) the Capital Recovery Terms for the supply agreement. All costs and expenses of the expert shall be shared equally between Licensor and Symphony Allegro. Notwithstanding the foregoing, in any case, each Party shall be responsible for the payment of its respective costs and expenses, including any attorneys’ fees. In addition, such supply agreement shall contain provisions pursuant to which Licensor shall supply, on commercially reasonable terms, services to Symphony Allegro with respect to the testing and quality assurance of such supplied Other Product.

ARTICLE 3
SUBLICENSE TO CERTAIN THIRD PARTY INTELLECTUAL PROPERTY

          3.1 Third Party Sublicense Payments. Unless otherwise agreed to by the Parties in writing, in the event that any Licensed Intellectual Property is licensed to Licensor by a third party and sublicensed to Symphony Allegro by Licensor hereunder, and Licensor is required to make any payments to the third party licensor of such Licensed Intellectual Property, (i) Symphony Allegro shall be responsible for the satisfaction of any payment owed to such third party licensor on account of the grant or maintenance of such sublicense to Symphony Allegro or the grant or maintenance of further sublicenses granted by Symphony Allegro; (ii) Symphony Allegro shall be responsible for the satisfaction of any royalty or milestone payment owed to such third party licensor on account of the development, manufacture, use, sale or other commercialization of any Product by or on behalf of Symphony Allegro or its sublicensees or transferees; and (iii) the Parties shall share, in amounts and/or percentages to be agreed upon by the Parties, any payment owed to such third party licensor that is only partially attributable to Symphony Allegro’s sublicense thereunder (including the practice of such sublicense). Notwithstanding the foregoing, with respect to agreements between Licensor and any third party licensor existing as of the Closing Date, Symphony Allegro’s obligations under this Section 3.1 for Products will be limited solely to those royalties and milestones set forth on Annex B.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          3.2 Sublicensed Intellectual Property. Symphony Allegro acknowledges (i) that certain Licensed Intellectual Property is licensed to Licensor by third parties and will be sublicensed to Symphony Allegro hereunder (the “Sublicensed Intellectual Property”) and (ii) that such sublicense is subject to certain restrictions and obligations set forth in the applicable written agreements between Licensor and such third parties (the “Sublicense Obligations”), including but not limited to those restrictions and obligations set forth on Schedule 2.2. Symphony Allegro agrees to either be bound by the Sublicense Obligations or forfeit the applicable sublicense of such Intellectual Property under Section 2.2; provided, however, that Symphony Allegro cannot use this Section 3.2 to avoid any Sublicense Obligation that has accrued prior to the date Symphony Allegro notifies Licensor in writing that it elects to forfeit the applicable sublicense.

ARTICLE 4
INTELLECTUAL PROPERTY

          4.1 Ownership. The Parties acknowledge and agree that, as between Licensor and Symphony Allegro, and subject to Schedule 2.2, Licensor or its licensors are the owners of all right, title and interest in and to the Licensed Intellectual Property, including without limitation Symphony Allegro Enhancements. Symphony Allegro hereby assigns to Licensor all of Symphony Allegro’s rights and interests in any Symphony Allegro Enhancements, including any rights in inventions made jointly by Licensor and Symphony Allegro. Symphony Allegro shall promptly disclose any Symphony Allegro Enhancement to Licensor, and shall use reasonable efforts, at Licensor’s request and at no cost to Licensor, to cooperate fully with Licensor to transfer such Symphony Allegro Enhancements to Licensor.

          4.2 Marking. Symphony Allegro shall mark, and shall cause all of its sublicensees to mark, all Products, or the packaging thereof or materials related thereto, with the number of the applicable patents licensed hereunder in accordance with applicable U.S. patent law.

          4.3 Prosecution and Maintenance.

               (a) Unless otherwise set forth in this Section 4.3, (i) Licensor shall prepare, file, prosecute and maintain those patents and patent applications in Licensed Patent Rights for which Licensor has patent prosecution and maintenance rights; and (ii) Licensor shall provide Symphony Allegro with (1) semiannual reports regarding the status of the prosecution and maintenance of Licensed Patent Rights, (2) access to any patent documents related to the Licensed Patent Rights as reasonably requested by Symphony Allegro, (3) copies of draft patent applications, and draft responses to substantive written office actions, pertaining to the Program-Specific Patents prior to filing in the United States so as to afford Symphony Allegro and its patent counsel, at Symphony Allegro’s expense, a reasonable opportunity to review and comment on such documents and (4) timely answers to Symphony Allegro’s reasonable

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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questions regarding the status of patents and patent applications in Licensed Patent Rights.

               (b) Licensor will use commercially reasonable efforts to seek the allowance of broad generic claims covering the Products consistent with Licensor’s determination of enforceability, business considerations and other factors.

               (c) Subject to a reasonable allocation of costs in the event that any Program-Specific Patent relates to Licensor’s business other than the Programs, the cost of the prosecution and maintenance of Program-Specific Patents shall be paid by Symphony Allegro. Upon the scope of any Licensed Patent Rights being amended so that the patent or patent application’s claims no longer cover any Product, such patent or patent application shall cease to be a Licensed Patent Right and all rights and obligations with respect to such patent or patent application (including the license set forth in Section 2.2 and costs, fees, prosecution, maintenance and enforcement) shall revert to Licensor.

               (d) Symphony Allegro shall not be responsible for the costs of any opposition, interference or reexamination initiated by Licensor with respect to the Program-Specific Patents (except to the extent allocated in the Development Budget), unless the Parties mutually agree in writing (i) that it is reasonably necessary or useful to file and prosecute such opposition, interference or reexamination in connection with such Program-Specific Patents to protect their interests in such Program-Specific Patents and (ii) to a reasonable allocation of costs in the event that any Program-Specific Patents relate to Licensor’s business other than the Programs, which agreement will not be unreasonably withheld or delayed. In the event, however, that (x) Symphony Allegro does not agree to pay such costs (or its share of costs as reasonably allocated as set forth above) of such opposition, interference or reexamination and (y) Licensor successfully files and prosecutes or settles such opposition, interference or reexamination at its sole cost, then the licenses granted by Licensor to Symphony Allegro in Section 2.2 herein shall immediately terminate with respect to the specific Program-Specific Patent that was the subject of such opposition, interference or reexamination.

               (e) Each Party shall provide the prosecuting Party with reasonable cooperation under this Section 4.3.

          4.4 Abandonment. Subject to the limitations and restrictions set forth on Schedule 2.2, Licensor shall not cancel a Program-Specific Claim or abandon a Program-Specific Patent without (a) expressly reserving the right to pursue the relevant Program-Specific Claim in a separate patent application or (b) requesting and obtaining the consent of Symphony Allegro. If Symphony Allegro does not provide such consent promptly upon Licensor’s request, then Licensor may (i) continue to prosecute such Program-Specific Claim in the patent application in which it is currently pending, or (ii) cancel such Program-Specific Claim in a manner that allows future prosecution of such claim and then propose such claim in a newly filed divisional or continuation application that Symphony Allegro may prosecute at its expense (including reimbursing Licensor for the costs associated with filing such divisional or continuation application) and in its discretion.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          4.5 Infringement. Each Party agrees to immediately notify the other Party upon becoming aware of any infringement, misappropriation, illegal use or misuse of the Licensed Intellectual Property in connection with Products and provide to the other Party all available evidence of such infringement.

          4.6 Enforcement Right During Term.

               (a) Except as provided in Section 4.6(c), during the Term, Licensor has the first right, but not the obligation, to take action against others in the courts, administrative agencies or otherwise to prevent, terminate or seek damages on account of infringement, misappropriation, illegal use or misuse of the Licensed Patent Rights or other Licensed Intellectual Property.

               (b) During the Term, Licensor has the first right, but not the obligation, to take action against others to prevent, terminate or seek damages on account of an Allegro Relevant Infringement. The costs and expenses of any such action shall be borne by Symphony Allegro to the extent the action relates to an Allegro Relevant Infringement; provided, that Symphony Allegro’s written consent was obtained prior to the initiation of such action, such consent not to be unreasonably withheld or delayed. Symphony Allegro shall, at its expense, cooperate with and reasonably assist Licensor in any such action if so requested by Licensor, and, upon Licensor’s request, execute, file and deliver all documents and proof necessary for such purpose, including being named as a party to such litigation if requested by Licensor or if required by Law. Symphony Allegro shall have the right to participate and be represented by its own counsel at its own expense in any such action, suit or proceeding with respect to Licensed Patent Rights solely relating to Products for which Licensor has not exercised the relevant Discontinuation Option provided that Symphony Allegro shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Licensed Patent Rights, other Licensed Intellectual Property or other intellectual property of Licensor without the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. Licensor shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Licensed Patent Rights or other Licensed Intellectual Property without the prior written consent of Symphony Allegro, which consent shall not be unreasonably withheld or delayed.

               (c) Subject to the limitations and restrictions set forth on Schedule 2.2, if, (1) during the Term, Symphony Allegro requests Licensor to take action pursuant to Section 4.6(b) with respect to an Allegro Relevant Infringement that solely involves the enforcement of a Program-Specific Patent, and (2) Licensor does not take such action within one hundred twenty (120) days of Symphony Allegro’s written request that Licensor take such action, then Symphony Allegro shall have the option to commence any such action under its own direction and control, and at Symphony Allegro’s cost and expense. Licensor shall, at Symphony Allegro’s expense, cooperate with and reasonably assist Symphony Allegro in any such action if so requested by Symphony Allegro, and, upon Symphony Allegro’s request, execute, file and deliver all

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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documents and proof necessary for such purpose, including being named as a party to such litigation if requested by Symphony Allegro or if required by Law. Licensor shall have the right to participate and be represented by its own counsel at its own expense in any such action, suit or proceeding with respect to one or more Program-Specific Patents provided that Licensor shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents without the prior written consent of Symphony Allegro, which consent shall not be unreasonably withheld or delayed. Symphony Allegro shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents or other intellectual property of Licensor without the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed.

          4.7 Post-Term Enforcement.

               (a) Following the expiration or termination of the Purchase Option without Licensor’s exercise of the Purchase Option, as between the Parties, and solely with respect to Program-Specific Patents, Symphony Allegro shall have the first right, but not the obligation, to take action against others, at Symphony Allegro’s cost and expense, to prevent, terminate or seek damages on account of an Allegro Relevant Infringement. Licensor shall, at Symphony Allegro’s expense, cooperate and reasonably assist Symphony Allegro in such action if so requested, and upon Symphony Allegro’s request, execute, file and deliver all documents and proof necessary for such purpose, including being named as a party to such litigation if requested by Symphony Allegro or if required by Law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense provided that Licensor shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents without the prior written consent of Symphony Allegro, which consent shall not be unreasonably withheld or delayed. Symphony Allegro shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents or other intellectual property of Licensor without the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed.

               (b) Following the expiration or termination of the Purchase Option without Licensor’s exercise of the Purchase Option, if Symphony Allegro does not take action under Section 4.7(a) within one hundred twenty (120) days of Licensor’s written request that Symphony Allegro take such action, then Licensor shall have the option to commence any such action under its own direction and control, and at Licensor’s cost and expense. Symphony Allegro shall, at Licensor’s expense, cooperate and reasonably assist Licensor in such action if so requested, and upon Licensor’s request, execute, file and deliver all documents and proof necessary for such purpose, including being named as a party to such litigation if requested by Licensor or if required by Law. Symphony Allegro shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense provided that Symphony Allegro shall not enter into any settlement or compromise of such action, suit or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents without the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. Licensor shall not enter into any settlement or compromise of such action, suit

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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or proceeding that affects or concerns the validity, enforceability, or ownership of any Program-Specific Patents without the prior written consent of Symphony Allegro, which consent shall not be unreasonably withheld or delayed.

               (c) Licensed Patent Rights. Except as set forth in Sections 4.7(a) and 4.7(b) above, following the unexercised expiration or termination of the Purchase Option, as between the Parties, Licensor shall have the sole right, but not the obligation, to take action against others in the courts, administrative agencies or otherwise, under Licensor’s direction and control and at Licensor’s cost and expense, to prevent, terminate or seek damages on account of infringement, misappropriation, illegal use or misuse of any Licensed Patent Rights, including but not limited to in connection with an Allegro Relevant Infringement; provided, however, that Licensor shall not unreasonably deny a request by Symphony Allegro that Licensor take such action with respect to an Allegro Relevant Infringement or delay taking such action with respect to an Allegro Relevant Infringement (without limiting the foregoing, Symphony Allegro agrees that the existence of facts that could result in the invalidation of the applicable Licensed Patent Rights would be a reasonable basis for Licensor’s refusal to take such action). Symphony Allegro shall, at Licensor’s expense, cooperate and reasonably assist Licensor in such action if so requested, and upon Licensor’s request, execute, file and deliver all documents and proof necessary for such purpose, including being named as a party to such litigation if requested by Licensor or if required by Law.

