Form 10-Q Alexza Pharmaceuticals For: Sep 30

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November 5, 2014 4:18 PM EST

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�

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

�

FORM 10-Q

�

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September�30, 2014

�

�	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	�	77-0567768
(State or other Jurisdiction of Incorporation or Organization)	�	(IRS Employer Identification No.)

2091 Stierlin Court Mountain View, California	�	94043
(Address of principal executive offices)	�	(Zip Code)

(Registrant�s telephone number, including area code): (650)�944-7000

�

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��x��No��

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (�232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).��Yes��x��No��

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of �large accelerated filer,� �accelerated filer,� and �smaller reporting company� in Rule 12b-2 of the Exchange Act.

�


Large�accelerated�filer	�	�	��	Accelerated�filer	�	�

Non-accelerated filer	�	��(do not check if a smaller reporting company)	��	Smaller�reporting�company	�	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).��Yes��No��x

Total number of shares of common stock outstanding as of November�1, 2014: 19,404,697.

�

ALEXZA PHARMACEUTICALS, INC.

TABLE OF CONTENTS

�


�	��	page		�
PART I. FINANCIAL INFORMATION	��	�		�

Item�1. Financial Statements	��

Condensed Consolidated Balance Sheets as of September�30, 2014 and December�31, 2013	��	�	3	��

Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended September�30, 2014 and 2013	��	�	4	��

Condensed Consolidated Statements of Cash Flows for the nine months ended September�30, 2014 and 2013	��	�	5	��

Notes to Condensed Consolidated Financial Statements	��	�	6	��

Item�2. Management�s Discussion and Analysis of Financial Condition and Results of Operations	��	�	18	��

Item�3. Quantitative and Qualitative Disclosures About Market Risk	��	�	29	��

Item�4. Controls and Procedures	��	�	30	��

PART II. OTHER INFORMATION	��	�	31	��

Item�1A. Risk Factors	��	�	31	��

Item�1. Legal Proceedings	��	�	58	��

Item�2. Unregistered Sales of Equity Securities and Use of Proceeds	��	�	58	��

Item�3. Defaults Upon Senior Securities	��	�	58	��

Item�4. Mine Safety Disclosures	��	�	58	��

Item�5. Other Information	��	�	58	��

Item�6. Exhibits	��	�	58	��

SIGNATURES	��	�	59	��

EXHIBIT INDEX	��	�	60	��

PART I. FINANCIAL INFORMATION

Item�1. Financial Statements

ALEXZA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

�


�	��	September�30, 2014		�	�	December�31, 2013⁽¹⁾		�
ASSETS	��				�
Current assets:	��				�
Cash and cash equivalents	��	$	11,626	��	�	$	17,306	��
Marketable securities	��	�	23,261	��	�	�	8,578	��
Receivables	��	�	1,008	��	�	�	129	��
Inventory	��	�	4,414	��	�	�	3,447	��
Prepaid expenses and other current assets	��	�	3,039	��	�	�	1,453	��
	��	�	�	�	�	�	�	�
Total current assets	��	�	43,348	��	�	�	30,913	��

Property and equipment, net	��	�	15,017	��	�	�	14,991	��
Restricted cash	��	�	4,160	��	�	�	��	��
Other assets	��	�	3,272	��	�	�	1,168	��
	��	�	�	�	�	�	�	�
Total assets	��	$	65,797	��	�	$	47,072	��
	��	�	�	�	�	�	�	�
LIABILITIES AND STOCKHOLDERS� DEFICIT	��				�
Current liabilities:	��				�
Accounts payable	��	$	1,692	��	�	$	3,789	��
Accrued clinical trial expenses	��	�	557	��	�	�	178	��
Other accrued expenses	��	�	4,769	��	�	�	4,736	��
Current portion of contingent consideration liability	��	�	1,400	��	�	�	2,500	��
Current portion of financing obligations	��	�	201	��	�	�	780	��
Current portion of deferred revenue	��	�	2,374	��	�	�	2,915	��
	��	�	�	�	�	�	�	�
Total current liabilities	��	�	10,993	��	�	�	14,898	��

Deferred rent	��	�	5,150	��	�	�	6,405	��
Noncurrent portion of contingent consideration liability	��	�	32,200	��	�	�	36,700	��
Noncurrent portion of deferred revenues	��	�	2,186	��	�	�	2,185	��
Noncurrent portion of financing obligations	��	�	63,378	��	�	�	10,744	��
Other noncurrent liabilities	��	�	729	��	�	�	115	��

Stockholders� deficit:	��				�
Preferred stock	��	�	��	��	�	�	��	��
Common stock	��	�	2	��	�	�	2	��
Additional paid-in-capital	��	�	355,413	��	�	�	350,250	��
Accumulated other comprehensive income	��	�	(1	)�	�	�	1	��
Accumulated deficit	��	�	(404,253	)�	�	�	(374,228	)�
	��	�	�	�	�	�	�	�
Total stockholders� deficit	��	�	(48,839	)�	�	�	(23,975	)�
	��	�	�	�	�	�	�	�
Total liabilities and stockholders� equity	��	$	65,797	��	�	$	47,072	��
	��	�	�	�	�	�	�	�

�

(1)	The condensed consolidated balance sheet at December�31, 2013 has been derived from audited consolidated financial statements at that date.

See accompanying notes to the financial statements.

�

ALEXZA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

(unaudited)

�

��

Three Months Ended
September�30,

�

Nine Months Ended
September�30,

�

��

2014

�

2013

�

2014

�

2013

�

Collaboration revenue

��

364

��

�

1,978

��

�

2,461

��

�

46,236

��

Product sales

��

�

��

�

188

��

�

1,646

��

�

294

��

�

Total revenue

��

�

457

��

�

2,166

��

�

4,107

��

�

46,530

��

Operating expenses:

��

�

Cost of goods sold

��

�

3,279

��

�

3,