          4.8 Withdrawal of Enforcement. If either Party brings an action under this ARTICLE 4 with respect to an Allegro Relevant Infringement that solely involves infringement of one or more Program-Specific Patents and such Party subsequently ceases to pursue or withdraws from such action without resolution (which resolution may include the granting of a license by Licensor to such third party that does not violate Section 2.2 or Section 2.6 of this Agreement), such Party shall promptly notify the other Party and the other Party may, to the extent permitted by Law, substitute itself for the withdrawing party under the terms of this ARTICLE 4.

          4.9 Recoveries. All damages or other compensation of any kind recovered in such action, suit, or proceeding brought under this ARTICLE 4, or from any related settlement or compromise, shall first be used to reimburse each Party for its expenses in connection with such action, suit or proceeding (in proportion to the expenses of each Party if recovery is insufficient to cover all such expenses), and the remainder of such recovery shall be allocated 100% to the Party hereto taking the lead in the action, suit or proceeding.

          4.10 Enforcement For Other Activities. At all times, Licensor shall have the exclusive right, at its own cost and expense, to prevent or terminate infringement, misappropriation, illegal use or misuse of any Licensed Patent Rights or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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other Licensed Intellectual Property due to any activities other than the manufacture, use, sale or importation of a pharmaceutical product or device that delivers Alprazolam or Loxapine. Such enforcement activities may be taken in the sole discretion of Licensor, and any damages or other compensation of any kind recovered in such action, suit or proceeding or from any related settlement or compromise shall be retained by Licensor.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

          5.1 Representations and Warranties of Licensor. Licensor hereby represents and warrants to Symphony Allegro, that as of the Closing Date:

               (a) Subject to Section 3.2 and Schedule 2.2, Licensor is the exclusive owner of all right, title, and interest in and to (i) all Licensed Patent Rights listed on Annex D that are not identified as jointly owned or licensed from a third party and (ii) the Regulatory Files listed on Schedule 5.1(a);

               (b) Licensor has sufficient rights to grant the licenses granted hereunder and the grant of such licenses does not and will not conflict with any agreement to which Licensor is a party or otherwise governing the Licensed Intellectual Property and Licensor further represents and warrants that, on an ongoing basis throughout the Term, Licensor shall not enter into any agreement that will conflict with the rights and licenses granted to Symphony Allegro hereunder;

               (c) To the Knowledge of Licensor, there is no infringement or misappropriation by third parties of any Licensed Patent Rights or Licensed Know-How;

               (d) No Licensed Intellectual Property owned by Licensor and, to the Knowledge of Licensor, no Licensed Intellectual Property licensed to Licensor has been adjudged invalid or unenforceable, in whole or in part, and there is no pending or, to the Knowledge of Licensor, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Licensed Intellectual Property, and Licensor is unaware of any facts which would support any such claim; provided, that, with respect to patent number 7,090,830, the Company is in the process of amending the listing of the named inventors to include Alejandro C. Zaffaroni and Jeffrey McKinney;

               (e) To the Knowledge of Licensor, there is no pending or threatened action, suit, proceeding or claim by others that Licensor’s manufacture or development of the Products (in the form administered in clinical trials prior to the Closing Date) misappropriates or infringes any intellectual property rights of others; and

               (f) Except as set forth on Annex B, Symphony Allegro shall not be liable or otherwise obligated to pay royalties, milestone payments or other consideration pursuant to any license agreement that, as of the Closing Date, Licensor has with a third party licensor, on account of Symphony Allegro’s exploitation of the Licensed Intellectual Property (including Sublicensed Intellectual Property) or the development, manufacture, use, sale, or importation of Products hereunder (in the form

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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administered in clinical trials prior to the Closing Date) pursuant to the Initial Development Plan.

               (g) To the Knowledge of Licensor, the manufacture, use or sale of the Current Products by Symphony Allegro on the Closing Date in strict accordance with the licenses herein and other terms of this Agreement will not misappropriate or infringe the intellectual property rights of any third party. For the purposes of this Section 5.1(g), the “Current Products” are the AZ-002 Product being tested by Alexza in a phase IIa clinical trial as of the Closing Date and the AZ-004 Product being tested by Alexza in a phase IIa clinical trial as of the Closing Date.

          5.2 Disclaimer and Acknowledgement. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 5, THE LICENSED INTELLECTUAL PROPERTY, PRODUCTS, TANGIBLE MATERIALS AND REGULATORY FILES ARE PROVIDED “AS IS” WITH NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, AND LICENSOR EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR NON-INFRINGEMENT. LICENSOR DOES NOT WARRANT THE PERFORMANCE OF ANY PRODUCT, INCLUDING THEIR SAFETY, EFFECTIVENESS OR COMMERCIAL VIABILITY. ANY SYMPHONY ALLEGRO ENHANCEMENTS PROVIDED TO LICENSOR HEREUNDER ARE PROVIDED “AS IS” WITH NO REPRESENTATIONS OR WARRANTIES OF ANY KIND AND SYMPHONY ALLEGRO EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

ARTICLE 6
INDEMNIFICATION AND LIMITATION OF LIABILITY

          6.1 Indemnity. To the greatest extent permitted by applicable Law, Licensor shall indemnify and hold harmless Symphony Allegro, its Affiliates, and each of their respective officers, directors, employees, agents, members, managers, successors and assigns (each, a “Symphony Allegro Indemnified Party”) and Symphony Allegro shall indemnify and hold harmless Licensor, its Affiliates and each of their respective officers, directors, employees, agents, members, successors and assigns (each, a “Licensor Indemnified Party” and together with a Symphony Allegro Indemnified Party, the “Indemnified Parties”), from and against any and all claims, losses, costs, interest, awards, judgments, fees (including reasonable fees for attorneys and other professionals), court costs, liabilities, damages and expenses incurred by any Symphony Allegro Indemnified Party or Licensor Indemnified Party (irrespective of whether any such Symphony Allegro Indemnified Party or Licensor Indemnified Party, as applicable, is a party to the action for which indemnification hereunder is sought) (collectively, a

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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“Loss”), to the extent resulting from, arising out of, or relating to any and all third party suits, claims, actions, proceedings, investigations, litigation or demands based upon:

     (i) in the case of Licensor being the Indemnifying Party, (A) any breach of any representation or warranty made by Licensor herein or in any other Operative Document, (B) any breach of any covenant, agreement or obligation of Licensor contained herein, or in any other Operative Document, (C) any act of gross negligence or willful misconduct by Licensor in performing its obligations under this Agreement, or (D) the development, manufacture, use, handling, storage, sale or other disposition of any Product arising from a Program for which Licensor exercised a Discontinuation Option; in each case, except (1) with respect to Losses for which Licensor is entitled to indemnification under this ARTICLE 6 or (2) to the extent such Loss arises from the gross negligence or willful misconduct of a Symphony Allegro Indemnified Party, and

     (ii) in the case of Symphony Allegro being the Indemnifying Party, (A) any breach of any representation or warranty made by Symphony Allegro herein or in any other Operative Document, (B) any breach of any covenant, agreement or obligation of Symphony Allegro contained herein, or in any other Operative Document, (C) any act of gross negligence or willful misconduct by Symphony Allegro in performing its obligations under this Agreement, or (D) the development, manufacture, use, handling, storage, sale or other disposition of Products (other than those Products arising from a Program for which Licensor exercised a Discontinuation Option) after the end of the Term or the unexercised expiration of the Discontinuation Option to which such Product related; in each case, except (1) with respect to Losses for which Symphony Allegro is entitled to indemnification under this ARTICLE 6 or (2) to the extent such Loss arises from the gross negligence or willful misconduct of a Licensor Indemnified Party.

     To the extent that the foregoing undertakings by Licensor and/or Symphony Allegro may be unenforceable for any reason, such Party shall make the maximum contribution to the payment and satisfaction of any Loss that is permissible under applicable Law.

          6.2 Notice of Claims. Any Indemnified Party that proposes to assert a right to be indemnified under this ARTICLE 6 shall notify Licensor or Symphony Allegro, as applicable (the “Indemnifying Party”), promptly after receipt of notice of commencement of any action, suit or proceeding against such Indemnified Party (an “Indemnified Proceeding”) in respect of which a claim is to be made under this ARTICLE 6, or the incurrence or realization of any Loss in respect of which a claim is to be made under this ARTICLE 6, of the commencement of such Indemnified Proceeding or of such incurrence or realization, enclosing a copy of all relevant documents, including all papers served and claims made, but the omission so to notify the applicable Indemnifying Party promptly of any such Indemnified Proceeding or incurrence or realization shall not relieve (a) such Indemnifying Party from any liability that it may have to such Indemnified Party under this ARTICLE 6 or otherwise, except, as to such Indemnifying Party’s liability under this ARTICLE 6, to the extent, but only to the extent, that such Indemnifying Party shall have been prejudiced by such omission, or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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(b) any other indemnitor from liability that it may have to any Indemnified Party under the Operative Documents.

          6.3 Defense of Proceedings. In case any Indemnified Proceeding shall be brought against any Indemnified Party, it shall notify the applicable Indemnifying Party of the commencement thereof and such Indemnifying Party shall be entitled to participate in, and provided such Indemnified Proceeding involves a claim solely for money damages and does not seek an injunction or other equitable relief against the Indemnified Party and is not a criminal or regulatory action, to assume the defense of, such Indemnified Proceeding with counsel reasonably satisfactory to such Indemnified Party, and after notice from such Indemnifying Party to such Indemnified Party of such Indemnifying Party’s election so to assume the defense thereof and the failure by such Indemnified Party to object to such counsel within ten (10) Business Days following its receipt of such notice, such Indemnifying Party shall not be liable to such Indemnified Party for legal or other expenses related to such Indemnified Proceedings incurred after such notice of election to assume such defense except as provided below and except for the reasonable costs of investigating, monitoring or cooperating in such defense subsequently incurred by such Indemnified Party reasonably necessary in connection with the defense thereof. Such Indemnified Party shall have the right to employ its counsel in any such Indemnified Proceeding, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless:

               (a) the employment of counsel by such Indemnified Party at the expense of the applicable Indemnifying Party has been authorized in writing by such Indemnifying Party;

               (b) such Indemnified Party shall have reasonably concluded in its good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between the applicable Indemnifying Party and such Indemnified Party in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes of action available to such Indemnified Party (it being agreed that in any case referred to in this clause (b) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party);

               (c) the applicable Indemnifying Party shall not have employed counsel reasonably acceptable to the Indemnified Party, to assume the defense of such Indemnified Proceeding within a reasonable time after notice of the commencement thereof; provided, however, that (i) this clause shall not be deemed to constitute a waiver of any conflict of interest that may arise with respect to any such counsel, and (ii) an Indemnified Party may not invoke this clause (c) if such Indemnified Party failed to timely object to such counsel pursuant to the first paragraph of this Section 6.3 (it being agreed that in any case referred to in this clause (c) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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               (d) any counsel employed by the applicable Indemnifying Party shall fail to timely commence or reasonably conduct the defense of such Indemnified Proceeding, and such failure has prejudiced (or is in immediate danger of prejudicing) the outcome of such Indemnified Proceeding (it being agreed that in any case referred to in this clause (d) such Indemnifying Party shall not have the right to direct the defense of such Indemnified Proceeding on behalf of the Indemnified Party); in each of the cases set forth in clauses (a)-(d) the fees and expenses of counsel for such Indemnified Party shall be at the expense of such Indemnifying Party. Only one counsel shall be retained by all Indemnified Parties with respect to any Indemnified Proceeding, unless counsel for any Indemnified Party reasonably concludes in good faith (which conclusion shall be determinative unless a court determines that such conclusion was not reached reasonably and in good faith) that there is or may be a conflict of interest between such Indemnified Party and one or more other Indemnified Parties in the conduct of the defense of such Indemnified Proceeding or that there are or may be one or more different or additional defenses, claims, counterclaims, or causes of action available to such Indemnified Party.

          6.4 Settlement. Without the prior written consent of such Indemnified Party, such Indemnifying Party shall not settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding, unless such settlement, compromise, consent or related judgment (i) includes an unconditional release of such Indemnified Party from all liability for Losses arising out of such claim, action, investigation, suit or other legal proceeding, (ii) provides for the payment of money damages as the sole relief for the claimant (whether at law or in equity), (iii) involves no admission of fact adverse to the Indemnified Party or finding or admission of any violation of Law or the rights of any Person by the Indemnified Party, and (iv) is not in the nature of a criminal or regulatory action. No Indemnified Party shall settle or compromise, or consent to the entry of any judgment in, any pending or threatened Indemnified Proceeding (A) in respect of which any payment would result hereunder or under any other Operative Document, (B) which includes an injunction that will adversely affect the Indemnifying Party, (C) which involves an admission of fact adverse to the Indemnifying Party or a finding or admission of any violation of Law or the rights of any Person by the Indemnifying Party, (D) which is in the nature of a criminal or regulatory action, or (E) which admits the invalidity, misuse or unenforceability of a Licensed Patent Right, without the prior written consent of the Indemnifying Party, such consent not to be unreasonably conditioned, withheld or delayed.

          6.5 Limitation of Liability. TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, NEITHER PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, MEMBERS, MANAGERS, EMPLOYEES, INDEPENDENT CONTRACTORS OR AGENTS SHALL HAVE ANY LIABILITY OF ANY TYPE (INCLUDING, BUT NOT LIMITED TO, CLAIMS IN CONTRACT, NEGLIGENCE AND TORT LIABILITY) FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, THE LOSS OF OPPORTUNITY, LOSS OF USE OR LOSS OF REVENUE OR PROFIT IN CONNECTION WITH OR ARISING OUT OF THIS

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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AGREEMENT OR THE SERVICES PERFORMED HEREUNDER, EVEN IF SUCH DAMAGES MAY HAVE BEEN FORESEEABLE. THE FOREGOING SHALL NOT LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 6.1.

          6.6 Insurance. The Parties shall maintain insurance as set forth in Section 6.8 of the Amended and Restated Research and Development Agreement.

ARTICLE 7
TERM AND TERMINATION

          7.1 Term. This Agreement shall commence on the Closing Date and shall remain in force until terminated as provided herein.

          7.2 Termination.

               (a) Either Party may terminate this Agreement at any time if the other Party is in material default or breach of this Agreement that has resulted in, or would reasonably be expected to result in, a material adverse effect on the Programs or the non-breaching Party’s rights under the Operative Documents, and such material default or breach continues unremedied for a period of sixty (60) days after written notice thereof is delivered to the defaulting or breaching Party.

               (b) Licensor may terminate this Agreement at any time upon written notice to Symphony Allegro if (i) Holdings breaches Section 2 of the Subscription Agreement or (ii) Holdings or Symphony Allegro is in material default or breach of the Purchase Option Agreement that has resulted in, or would reasonably be expected to result in, a material adverse effect on Licensor’s rights under the Purchase Option Agreement and such default or breach is not cured within thirty (30) days after written notice of such default or breach under the Purchase Option Agreement is delivered to the defaulting or breaching party.

               (c) Licensor may terminate Symphony Allegro’s sublicense to a specific element of Sublicensed Intellectual Property if Symphony Allegro is in material default or breach of a Sublicense Obligation relating to such Sublicensed Intellectual Property and such material default or breach continues unremedied for a period of sixty (60) days (or such shorter cure period as may be stipulated in the applicable Sublicense Obligation) after written notice thereof is delivered to Symphony Allegro.

               (d) Upon any termination of this Agreement, all license rights granted herein (except for those rights granted in or pursuant to Section 2.5) shall immediately terminate.

          7.3 Survival. The following Sections and Articles shall survive any expiration or termination of this Agreement: Sections 2.10, 4.1, 5.2 and 7.3, and Articles 6 and 8.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          7.4 Bankruptcy. All rights and licenses granted under this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the “Code”), licenses to “Intellectual Property” as defined in the Code. The Parties agree that each Party shall retain and may fully exercise all of its rights and elections under the Code.

ARTICLE 8
MISCELLANEOUS

          8.1 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing addressed to the Party at its address set forth below and shall be deemed given (i) when delivered to the Party personally, (ii) if sent to the Party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 8.1), when the transmitting Party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving Party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail, when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by a return receipt:

          Licensor:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn: August J. Moretti
Facsimile: (650) 687-3999

          with a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Facsimile: (650) 849-7400

          Symphony Allegro:

Symphony Allegro, Inc.
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Charles W. Finn, Ph.D.
Facsimile: (301) 762-6154

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          with a copy to:

Symphony Capital Partners, L.P.
875 Third Avenue
18th Floor
New York, NY 10022
Facsimile: (212) 632-5401

          and

Symphony Strategic Partners, LLC
875 Third Avenue
18th Floor
New York, NY 10022
Facsimile: (212) 632-5401

or to such other address as such Party may from time to time specify by notice given in the manner provided herein to each other Party entitled to receive notice hereunder.

          8.2 Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments hereto) and the agreements referred to herein (including the Operative Documents) constitute the entire agreement between the Parties with respect to the subject matter hereof, and no oral or written statement may be used to interpret or vary the meaning of the terms and conditions hereof. This Agreement supersedes all prior and contemporaneous agreements, correspondence, discussion and understandings, whether written or oral, between the Parties with respect to the subject matter hereof, including the Original Agreement but excluding the Operative Documents.

          8.3 Assignment. Neither Party may assign or otherwise transfer this Agreement without the prior written consent of the other Party; provided, however, that (i) Licensor may assign this Agreement or any of its rights and obligations hereunder without the consent of Symphony Allegro (A) to an Affiliate or in connection with a merger or the sale of all or substantially all of the assets of Licensor to which this Agreement relates, or (B) to the Surviving Entity in the event Licensor undergoes a Change of Control in compliance with Article 14 of the Amended and Restated Research and Development Agreement, provided, however, the Licensed Patent Rights and Licensed Know-How shall not be construed, as a result of such assignment, to include any patent rights, know-how, trade secret, and other intellectual property that, prior to such Change of Control, were owned or Controlled by the Person (other than Licensor) involved in such Change of Control; and (ii) after expiration of the Term without Licensor’s exercise of the Purchase Option, Symphony Allegro may assign this Agreement to any Person without the prior, written consent of Licensor. Assignment of this Agreement by either Party shall not relieve the assignor of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

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          8.4 Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of the Agreement.

          8.5 Independent Contractor. Each Party shall be acting as an independent contractor in performing under this Agreement and shall not be considered or deemed to be an agent, employee, joint venturer or partner of the other Party.

          8.6 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

          8.7 No Third-Party Beneficiaries. Except with respect to certain indemnification obligations and liability limitations pursuant to ARTICLE 6, nothing in this Agreement, either express or implied, is intended to or shall confer upon any third party any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

          8.8 Compliance with Laws. In performing under this Agreement, each Party shall comply with all applicable Laws, rules and regulations, including without limitation the Federal Food, Drug, and Cosmetic Act and regulations promulgated pursuant thereto and the United States Export Administration Regulations.

          8.9 Amendment. This Agreement may not be amended or modified except by an instrument in writing signed by authorized representatives of Licensor and Symphony Allegro.

          8.10 Governing Law; Consent to Jurisdiction and Service of Process.

               (a) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York.

               (b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in The City of New York, Borough of Manhattan, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by Law, in such federal court. Each of the Parties agrees that a final judgment in any

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

22

such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Nothing in this Agreement shall affect any right that any Party may otherwise have to bring any action or proceeding relating to this Agreement.

               (c) Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

          8.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

          8.12 Counterparts. This Agreement may be executed in one or more counterparts, and by the respective Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same Agreement.

          8.13 No Waiver. The failure of either Party to enforce at any time for any period the provisions of or any rights deriving from this Agreement shall not be construed to be a waiver of such provisions or rights or the right of such Party thereafter to enforce such provisions.

     SIGNATURES FOLLOW ON NEXT PAGE

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

23

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above by their respective duly authorized officers.

SYMPHONY ALLEGRO, INC.
By:	/s/ Neil J. Sandler
	Name: Neil J. Sandler
	Title: Chairman of the Board
SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P.,
	its Manager
By:	Symphony Capital GP, L.P.,
	its Member
By:	Symphony Capital GP, LLC,
	its Member
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Member
ALEXZA PHARMACEUTICALS, INC.
By:	/s/ Thomas B. King
	Name: Thomas B. King
	Title: President and Chief Executive Officer

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.31

ANNEX A

CERTAIN DEFINITIONS

{See attached.}

Annex A-1

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

CERTAIN DEFINITIONS

     “$” means United States dollars.

     “Accredited Investor” has the meaning set forth in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.

     “Act” means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq.

     “Ad Hoc Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Additional Party” has the meaning set forth in Section 14 of the Confidentiality Agreement.

     “Additional Regulatory Filings” means such Governmental Approvals as required to be made under any law applicable to the purchase of the Symphony Allegro Equity Securities under the Purchase Option Agreement.

     “Adjusted Capital Account Deficit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Affected Member” has the meaning set forth in Section 27 of the Investors LLC Agreement.

     “Affiliate” means, with respect to any Person (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any officer, director, general partner, member or trustee of such Person, or (iii) any Person who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, managers, general partners, or persons exercising similar authority with respect to such Person or entities.

     “Alexza” means Alexza Pharmaceuticals, Inc., a Delaware corporation.

     “Alexza Accounting Advisor” means Ernst & Young LLP.

     “Alexza Common Stock” means the common stock, par value $0.0001 per share, of Alexza.

     “Alexza Common Stock Valuation” has the meaning set forth in Section 2(e) of the Purchase Option Agreement.

     “Alexza Obligations” has the meaning set forth in Section 6.1(a) of the Amended

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

and Restated Research and Development Agreement.

     “Alexza Personnel” has the meaning set forth in Section 8.4 of the Amended and Restated Research and Development Agreement.

     “Alexza Public Filings” means all publicly available filings made by Alexza with the SEC.

     “Alexza Subcontractor” means a third party that has entered into a Subcontracting Agreement with Alexza.

     “Allegro Relevant Infringement” means an infringement, misappropriation, illegal use or misuse of the Licensed Patent Rights or other Licensed Intellectual Property due to the manufacture, use, sale or importation of a pharmaceutical product or device that delivers Alprazolam (provided that Alexza has not exercised a Discontinuation Option for the AZ-002 Program) or Loxapine (provided that Alexza has not exercised a Discontinuation Option for the AZ-004 Program), as applicable.

     “Alprazolam” means: (a) alprazolam and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Amended and Restated Research and Development Agreement” means the Amended and Restated Research and Development Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Asset Value” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Auditors” means an independent certified public accounting firm of recognized national standing.

     “AZ-002 Product” means a pharmaceutical product in which Alprazolam is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-002 Program” means the development, manufacture and/or use of any AZ-002 Product in accordance with the Development Plan.

     “AZ-004 Product” means a pharmaceutical product in which Loxapine is the sole active ingredient and it is delivered using Staccato Technology.

     “AZ-004 Program” means the development, manufacture and/or use of any AZ-004 Product in accordance with the Development Plan.

     “Balance Sheet Deficiency” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Balance Sheet Deficiency Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Balance Sheet Deficiency Threshold” shall have the meaning set forth in Section 2(b) of the Research Cost Sharing and Extension Agreement.

     “Bankruptcy Code” means the United States Bankruptcy Code.

     “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York or the City of San Francisco are authorized or required by law to remain closed.

     “Capital Contributions” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

     “Cash Available for Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Chair” has the meaning set forth in Paragraph 4 of Annex B to the Amended and Restated Research and Development Agreement.

     “Change of Control” means and includes the occurrence of any of the following events, but specifically excludes (i) acquisitions of capital stock directly from Alexza for cash, whether in a public or private offering, (ii) sales of capital stock by stockholders of Alexza, and (iii) acquisitions of capital stock by or from any employee benefit plan or related trust:

     (a) the merger, reorganization or consolidation of Alexza into or with another corporation or legal entity in which Alexza’s stockholders holding the right to vote with respect to matters generally immediately preceding such merger, reorganization or consolidation, own less than fifty percent (50%) of the voting securities of the surviving entity; or

     (b) the sale of all or substantially all of Alexza’s assets or business.

     “Change of Control Put Option” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Change of Control Put Option Exercise Notice” has the meaning set forth in Section 2A of the Purchase Option Agreement.

     “Class A Member” means a holder of a Class A Membership Interest.

     “Class A Membership Interest” means a Class A Membership Interest in Holdings.

     “Class B Member” means a holder of a Class B Membership Interest.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Class B Membership Interest” means a Class B Membership Interest in Holdings.

     “Class C Member” means a holder of a Class C Membership Interest.

     “Class C Membership Interest” means a Class C Membership Interest in Holdings.

     “Class D Member” means a holder of a Class D Membership Interest.

     “Class D Membership Interest” means a Class D Membership Interest in Holdings.

     “Client Schedules” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Clinical Budget Component” has the meaning set forth in Section 4.1 of the Amended and Restated Research and Development Agreement.

     “Clinical Trial Material” means Product and placebo for administration to animals for pre-clinical testing or to humans for clinical testing.

     “Closing Date” means any time after the close of business in New York on December 1, 2006.

     “CMC” means the chemistry, manufacturing and controls documentation as required for filings with a Regulatory Authority relating to the manufacturing, production and testing of drug products.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Committed Capital” means $50,000,000.00.

     “Common Stock” means the common stock, par value $0.01 per share, of Symphony Allegro.

     “Company Expenses” has the meaning set forth in Section 5.09 of the Holdings LLC Agreement.

     “Company Property” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Confidential Information” has the meaning set forth in Section 2 of the Confidentiality Agreement.

     “Confidentiality Agreement” means the Confidentiality Agreement, dated as of the Closing Date, among Symphony Allegro, Holdings, Alexza, SCP, SSP, Investors, Symphony Capital and RRD, as such agreement may be amended or amended and restated from time to time.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Conflict Transaction” has the meaning set forth in Article X of the Symphony Allegro Charter.

     “Control” means, with respect to any material, information or intellectual property right, that a Party owns or has a license to such item or right, and has the ability to grant the other Party access, a license or a sublicense (as applicable) in or to such item or right as provided in the Operative Documents without violating the terms of any agreement or other arrangement with any third party.

     “Cross Program Expenses” are: (i) the Management Fee plus the Development Fee pursuant to Section 6(a) of the RRD Services Agreement; (ii) actual expenses associated with RRD carrying out its duties related to creating and maintaining the books of account, records, financial statements and audit and tax preparation for Symphony Allegro pursuant to Section 5 of the RRD Services Agreement; and (iii) actual expenses for insurance procured for Symphony Allegro pursuant to Section 1(a)(xi) of the RRD Services Agreement, reasonable legal expenses incurred on behalf of Symphony Allegro, and travel and miscellaneous out of pocket expenses of the Symphony Allegro Board, all as and to the extent reimbursable to RRD pursuant to Section 6(b) of the RRD Services Agreement.

     “Current Products” has the meaning set forth in Section 5.1(g) of thef Novated and Restated Technology License Agreement.

     “Debt” of any Person means, without duplication:

     (a) all indebtedness of such Person for borrowed money,

     (b) all obligations of such Person for the deferred purchase price of property or services (other than any portion of any trade payable obligation that shall not have remained unpaid for 91 days or more from the later of (A) the original due date of such portion and (B) the customary payment date in the industry and relevant market for such portion),

     (c) all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments,

     (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (whether or not the rights and remedies of the seller or lender under such agreement in an event of default are limited to repossession or sale of such property),

     (e) all Capitalized Leases to which such Person is a party,

     (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities,

     (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Equity Securities of such Person,

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     (h) the net amount of all financial obligations of such Person in respect of Hedge Agreements,

     (i) the net amount of all other financial obligations of such Person under any contract or other agreement to which such Person is a party,

     (j) all Debt of other Persons of the type described in clauses (a) through (i) above guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and

     (k) all Debt of the type described in clauses (a) through (i) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned or held or used under lease or license by such Person, even though such Person has not assumed or become liable for payment of such Debt.

     “Development Budget” means the budget (comprised of the Management Budget Component and the Clinical Budget Component) for the implementation of the Development Plan (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Committee” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Charter” has the meaning set forth in Article 3 of the Amended and Restated Research and Development Agreement.

     “Development Committee Member” has the meaning set forth in Paragraph 1 of Annex B to the Amended and Restated Research and Development Agreement.

     “Development Plan” means the development plan covering all the Programs (the initial form of which was agreed upon by Alexza and Symphony Allegro as of the Closing Date and attached to the Amended and Restated Research and Development Agreement as Annex C thereto), as may be further developed and revised from time to time in accordance with the Development Committee Charter and the Amended and Restated Research and Development Agreement.

     “Development Product” means an AZ-002 Product or an AZ-004 Product that is

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

administered in a clinical trial performed pursuant to the Development Plan.

     “Development Services” has the meaning set forth in Section 1(b) of the RRD Services Agreement.

     “Development Subcontracting Agreement” means a Subcontracting Agreement that is directly related to one or both of the Programs and is not a Manufacturing Subcontracting Agreement.

     “Director(s)” means the Persons identified as such in the Preliminary Statement of the Indemnification Agreement (including such Persons as may become parties thereto after the date hereof).

     “Disclosing Party” has the meaning set forth in Section 4 of the Confidentiality Agreement.

     “Discontinuation Option” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Option Closing Date” means the date of expiration of the Discontinuation Option pursuant to Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinuation Price” has the meaning set forth in Section 11(a) of the Amended and Restated Research and Development Agreement.

     “Discontinued Program” has the meaning set forth in Section 2.10 of the Novated and Restated Technology License Agreement.

     “Disinterested Directors” has the meaning set forth in Article IX of the Symphony Allegro Charter.

     “Distribution” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Drug Master Files” means all Regulatory Files with respect to the manufacture or design of a Product, including without limitation drug master files, design history files and similar files.

     “Early Purchase Option Exercise” has the meaning set forth in Section 1(c)(v) of the Purchase Option Agreement.

     “Effective Registration Date” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

     “Encumbrance” means (i) any security interest, pledge, mortgage, lien (statutory or other), charge or option to purchase, lease or otherwise acquire any interest, (ii) any adverse claim, restriction, covenant, title defect, hypothecation, assignment, deposit

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

arrangement, license or other encumbrance of any kind, preference or priority, or (iii) any other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement).

     “Equity Securities” means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

     “ERISA” means the United States Employee Retirement Income Security Act of 1974, as amended.

     “Excepted Debt” has the meaning set forth in Section 5(c)(iii) of the Purchase Option Agreement.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Existing Confidentiality Agreement” has the meaning set forth in Section 2(a) of the Confidentiality Agreement.

     “Exiting Product” means, with respect to a particular Program, any Development Product that was administered in a clinical trial pursuant to the Development Plan at any time prior to (a) the termination of the Discontinuation Option with respect to such Program without exercise by Licensor or (b) the expiration or termination of the Purchase Option without exercise by Licensor, whichever comes first.

     “Extension Funding” has the meaning set forth in Section 2 of the Research Cost Sharing and Extension Agreement.

     “External Directors” means, at any time, up to two (2) Persons elected to the Symphony Allegro Board after the Closing Date (who shall be neither employees of Symphony Capital nor of Alexza) in accordance with the Symphony Allegro Charter, the Symphony Allegro By-laws and Section 4(b)(iv) of the Purchase Option Agreement.

     “FDA” means the United States Food and Drug Administration or its successor agency in the United States.

     “FDA Sponsor” has the meaning set forth in Section 5.1 of the Amended and Restated Research and Development Agreement.

     “Final Termination Date” has the meaning set forth in Section 1(c)(iii) of the

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Purchase Option Agreement.

     “Financial Audits” has the meaning set forth in Section 6.7 of the Amended and Restated Research and Development Agreement.

     “Financing” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

     “Fiscal Year” has the meaning set forth in each Operative Document in which it appears.

     “Form S-3” means the Registration Statement on Form S-3 as defined under the Securities Act.

     “FTE” means the time and effort of one or more qualified scientists working on the AZ-002 Program or the AZ-004 Program that is equivalent to 1850 hours per year devoted exclusively to the Programs by one (1) full-time employee. The portion of an FTE year devoted by any one scientist to the Programs shall be determined by dividing the number of hours during any twelve (12) month period devoted by such scientist to one or both Programs by 1850 hours, not to exceed 1.0 in any case.

     “Funds Termination Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Funds Termination Notice” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time.

     “Governmental Approvals” means authorizations, consents, orders, declarations or approvals of, or filings with, or terminations or expirations of waiting periods imposed by any Governmental Authority.

     “Governmental Authority” means any United States or non-United States federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

     “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

     “Hedge Agreement” means any interest rate swap, cap or collar agreement, interest rate future or option contract, currency swap agreement, currency future or option contract or other similar hedging agreement.

     “Holdings” means Symphony Allegro Holdings LLC, a Delaware limited liability company.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Holdings Claims” has the meaning set forth in Section 5.01 of the Warrant Purchase Agreement.

     “Holdings LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of Holdings dated as of the Closing Date.

     “HSR Filings” means the pre-merger notification and report forms required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “IND” means an Investigational New Drug Application, as described in 21 U.S.C. § 355(i)(1) and 21 C.F.R. § 312 in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

     “Indemnification Agreement” means the Indemnification Agreement among Symphony Allegro and the Directors named therein, dated as of the Closing Date, as such agreement may be amended or amended and restated from time to time.

     “Indemnified Party” has the meaning set forth in each Operative Document in which it appears.

     “Indemnified Proceeding” has the meaning set forth in each Operative Document in which it appears.

     “Indemnifying Party” has the meaning set forth in each Operative Document in which it appears.

     “IND-Enabling GLP Inhalation Toxicology Studies” means the pharmacokinetic and toxicology studies required for filing an IND.

     “Initial Development Budget” means the initial development budget prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Development Plan” means the initial development plan prepared by representatives of Symphony Allegro and Alexza prior to the Closing Date, and attached to the Amended and Restated Research and Development Agreement as Annex C thereto.

     “Initial Holdings LLC Agreement” means the Agreement of Limited Liability Company of Holdings, dated October 24, 2006.

     “Initial Investors LLC Agreement” means the Agreement of Limited Liability Company of Investors, dated October 24, 2006.

     “Initial LLC Member” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Interest Certificate” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Investment Company Act” means the Investment Company Act of 1940, as amended.

     “Investment Overview” means the investment overview describing the transactions entered into pursuant to the Operative Documents.

     “Investment Policy” has the meaning set forth in Section 1(a)(vi) of the RRD Services Agreement.

     “Investors” means Symphony Allegro Investors LLC.

     “Investors LLC Agreement” means the Amended and Restated Agreement of Limited Liability Company of Investors dated as of the Closing Date.

     “IRS” means the U.S. Internal Revenue Service.

     “Key Personnel” means those Alexza Personnel listed on Schedule 6.5 to the Amended and Restated Research and Development Agreement, as such schedule may be updated from time to time by mutual agreement of the parties to the Amended and Restated Research and Development Agreement.

     “Know-How” means findings, discoveries, inventions, know-how, information, results and data of any type whatsoever, including without limitation, technical information, techniques, results of experimentation and testing, diagnostic and prognostic assays, specifications, databases, manufacturing processes or protocols, any and all laboratory, research, pharmacological, toxicological, analytical, quality control, pre-clinical and clinical data.

     “Knowledge” of Alexza, Symphony Allegro or Holdings, as the case may be, means the actual (and not imputed) knowledge of the executive officers or managing member of such Person without the duty of inquiry or investigation.

     “Law” means any law, statute, treaty, constitution, regulation, rule, ordinance, order or Governmental Approval, or other governmental restriction, requirement or determination, of or by any Governmental Authority.

     “License” has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

     “Licensed Intellectual Property” means the Licensed Patent Rights and the Licensed Know-How.

     “Licensed Know-How” means any and all Know-How that is Controlled by Licensor on or after the Closing Date and prior to the unexercised expiration or termination of the Purchase Option that:

     (a) is necessary or useful to practice the inventions claimed in the Licensed Patent Rights; or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     (b) is a Symphony Allegro Enhancement;

     provided, however, that Licensed Know-How shall not include any Licensed Patent Rights or any Know-How for the manufacture of a Product, including Know-How associated with Product quality control or stability testing.

     “Licensed Patent Rights” means any and all patents and patent applications Controlled by Licensor that:

     (a) are listed on Annex D of the Novated and Restated Technology License Agreement;

     (b) are reissues, continuations, divisionals, continuations-in-part, reexaminations, renewals, substitutes, extensions or foreign counterparts of the patents and patent applications described in (a) and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Know-How conceived and reduced to practice prior to such expiration or termination;

     (c) contain a claim that covers an invention disclosed in an invention disclosure listed on Annex D of the Novated and Restated Technology License Agreement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such invention;

     (d) contain a claim that covers a Symphony Allegro Enhancement and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming such Symphony Allegro Enhancement; or

     (e) contain a claim that covers a Development Product or the manufacture or use thereof and (i) are filed prior to the unexercised expiration or termination of the Purchase Option or (ii) are filed after such expiration or termination, but solely to the extent claiming Development Product-related Know-How conceived and reduced to practice prior to such expiration or termination.

     “Licensor” means Alexza.

     “Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Liquidating Event” has the meaning set forth in Section 8.01 of the Holdings LLC Agreement.

     “LLC Agreements” means the Initial Holdings LLC Agreement, the Holdings LLC Agreement, the Initial Investors LLC Agreement and the Investors LLC Agreement.

     “Loss” has the meaning set forth in each Operative Document in which it appears.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Loxapine” means: (a) loxapine and (b) all salts, metabolites, prodrug and other physical forms thereof.

     “Management Fee” has the meaning set forth in Section 6(a) of the RRD Services Agreement.

     “Management Services” has the meaning set forth in Section 1(a) of the RRD Services Agreement.

     “Manager” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, RRD in its capacity as manager of Symphony Allegro.

     “Manager Event” has the meaning set forth in Section 3.01(g) of the Holdings LLC Agreement.

     “Manufacturing Subcontracting Agreement” means a Subcontracting Agreement that is directly related to the manufacture of Product (including procurement of components and development of improved manufacturing methods) or the improvement of the Staccato Technology.

     “Material Adverse Effect” means, with respect to any Person, a material adverse effect on (i) the business, assets, property or condition (financial or otherwise) of such Person or, (ii) its ability to comply with and satisfy its respective agreements and obligations under the Operative Documents or, (iii) the enforceability of the obligations of such Person of any of the Operative Documents to which it is a party.

     “Material Subsidiary” means, at any time, a Subsidiary of Alexza having assets in an amount equal to at least 5% of the amount of total consolidated assets of Alexza and its Subsidiaries (determined as of the last day of the most recent reported fiscal quarter of Alexza) or revenues or net income in an amount equal to at least 5% of the amount of total consolidated revenues or net income of Alexza and its Subsidiaries for the 12-month period ending on the last day of the most recent reported fiscal quarter of Alexza.

     “Medical Discontinuation Event” means a series of adverse events, side effects or other undesirable outcomes that, when collected in a Program, would cause a reasonable FDA Sponsor to discontinue such Program.

     “Membership Interest” means (i) for each LLC Agreement in which it appears, the meaning set forth in such LLC Agreement, and (ii) for each other Operative Document in which it appears, the meaning set forth in the Holdings LLC Agreement.

     “NASDAQ” means the Nasdaq Stock Market, Inc.

     “NDA” means a New Drug Application, as defined in the regulations promulgated by the United States Food and Drug Administration, or any foreign equivalent thereof.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Non-Alexza Capital Transaction” means any (i) sale or other disposition of all or part of the Symphony Allegro Shares or all or substantially all of the operating assets of Symphony Allegro, to a Person other than Alexza or an Affiliate of Alexza or (ii) distribution in kind of the Symphony Allegro Shares following the unexercised expiration or termination of the Purchase Option.

     “Novated and Restated Technology License Agreement” means the Novated and Restated Technology License Agreement, dated as of the Closing Date, among Alexza, Symphony Allegro and Holdings.

     “Operative Documents” means, collectively, the Indemnification Agreement, the Holdings LLC Agreement, the Purchase Option Agreement, the Warrant Purchase Agreement, the Registration Rights Agreement, the Subscription Agreement, the Technology License Agreement, the Novated and Restated Technology License Agreement, the RRD Services Agreement, the Research and Development Agreement, the Research Cost Sharing and Extension Agreement, the Amended and Restated Research and Development Agreement, the Confidentiality Agreement, and each other certificate and agreement executed in connection with any of the foregoing documents.

     “Organizational Documents” means any certificates or articles of incorporation or formation, partnership agreements, trust instruments, bylaws or other governing documents.

     “Partial Stock Payment” has the meaning set forth in Section 3(a)(iii) of the Purchase Option Agreement.

     “Party(ies)” means, for each Operative Document or other agreement in which it appears, the parties to such Operative Document or other agreement, as set forth therein. With respect to any agreement in which a provision is included therein by reference to a provision in another agreement, the term “Party” shall be read to refer to the parties to the document at hand, not the agreement that is referenced.

     “Payment Terms” has the meaning set forth in Section 8.2 of the Amended and Restated Research and Development Agreement.

     “Percentage” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Investments” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Permitted Lien” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

     “Personnel” of a Party means such Party, its employees, subcontractors,

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

consultants, representatives and agents.

     “Prime Rate” means the quoted “Prime Rate” at JPMorgan Chase Bank or, if such bank ceases to exist or is not quoting a base rate, prime rate reference rate or similar rate for United States dollar loans, such other major money center commercial bank in New York City selected by the Manager.

     “Products” means an AZ-002 Product and/or an AZ-004 Product.

     “Profit” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Programs” means the AZ-002 Program and/or the AZ-004 Program.

     “Program-Specific Claim” means any claim in a patent or patent application in the Licensed Patent Rights that is directed exclusively to AZ-002 Products and/or AZ-004 Products.

     “Program-Specific Patents” means any and all Licensed Patent Rights that contain at least one Program-Specific Claim.

     “Protocol” means a written protocol that meets the substantive requirements of Section 6 of the ICH Guideline for Good Clinical Practice as adopted by the FDA, effective May 9, 1997, and is included within the Development Plan or later modified or added to the Development Plan pursuant to the Amended and Restated Research and Development Agreement.

     “Public Companies” has the meaning set forth in Section 5(e) of the Purchase Option Agreement.

     “Purchase Option” has the meaning set forth in Section 1(a) of the Purchase Option Agreement.

     “Purchase Option Agreement” means the Purchase Option Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

     “Purchase Option Closing” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Closing Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Commencement Date” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Option Exercise Date” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Purchase Option Exercise Notice” has the meaning set forth in Section 2(a) of the Purchase Option Agreement.

     “Purchase Option Offset Amount” shall mean, following the termination of the Amended and Restated Research and Development Agreement by Alexza pursuant to Section 17.3 thereof, those unpaid amounts actually owed to Alexza as a result of the material breach or default of any payment obligation of Symphony Allegro to Alexza pursuant to the Amended and Restated Research and Development Agreement by Symphony Allegro or Holdings that was the basis for such termination of the Amended and Restated Research and Development Agreement by Alexza.

     “Purchase Option Period” has the meaning set forth in Section 1(c)(iii) of the Purchase Option Agreement.

     “Purchase Price” has the meaning set forth in Section 2(b) of the Purchase Option Agreement.

     “QA Audits” has the meaning set forth in Section 6.6 of the Amended and Restated Research and Development Agreement.

     “Quarterly Price” has the meaning set forth in Section 2(b)(i) of the Purchase Option Agreement.

     “Registration Rights Agreement” means the Registration Rights Agreement dated as of the Closing Date, between Alexza and Holdings.

     “Registration Statement” has the meaning set forth in Section 1(b) of the Registration Rights Agreement.

     “Regulatory Allocation” has the meaning set forth in Section 3.06 of the Holdings LLC Agreement.

     “Regulatory Authority” means the United States Food and Drug Administration, or any successor agency in the United States, or any health regulatory authority(ies) in any other country that is a counterpart to the FDA and has responsibility for granting registrations or other regulatory approval for the marketing, manufacture, storage, sale or use of drugs in such other country.

     “Regulatory Files” means any IND, NDA or any other filings filed with any Regulatory Authority with respect to the Programs.

     “Representative” of any Person means such Person’s shareholders, principals, directors, officers, employees, members, managers and/or partners.

     “Research Cost Sharing and Extension Agreement” means the Research Cost Sharing and Extension Agreement dated as of the Closing Date, among Alexza, Holdings and Symphony Allegro.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Research and Development Agreement” means the Research and Development Agreement dated as of the Closing Date, between Alexza and Holdings.

     “RRD” means RRD International, LLC, a Delaware limited liability company.

     “RRD Indemnified Party” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Loss” has the meaning set forth in Section 10(a) of the RRD Services Agreement.

     “RRD Personnel” has the meaning set forth in Section 1(a)(ii) of the RRD Services Agreement.

     “RRD Services Agreement” means the RRD Services Agreement between Symphony Allegro and RRD, dated as of the Closing Date.

     “Schedule K-1” has the meaning set forth in Section 9.02(a) of the Holdings LLC Agreement.

     “Scheduled Meeting” has the meaning set forth in Paragraph 6 of Annex B of the Amended and Restated Research and Development Agreement.

     “Scientific Discontinuation Event” has the meaning set forth in Section 4.2(c) of the Amended and Restated Research and Development Agreement.

     “SCP” means Symphony Capital Partners, L.P., a Delaware limited partnership.

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Selling Stockholder Questionnaire” has the meaning set forth in Section 4(a) of the Registration Rights Agreement.

     “Shareholder” means any Person who owns any Symphony Allegro Shares.

     “Solvent” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “SSP” means Symphony Strategic Partners, LLC, a Delaware limited liability company.

     “Staccato Technology” means Alexza’s proprietary technology for the vaporization of a pharmaceutical composition via rapid-heating to form a condensation aerosol that allows rapid systemic drug delivery to humans through lung inhalation.

     “Stock Payment Date” has the meaning set forth in Section 2 of the Subscription Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Stock Purchase Price” has the meaning set forth in Section 2 of the Subscription Agreement.

     “Subcontracting Agreement” means (a) any written agreement between Alexza and a third party pursuant to which the third party performs any Alexza Obligations or (b) any work order, change order, purchase order or the like entered into pursuant to Section 6.2(b) of the Amended and Restated Research and Development Agreement.

     “Sublicense Obligations” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Sublicensed Intellectual Property” has the meaning set forth in Section 3.2 of the Novated and Restated Technology License Agreement.

     “Subscription Agreement” means the Subscription Agreement between Symphony Allegro and Holdings, dated as the Closing Date.

     “Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture or limited liability company; or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

     “Surviving Entity” means the surviving legal entity which is surviving entity to Alexza after giving effect to a Change of Control.

     “Symphony Allegro” means Symphony Allegro, Inc., a Delaware corporation.

     “Symphony Allegro Auditors” has the meaning set forth in Section 5(b) of the RRD Services Agreement.

     “Symphony Allegro Board” means the board of directors of Symphony Allegro.

     “Symphony Allegro By-laws” means the By-laws of Symphony Allegro, as adopted by resolution of the Symphony Allegro Board on the Closing Date.

     “Symphony Allegro Charter” means the Amended and Restated Certificate of Incorporation of Symphony Allegro, dated as of the Closing Date.

     “Symphony Allegro Director Event” has the meaning set forth in Section 3.01(h)(i) of the Holdings LLC Agreement.

     “Symphony Allegro Enhancements” means any and all Know-How, whether or

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

not patentable, that is made by or on behalf of Symphony Allegro during the Term, including Know-How generated or derived by RRD and assigned to Symphony Allegro pursuant to Section 12 of the RRD Services Agreement.

     “Symphony Allegro Equity Securities” means the Common Stock and any other stock or shares issued by Symphony Allegro.

     “Symphony Allegro Loss” has the meaning set forth in Section 10(b) of the RRD Services Agreement.

     “Symphony Allegro Shares” has the meaning set forth in Section 2.02 of the Holdings LLC Agreement.

     “Symphony Capital” means Symphony Capital LLC, a Delaware limited liability company.

     “Symphony Fund(s)” means Symphony Capital Partners, L.P., a Delaware limited partnership, and Symphony Strategic Partners, LLC, a Delaware limited liability company.

     “Tangible Materials” means any tangible technical, medical, regulatory or marketing documentation, whether written or electronic, existing as of the Closing Date or made by or on behalf of Symphony Allegro during the Term, that (a) is Controlled by the Licensor and (b) embodies or relates solely to the Regulatory Files (other than Drug Master Files), Exiting Products or the Programs; provided, however, that Tangible Materials shall not include any manufacturing-related documentation or any documentation related to Licensed Intellectual Property.

     “Tax Amount” has the meaning set forth in Section 4.02 of the Holdings LLC Agreement.

     “Technology License Agreement” means the Technology License Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Term” has the meaning set forth in Section 4(b)(iii) of the Purchase Option Agreement, unless otherwise stated in any Operative Document.

     “Territory” means the world.

     “Third Party IP” has the meaning set forth in Section 2.9 of the Novated and Restated Technology License Agreement.

     “Third Party Licensor” means a third party from which Alexza has received a license or sublicense to Licensed Intellectual Property.

     “Transaction Event” has the meaning set forth in Section 6.05 of the Warrant Purchase Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

     “Transfer” has for each Operative Document in which it appears the meaning set forth in such Operative Document.

     “Transferee” has, for each Operative Document in which it appears, the meaning set forth in such Operative Document.

     “Voluntary Bankruptcy” has the meaning set forth in Section 1.01 of the Holdings LLC Agreement.

     “Warrant Closing” has the meaning set forth in Section 2.03 of the Warrant Purchase Agreement.

     “Warrant Date” has the meaning set forth in Section 2.02 of the Warrant Purchase Agreement.

     “Warrant Purchase Agreement” means the Warrant Purchase Agreement, dated as of the Closing Date, between Alexza and Holdings.

     “Warrant Shares” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

     “Warrant Surrender Price” has the meaning set forth in Section 7.08 of the Warrant Purchase Agreement.

     “Warrants” has the meaning set forth in Section 2.01 of the Warrant Purchase Agreement.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

ANNEX B

CERTAIN ROYALTY AND MILESTONE PAYMENTS

Pursuant to the Development Agreement between Licensor and Autoliv ASP, Inc. (“Autoliv”) dated October 3, 2005 (the “Development Agreement”), a royalty of:

     (a) [ * ] of net sales is owed to Autoliv for Products that contain the heat package developed pursuant to the Development Agreement and that are manufactured pursuant to the Initial Supply Agreement contemplated by the Development Agreement; or

     (b) $0.04 is owed to Autoliv for each unit of Product that contains the heat package developed pursuant to the Development Agreement and that incorporates Autoliv’s Background Technology. (Such technology is exclusively licensed to Licensor in the event that Licensor terminates the Development Agreement without entering into the Initial Supply Agreement contemplated by the Development Agreement.)

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

B-1

ANNEX C

KEY SUPPLY AGREEMENT TERMS

[ * ]

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

C-1

ANNEX D

LICENSED PATENT RIGHTS

Application	Application	Patent		Grant
Number	Date	Number		Date	Title
10/152,639	5/20/2002		6,716,416	4/6/2004	Delivery of Antipsychotics Through An Inhalation Route
10/750,303	12/30/2003		7,078,020	7/18/2006	Delivery of Antipsychotics Through An Inhalation Route
10/767,115	1/28/2004		7,052,679	5/30/2006	Delivery of Antipsychotics Through An Inhalation Route
11/488,932	7/18/2006				Delivery of Antipsychotics Through An Inhalation Route
10/155,373	5/22/2002		6,737,043	5/18/2004	Delivery of Alprazolam, Estazolam, Midazolam or Triazolam Through An Inhalation Route
10/735,495	12/12/2003		7,018,619	3/28/2006	Delivery of Alprazolam, Estazolam, Midazolam or Triazolam Through An Inhalation Route
10/769,157	1/29/2004		7,060,255	6/13/2006	Delivery of Alprazolam, Estazolam, Midazolam or Triazolam Through An Inhalation Route
11/451,852	6/13/2006				Delivery of Alprazolam, Estazolam, Midazolam or Triazolam Through An Inhalation Route
10/719,540	11/20/2003				Method For Treating Pain With Loxapine and Amoxapine
10/719,763	11/20/2003				Acute Treatment of Headache With Phenothiazine Antipsychotics
10/718,982	11/20/2003		7,090,830	8/15/2006	Drug Condensation Aerosols and Kits
11/504,419	8/15/2006				Drug Condensation Aerosols and Kits
11/346,548	2/2/2006				Acute Treatment of Headache With Phenothiazine Antipsychotics

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

D-1

SCHEDULE 2.2

CERTAIN RESTRICTIONS RELATING TO LICENSED INTELLECTUAL
PROPERTY

Some of the inventions claimed in the Licensed Patent Rights were made with funding from the National Institutes of Health. As such, the United States government has certain rights with respect to such Licensed Patent Rights.

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SCHEDULE 5.1(a)

REGULATORY FILES

[ * ]

[*]  = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

EX-10.32

Exhibit 10.32

EXECUTION COPY

CONFIDENTIALITY AGREEMENT

     This CONFIDENTIALITY AGREEMENT (this “Agreement”) is dated as of December 1, 2006, by and among Symphony Allegro, Inc., a Delaware corporation (“Symphony Allegro”), Symphony Allegro Holdings LLC, a Delaware limited liability company (“Holdings”), Alexza Pharmaceuticals, Inc., a Delaware corporation (“Alexza”), Symphony Capital Partners, L.P., a Delaware limited partnership (“SCP”), Symphony Strategic Partners, LLC, a Delaware limited liability company (“SSP” and, together with SCP, the “Symphony Funds”), Symphony Allegro Investors LLC, a Delaware limited liability company (“Investors”), Symphony Capital LLC, a Delaware limited liability company (“Symphony Capital”) and RRD International, LLC, a Delaware limited liability company (“RRD”).

     WHEREAS, certain of the parties hereto (the “Parties” and each a “Party”) have entered into the Operative Documents (as such term is defined in the Purchase Option Agreement, dated the date hereof, among Alexza, Holdings and Symphony Allegro (the “Purchase Option Agreement”)); and

     NOW, THEREFORE, upon the execution and delivery of this Agreement, each signatory hereto hereby agrees as follows:

          1. Defined Terms. Terms not otherwise defined herein are used as defined in the Purchase Option Agreement.

          2. Confidential Information.

               (a) “Confidential Information” shall mean any information disclosed by a Party to a Party under the terms of, or in connection with: (i) the Mutual Confidential Disclosure Agreement between Alexza and Symphony Capital, dated as of March 29, 2006, as amended by side letter on October 20, 2006 (the “Existing Confidentiality Agreement”); (ii) the Letter of Intent, dated as of October 18, 2006, between Alexza and Symphony Capital, including any attachments thereto; and (iii) the Operative Documents or the transactions contemplated thereby, including, but not limited to, commercial, financial, and technical information, substances, formulations, techniques, methodologies, customer or client lists, programs, procedures, data, documents, know-how, protocols, results of experimentation and testing, specifications, databases, business plans, trade secrets, budget forecasts, business arrangements, information regarding specific transactions, financial information and estimates, long- term plans and goals, information regarding patents and other types of intellectual property and the terms of the Operative Documents.

               (b) Confidential Information shall not, however, include any information that: (A) is publicly available at the time of such disclosure; (B) becomes publicly available after such disclosure other than by reason of disclosure by the receiving Party (including a failure to act to protect the confidentiality of such

information) in violation of this Agreement; (C) was or becomes available to the receiving Party or its Affiliates from a third party source (who is neither a party to nor bound by this Agreement), which is not known by such Party or its Affiliates to be subject to a confidentiality obligation to any other Party; or (D) was already known by the receiving Party at the time of disclosure, as evidenced by such Party’s written records.

          3. Ownership of Confidential Information.

               (a) Each Party that receives Confidential Information from another Party shall have the confidentiality obligations set forth in Section 4 with respect to such information, and such information shall generally be considered the Confidential Information of the Party disclosing such information. Notwithstanding the foregoing, and subject to Section 3(c), during the Term, all of the Parties hereto shall have such confidentiality obligations with respect to the Tangible Materials, Regulatory Files and Licensed Intellectual Property (and on account of the obligations that each Party has to the other Parties, such information shall be deemed the Confidential Information of all the Parties hereto); provided that if, during the Term, (1) Alexza shall exercise a Discontinuation Option, then the Tangible Materials, Regulatory Files and Licensed Intellectual Property that pertain to the Program for which Alexza exercised such Discontinuation Option shall be deemed solely the Confidential Information of Alexza, or (2) Symphony Allegro shall, following the expiration of a Discontinuation Option without exercise by Alexza, transfer or license rights relating to such discontinued Program to a third party, then the Tangible Materials, Regulatory Files and Licensed Intellectual Property that pertain solely to such discontinued Program may be deemed the Confidential Information of such third party, provided that such third party shall have become a party to this Agreement or entered into a confidentiality agreement with Alexza and Symphony Allegro on terms at least as stringent as those set forth in this Agreement.

               (b) If the Term shall terminate through Alexza’s exercise of the Purchase Option, then the Tangible Materials, Regulatory Files and Licensed Intellectual Property shall be deemed solely the Confidential Information of Alexza. If the Term shall terminate as a result of the unexercised expiration of the Purchase Option or termination of the Purchase Option Agreement, then all Tangible Materials, Regulatory Files and Licensed Intellectual Property related to Loxapine and Alprazolam and its delivery by means of the AZ-004 Product and AZ-002 Product and not previously the subject of an exercise of the Discontinuation Option shall be deemed solely the Confidential Information of Symphony Allegro, subject to Section 3(c).

               (c) Notwithstanding the foregoing, Confidential Information that is related to the Staccato Technology generally but not specifically related to Loxapine or Alprazolam or its delivery by means of the AZ-004 Product and AZ-002 Product shall be deemed solely the Confidential Information of Alexza.

          4. Nondisclosure Obligations.

               (a) Each of the Parties hereto covenants and agrees that it shall only use the Confidential Information of another Party as may be necessary to carry out

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its obligations under the Operative Documents or useful to exercise its rights under the Operative Documents, regardless of whether or not the Party itself also owns such Confidential Information, and that it shall limit disclosure of such Confidential Information to employees, consultants, contractors and agents that have a need to know such Confidential Information for one of the purposes described herein and that are bound by confidentiality obligations at least as stringent as those set forth in this Agreement. Each Party further covenants and agrees, subject to Section 4(d), that unless and until such information is no longer deemed to be Confidential Information, no Party shall disclose any Confidential Information of another Party, regardless of whether or not such Party itself also owns such Confidential Information, in any manner whatsoever, in whole or in part; provided, that nothing herein shall prevent any such Party (a “Disclosing Party”) from disclosing any such Confidential Information: (A) pursuant to any Governmental Order or in any pending or legal or administrative proceeding relating to the Programs; (B) upon the request or demand of any Governmental Authority having jurisdiction over the Disclosing Party or any of its Affiliates; (C) as required by applicable law (including applicable U.S. securities law), or the rules and regulations of any Governmental Authority; (D) with the express written permission of all Parties to which the Disclosing Party has confidentiality obligations under this Agreement with respect to such Confidential Information; (E) as provided in Sections 5 and 6 below; (F) to each Party’s Affiliates and respective employees, legal counsel, independent auditors and other experts or agents who are bound by confidentiality obligations at least as stringent as those set forth in this Agreement, and who have a need to know such Confidential Information in connection with the Programs and (G) to the extent necessary to permit Holdings to exercise its rights under Section 2A of the Purchase Option Agreement.

               (b) Notwithstanding the foregoing in Section 4(a), nothing herein shall prevent Alexza from disclosing any Confidential Information (1) to one or more third parties to develop or commercialize the Programs, so long as any such third party is bound by confidentiality obligations at least as stringent as those set forth in this Agreement, or as approved by Symphony Allegro, (2) to existing or potential bona fide acquirers or merger candidates, investment bankers, existing or potential investors, venture capital firms, or other financial institutions or investors for purposes of obtaining financing, so long as any such third party is bound by confidentiality obligations at least as stringent as those set forth in this Agreement, (3) to regulatory authorities as required in connection with any filing of INDs, NDAs, or similar applications or requests for regulatory approvals, anywhere in the world, provided that reasonable measures are taken to assure confidential treatment of such information, where available, and (4) to the extent such Confidential Information pertains to any Licensed Intellectual Property or Tangible Material which is useful outside the scope of the licenses granted to Symphony Allegro pursuant to Section 2.2 of the Novated and Restated Technology License Agreement, to any third party for the purpose of exploiting such rights as retained by Alexza, provided such disclosure is made pursuant to appropriate confidentiality obligations and restrictions that do not permit use in connection with the Products. This Agreement shall not be construed to require Alexza to amend or supplement any confidentiality agreements with any third party entered into prior to the Closing Date if

3

the confidentiality provisions in such agreements do not comply completely with the requirements of Section 4(a).

               (c) The Disclosing Party accepts responsibility for compliance with the provisions of Section 4(a) by the persons referred to in Section 4(a)(F), and Section 4(b). In the event of a requirement to disclose Confidential Information which falls under the ambit of clauses (A), (B) or (C) of Section 4(a), the Disclosing Party shall give reasonable prior notice to the other Parties, and shall make a reasonable effort to obtain (1) a protective order requiring the Confidential Information so disclosed to be used only for the purposes for which such Confidential Information is required or (2) confidential treatment of the Confidential Information required to be disclosed. In the event of a requirement to disclose Confidential Information which falls under the ambit of Section 4(b)(3), the Disclosing Party shall give reasonable prior notice, to the extent practicable, to the other Parties. Furthermore, each of Symphony Allegro, Holdings, each of the Symphony Funds, Investors, Symphony Capital and RRD hereby covenants and agrees to refrain from (x) trading any Alexza Common Stock while in possession of material, non-public information concerning Alexza, the clinical development of the Programs or any other such information of like kind and (y) discussing or conveying to any Person who is not related to the activities contemplated under the Operative Documents any information regarding their respective assessments or projections with respect to the development or status of any of the Programs.

               (d) Notwithstanding the foregoing in this Section 4, the Parties’ confidentiality obligations with respect to the financial and legal terms of the transactions contemplated in the Operative Documents shall terminate on the date which is five (5) years from (x) the Purchase Option Closing Date, or (y) the date on which the Purchase Option expires unexercised, as the case may be, unless and until such information shall earlier be deemed to no longer be Confidential Information.

          5. Disclosure for Tax Purposes. Notwithstanding anything to the contrary contained herein or in any of the Operative Documents, each party hereto (and its representatives, agents and employees) may consult any tax advisor regarding the tax treatment and tax structure of the transactions contemplated hereby and may disclose to any person, without limitation of any kind, the tax treatment and tax structure of such transactions and all materials (including opinions and other tax analyses) that are provided relating to such treatment or structure.

          6. Press Releases; Publication of Clinical Data. Notwithstanding anything to the contrary contained herein or in any of the Operative Documents, Alexza and Holdings shall agree upon a press release describing the execution of the Operative Documents and consummation of the transactions described therein; thereafter, Alexza, RRD, Investors and Holdings may each disclose to third parties (a) the information contained in such press release, and (b) such information as was actually disclosed to the public in a question and answer session held in conjunction with issuance of the press release, without the need for further approval by any other Party. Notwithstanding the foregoing or anything to the contrary in this Agreement, during the Term Alexza shall

4

have the exclusive right to control the timing and content of any subsequent press releases and any publication or other public disclosure of any clinical data or other results with respect to the Programs. Unless otherwise permitted pursuant to the terms of this Agreement, no other Party may publish or refer publicly to clinical data or other results with respect to the Programs without the prior express written consent of Alexza.

          7. Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted to be given to any Party shall be in writing addressed to the Party at its address set forth below and shall be deemed given (i) when delivered to the Party personally, (ii) if sent to the Party by facsimile transmission (promptly followed by a hard-copy delivered in accordance with this Section 7), when the transmitting Party obtains written proof of transmission and receipt; provided, however, that notwithstanding the foregoing, any communication sent by facsimile transmission after 5:00 PM (receiving Party’s time) or not on a Business Day shall not be deemed received until the next Business Day, (iii) when delivered by next Business Day delivery by a nationally recognized courier service, or (iv) if sent by registered or certified mail, when received, provided postage and registration or certification fees are prepaid and delivery is confirmed by a return receipt:

          Alexza:

Alexza Pharmaceuticals, Inc.
1020 East Meadow Circle
Palo Alto, CA 94303
Attn: August J. Moretti
Facsimile: (650) 687-3999

with a copy to:

Cooley Godward Kronish LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attn: Barbara A. Kosacz, Esq.
Facsimile: (650) 849-7400

          Symphony Allegro:

Symphony Allegro, Inc.
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Frank L. Hurley, Ph.D.
Facsimile: (301) 762-6154

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          Holdings:

Symphony Allegro Holdings LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Robert L. Smith, Jr.
Facsimile: (301) 762-6154

          with copies to:

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

and

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

          RRD:

RRD International, LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Robert L. Smith, Jr.
Facsimile: (301) 762-6154

with a copy to:

RRD International, LLC
7361 Calhoun Place, Suite 325
Rockville, MD 20855
Attn: Raymond V. Lee, Esq.
Facsimile: (301) 762-6154

          SCP:

Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

6

          SSP:

Symphony Strategic Partners, LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

          Investors:

Symphony Allegro Investors LLC
c/o Symphony Capital Partners, L.P.
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

          Symphony Capital:

Symphony Capital LLC
875 Third Avenue, 18th Floor
New York, NY 10022
Attn: Mark Kessel
Facsimile: (212) 632-5401

or to such other address as such Party may from time to time specify by notice given in the manner provided herein to each other Party entitled to receive notice hereunder.

          8. Governing Law; Consent to Jurisdiction and Service of Process.

               (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York; except to the extent that this Agreement pertains to the internal governance of Symphony Allegro, Investors, Symphony Capital, SCP, SSP or Holdings, and to such extent this Agreement shall be governed and construed in accordance with the laws of the State of Delaware.

               (b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court, any Delaware State court or federal court of the United States of America sitting in the City of New York, Borough of Manhattan or Wilmington, Delaware, and any appellate court from any jurisdiction thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court, any such Delaware State court or, to the fullest extent permitted by law, in such federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by

7

suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any Party may otherwise have to bring any action or proceeding relating to this Agreement.

               (c) Each of the Parties irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or federal court, or any Delaware State or federal court. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereby consents to service of process by mail.

          9. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

          10. Injunctive Relief. Each of the Parties acknowledges and agrees that a breach of Section 4 of this Agreement could result in irreparable harm to the Parties hereto, and therefore each of the Parties hereby agrees that the rights and obligations of the parties under Section 4 of this Agreement may be enforced by the granting of injunctive relief by a court of competent jurisdiction, without the obligation to post a bond. Such remedy shall not limit the rights of a Party to pursue any and all other remedies that might be available to such Party under this Agreement, whether at law or equity.

          11. Entire Agreement. This Agreement (including any Annexes, Schedules, Exhibits or other attachments hereto) constitutes the entire agreement between the Parties with respect to the matters covered hereby and supersedes all prior and contemporaneous agreements, correspondence, discussion and understandings with respect to such matters between the Parties, excluding the Operative Documents. This Agreement supersedes and replaces the Existing Confidentiality Agreement.

          12. Amendment; Successors; Counterparts.

               (a) The terms of this Agreement shall not be altered, modified, amended, waived or supplemented in any manner whatsoever except by a written instrument signed by each of the Parties.

               (b) Nothing expressed or implied herein is intended or shall be construed to confer upon or to give to any Person, other than the Parties, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof, and all the terms, covenants, conditions, promises and agreements contained herein shall be for the sole and exclusive benefit of the Parties and their successors and permitted assigns.

8

               (c) This Agreement may be executed in one or more counterparts, each of which, when executed, shall be deemed an original but all of which, taken together, shall constitute one and the same Agreement.

          13. Binding Effect; Assignments. The rights and obligations of the parties under this Agreement will bind and inure to the benefit of their respective successors, heirs, executors, administrators and permitted assigns. No party shall assign or delegate its obligations under this Agreement either in whole or in part without the prior written consent of the other parties hereto, except to a successor in interest pursuant to a merger, sale, acquisition or sale of all or substantially all of the assets of such party; provided, that such successor shall be bound by the terms of this Agreement.

          14. Additional Parties. In the event that any additional parties (each such party, an “Additional Party”) become party to any Operative Document, such Additional Party shall execute and deliver a counterpart signature page to this Agreement and such Additional Party shall forthwith be bound by the terms of this Agreement.

          15. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a manner materially adverse to either party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

[SIGNATURES FOLLOW ON NEXT PAGE]

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     IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Agreement, or has caused this Agreement to be executed and delivered by a duly authorized officer, on the day and year first above written.

SYMPHONY ALLEGRO, INC.
By:	/s/ Neil J. Sandler Name: Neil J. Sandler
	Title: Chairman of the Board
SYMPHONY ALLEGRO HOLDINGS LLC
By:	Symphony Capital Partners, L.P.,
	its Manager
By:	Symphony Capital GP, L.P.,
	its member
By:	Symphony GP, LLC,
	its member
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Member
ALEXZA PHARMACEUTICALS, INC.
By:	/s/ August J. Moretti
	Name: August J. Moretti
	Title: Senior Vice President and           Chief Financial Officer

SYMPHONY CAPITAL PARTNERS, L.P.
By:	Symphony Capital GP, L.P.,
	its member
By:	Symphony GP, LLC,
	its member
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Member
SYMPHONY STRATEGIC PARTNERS, LLC
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Member
SYMPHONY ALLEGRO INVESTORS LLC
By:	Symphony Capital Partners, L.P.,
	its Manager
By:	Symphony Capital GP, L.P.,
	its member
By:	Symphony GP, LLC,
	its member
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Member

SYMPHONY CAPITAL LLC
By:	/s/ Mark Kessel
	Name: Mark Kessel
	Title: Managing Director
RRD INTERNATIONAL, LLC
By:	/s/ Charles W. Finn
	Name: Charles W. Finn, Ph.D.
	Title: Chief Executive Officer

EX-10.33

Exhibit 10.33

2007 Performance Bonus Program.

On March 2, 2007, the Board of Directors (the “Board”) of Alexza Pharmaceuticals, Inc. (the “Company”), based upon the approval and recommendation of the Compensation Committee (the “Committee”), approved the adoption of the 2007 Performance Bonus Program (the “Bonus Program”) for the Company’s employees, including its executive officers. The Bonus Program was adopted to attract, motivate and retain the Company’s employees.

In order to be eligible for participation in the Bonus Program, an employee must be employed by the Company for at least six months (i.e. a start date before July 1, 2007) and still be employed at the end of 2007. Employees employed more than six months, but less than one year, are eligible to receive a pro-rated bonus payout. The annual cash bonuses and stock option awards, if any, for all employees, including executive officers, are calculated in accordance with a formula that takes into account base salary and accomplishment of specified corporate, departmental and individual goals. The Board determines the achievement of the corporate goals and the Company’s management team determines the achievement of departmental and individual goals. The relative weighting of the components of the goals, the allocation of awards between cash bonuses and stock option awards, and the percentage of base salary used to determine bonus eligibility vary by the levels of employee, with the bonuses of executive officers being weighted toward achievement of corporate goals, stock option awards and a higher percentage of base salary. Stock option awards are valued based on a Black Scholes calculation of the option award value. Payment of bonuses pursuant to the Bonus Program are based on the achievement of the following corporate goals: (i) certain financing goals; (ii) certain corporate development goals; (iii) achievement of certain clinical trial advancement goals; (iv) corporate/financial goals relating to achievement of certain financial measures; and (v) successful relocation of the Company’s facilities.

The Company expects that the cash and stock bonuses payable for fiscal year 2007, if any, will be calculated in the manner set forth above and will vary depending on the extent to which actual performance meets, exceeds, or falls short of the specified corporate goals and attainment of individual and departmental goals. In addition, the Company’s management team, the Committee and the Board retain the discretion to (i) increase, reduce or eliminate the cash and stock option bonuses that otherwise might be payable to all employees or any individual based on actual performance as compared to pre-established goals, and (ii) structure future or additional bonus and equity incentives in a manner that they believe will appropriately motivate and reward the Company’s employees, including the Company’s executive officers.

EX-14.1

Exhibit 14.1

ALEXZA PHARMACEUTICALS, INC.
CODE OF BUSINESS CONDUCT
FOR EMPLOYEES, EXECUTIVE OFFICERS AND DIRECTORS

Purpose

Alexza Pharmaceuticals, Inc. (the “Company” or “Alexza”) strives to conduct all aspects of its business in accordance with the highest ethical and legal principles. This Code of Business Conduct (the “Code”) covers a wide range of business practices and procedures. It does not cover every issue that may arise and is meant to serve as a guide for each employee, executive officer and director of the Company (“Alexza Personnel”) in meeting those principles. All Alexza Personnel must conduct themselves in accordance with this Code and seek to avoid even the appearance of improper behavior. The compliance environment within each supervisor’s assigned area of responsibility will be a significant factor in evaluating the quality of that individual’s performance. This Code should also be provided to, and followed by, the Company’s agents and representatives, including consultants, when working for or on behalf of the Company.

This Code seeks to deter wrongdoing and to promote:

• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;

• full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company;

• compliance with applicable governmental laws, rules and regulations;

• the prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and

• accountability for adherence to the Code.

Alexza Personnel who violate the standards in the Code may be subject to disciplinary action, up to and including termination of employment. This Code supersedes all other codes of conduct, policies, procedures, instructions, practices, rules or written or verbal representations to the extent that they are inconsistent with this Code. However, nothing in this Code otherwise alters the at-will employment policy of Alexza. Alexza is committed to continuously reviewing and updating our policies and procedures. This Code, therefore, is subject to modification.

Honest and Ethical Conduct

It is Alexza’s policy to promote high standards of integrity by conducting our affairs in an honest and ethical manner. The integrity and reputation of Alexza depends on the honesty, fairness and integrity brought to the job by each person associated with Alexza. Unyielding personal integrity is the foundation of corporate integrity.

Compliance With Applicable Laws, Rules and Regulations

Alexza’s business is subject to extensive governmental regulation throughout the world. Obeying the law is the foundation on which the Company’s ethical standards are built. It is Alexza’s policy to comply with the laws of each country in which we do business. It is the responsibility of all Alexza Personnel to be familiar with the laws and regulations that relate to their business responsibilities at Alexza and to comply with them to the extent they are not otherwise contrary to U.S. law or policy. While Alexza does not expect every detail of these laws, rules and regulations to be memorized, Alexza Personnel should be able to determine when to seek advice from others. It is important that Alexza Personnel not hesitate to seek answers from a supervisor or the Compliance Officer regarding any questions in the area of legal compliance.

Disregard of the law will not be tolerated. Violation of domestic or foreign laws, rules and regulations may subject an individual, as well as Alexza, to civil and/or criminal penalties. Alexza Personnel should be aware that conduct and records, including emails, are subject to internal and external audits and to discovery by third parties in the event of a government investigation or civil litigation. It is in everyone’s best interests to know and comply with their respective legal obligations.

Conflicts of Interest

All Alexza Personnel have a duty to avoid business, financial or other direct or indirect interests or relationships which conflict with the interests of the Company or which divide their loyalty to the Company. Any activity which even appears to present such a conflict must be avoided or terminated unless, after disclosure to the appropriate level of management, it is determined that the activity is not harmful to the Company or otherwise improper.

A conflict of interest or the appearance of a conflict of interest may arise in many ways. For example, the following may constitute conflicts of interest:

• providing services to a competitor or proposed or present supplier or customer of Alexza;

• having an ownership interest in a competitor of Alexza or in a business with which the Company has or is contemplating a business relationship;

• conducting Alexza business with a relative or significant other, or with a business with which a relative or significant other is associated in any significant role; or

• soliciting or accepting gifts, favors, loans or preferential treatment from any person or entity that does business or seeks to do business with Alexza.

Loans to, or guarantees of obligations of, employees or their family members by Alexza could constitute an improper personal benefit to the recipients of these loans or guarantees, depending on the facts and circumstances. Some loans are expressly prohibited by law and applicable law requires that Alexza’s Board of Directors approve all loans and guarantees to employees. As a result, all loans and guarantees by Alexza must be approved in advance by the Board of Directors.

Conflicts of interest should be avoided and in all cases must promptly be disclosed fully to Alexza. In the case of any executive officer or director, disclosure must be made to the Chairman of the Audit and Ethics Committee. Following such disclosure, the matter will be considered by the Audit and Ethics Committee in order to determine what, if any, corrective action is required. In the case of any other employee, disclosure must be made to the Chief Executive Officer or the Compliance Officer. Following such disclosure, the matter shall be considered by the Chief Executive Officer or shall be considered by the Compliance Officer pursuant to guidelines approved by the Chief Executive Officer, in order to determine what, if any, corrective action is required.

Conflicts of interest may not always be clear-cut, so if Alexza Personnel have a question, they should consult with higher levels of management or Alexza’s Chief Executive Officer or Compliance Officer. If Alexza Personnel become aware of a conflict or potential conflict, they should bring it to the attention of a manager or other appropriate personnel or consult the procedures described under “Reporting.”

At the date of adoption of this Code, Alexza has several members of its Board of Directors who are partners or employees of venture capital funds, and this Code needs to acknowledge the fact that such venture capital funds and related investment entities routinely invest in a number of life science companies. As a result, notwithstanding anything in this Code to the contrary, if a member of Alexza’s Board of Directors who is also a partner or employee of an entity that is in the business of investing and reinvesting in other entities, or an employee of an entity that manages such an entity (each, a “Fund”) acquires knowledge of a potential transaction or other matter in such individual’s capacity as a partner, manager or employee of the Fund (and other than directly in connection with such individual’s service as a member of Alexza’s Board of Directors) and that may be an opportunity of interest for both Alexza and such Fund (a “Corporate Opportunity”), then Alexza has no expectancy that such director or Fund offer an opportunity to participate in such Corporate Opportunity to Alexza. In addition, any investment or other involvement by such director or Fund shall not be a conflict or potential conflict of interest if such director acts in good faith.

Confidentiality

Alexza Personnel must maintain the confidentiality of confidential information entrusted to them by Alexza, except when disclosure is authorized by Alexza’s written policies or its Compliance Officer or required by laws or regulations. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company, if disclosed, and information that suppliers and other business partners have entrusted to us. The obligation to preserve confidential information continues even after employment ends. In connection with this obligation, every employee should have executed a confidentiality and proprietary information agreement when he or she began employment with Alexza.

Public Disclosure of Information

The federal securities laws require Alexza to disclose certain information in various reports that the Company must file with or submit to the SEC. In addition, from time to time, Alexza makes other public communications, such as issuing press releases. Alexza’s policy is to provide full, fair, accurate, timely and understandable disclosure in SEC reports and other public communications.

Insider Trading

In order to assist with compliance with laws against insider trading, the Company has adopted a Policy on Stock Trading by Officers, Directors and Employees. A copy of this policy, which has been distributed to every employee, is available on the Company’s internal website. If you have any questions, please consult the Compliance Officer.

Record-Keeping

Alexza requires honest and accurate recording and reporting of information in order to make responsible business decisions and to comply with the law.

All of Alexza’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect Alexza’s transactions and must conform both to applicable legal requirements and to Alexza’s system of internal controls. In addition, Alexza’s financial statements shall conform to generally accepted accounting principles and Alexza’s accounting policies. Alexza requires that:

• no entry be made in Alexza’s books and records that intentionally hides or disguises the nature of any transaction or of any of Alexza’s liabilities or misclassifies any transactions as to accounts or accounting periods;

• transactions be supported by appropriate documentation;

• the terms of sales and other commercial transactions be reflected accurately in the documentation for those transactions and all such documentation be reflected accurately in our books and records;

• Alexza Personnel comply with our system of internal controls; and

• no cash or other assets be maintained for any purpose in any unrecorded or “off-the-books” fund.

Alexza’s accounting records are also relied upon to produce reports for our management, stockholders and creditors, as well as for governmental agencies. In particular, Alexza relies upon its accounting and other business and corporate records in preparing the periodic and current reports that Alexza files with the SEC. Securities laws require that these reports provide full, fair, accurate, timely and understandable disclosure and fairly present our financial condition and results of operations. Alexza Personnel who collect, provide or analyze information for or otherwise contribute in any way in preparing or verifying these reports should strive to ensure that Alexza’s financial disclosure is accurate and transparent. In addition:

• Alexza Personnel may not take or authorize any action that would intentionally cause Alexza’s financial records or financial disclosure to fail to comply with generally accepted accounting principles, the rules and regulations of the SEC or other applicable laws, rules and regulations;

• all Alexza Personnel must cooperate fully with Alexza’s Finance Department, as well as Alexza’s independent public accountants and counsel, respond to their questions with candor and provide them with complete and accurate information to help ensure that Alexza’s books and records, as well as Alexza’s reports filed with the SEC, are accurate and complete; and

• Alexza Personnel should not knowingly make (or cause or encourage any other person to make) any false or misleading statement in any of our reports filed with the SEC or knowingly omit (or cause or encourage any other person to omit) any information necessary to make the disclosure in any of Alexza’s reports accurate in all material respects.

Protection and Proper Use of Company Assets

Alexza Personnel should endeavor to protect Alexza’s assets and ensure their efficient use. Any suspected incident of fraud or theft should immediately be reported for investigation. Company equipment should not be used for non-Alexza business, though limited incidental personal use is permitted. By using Company equipment, Alexza Personnel waive any rights to personal privacy in the messages or data transmitted thereby or stored therein. Any information in the messages or data transmitted thereby or stored therein may be subject to disclosure as required by applicable law or as deemed appropriate by the management of Alexza.

The obligation to protect Alexza’s assets includes protecting its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks and copyrights, as well as business, marketing plans, scientific and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of such information violates Alexza policy and could also subject individuals to civil or even criminal penalties.

Waivers of the Code

Waivers of the Code may only be granted by Alexza’s Chief Executive Officer; provided, however, that any waiver of the Code for executive officers (including, where required by applicable laws, our principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions)) or directors may be granted only by the Board of Directors or, to the extent permitted by the rules of Nasdaq, the Audit and Ethics Committee. Any such waiver of the Code for executive officers or directors, and the reasons for such waiver, will be disclosed as required by applicable laws, rules or securities market regulations.

Reporting

Alexza Personnel are encouraged to talk to managers or other appropriate personnel about observed illegal or unethical behavior if they are in doubt about the best course of action in a particular situation. In any case where Alexza Personnel feel that it is not appropriate to discuss an issue with an immediate supervisor, or where he or she does not feel comfortable approaching an immediate supervisor with a question, such personnel are encouraged to discuss the question with Alexza’s Compliance Officer or report the matter directly to the Board or the Chairman of the Audit and Ethics Committee.

Alexza does not allow retaliation for reports of misconduct by others made in good faith by Alexza Personnel. Alexza will take prompt disciplinary action against any employee who retaliates for such reports, including termination of employment. Alexza personnel are expected to cooperate in internal investigations of misconduct.

Alexza Personnel with a concern involving potential misconduct by another person and relating to questionable accounting or auditing matters under Alexza’s Open Door Policy for Reporting Complaints Regarding Accounting and Auditing Matters may

report that violation as set forth in such policy. With respect to any such complaints or observations of violations that may involve accounting, internal accounting controls and auditing concerns, under the Company’s Open Door Policy for Reporting Complaints Regarding Accounting and Auditing Matters, the Compliance Officer shall promptly inform the Audit and Ethics Committee, and the Audit and Ethics Committee shall be responsible for supervising and overseeing, in accordance with such Policy, the inquiry and any investigation that is undertaken.

If any investigation indicates that a violation of this Code has probably occurred, Alexza will take such action as we believe to be appropriate under the circumstances. If it is determined that any Alexza Personnel is responsible for a Code violation, he or she will be subject to disciplinary action up to, and including, termination of employment and, in appropriate cases, civil action or referral for criminal prosecution. Appropriate action may also be taken to deter any future Code violations.

Dissemination and Amendment

This Code will be distributed to each new employee, officer and director of Alexza upon commencement of his or her employment or other relationship with Alexza and will also be distributed annually.

Alexza may amend this Code. Alexza will disclose any amendments pertaining to executive officers or directors as required by law or securities market regulations. The most current version of this Code can be found on Alexza’s website.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-132593) pertaining to the 2005 Equity Incentive Plan, the 2005 Non-Employee Directors’ Stock Option Plan and the 2005 Employee Stock Purchase Plan of Alexza Pharmaceuticals, Inc. of our report dated March 27, 2007 with respect to the consolidated financial statements of Alexza Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

Palo Alto, California
March 27, 2007

EX-31.1

Exhibit 31.1

CERTIFICATIONS

     I, Thomas B. King certify that:

     1. I have reviewed this annual report on Form 10-K of Alexza Pharmaceuticals, Inc.:

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2007	/s/ Thomas B. King
	Thomas B. King President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

     I, August J. Moretti, certify that:

     1. I have reviewed this annual report on Form 10-K of Alexza Pharmaceuticals, Inc.:

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 29, 2007	/s/ August J. Moretti
	August J. Moretti Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

     Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Thomas B. King, President and Chief Executive Officer of Alexza Pharmaceuticals, Inc. (the “Company”), and August J. Moretti, the Senior Vice President and Chief Financial Officer of the Company, each hereby certifies that, to his knowledge:

1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2006, to which this Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

          In Witness Whereof, the undersigned have set their hands hereto as of the 29th day of March, 2007.

/s/ Thomas B. King	/s/ August J. Moretti
Thomas B. King President and Chief Executive Officer	August J. Moretti Senior Vice President and Chief Financial Officer

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Alexza Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.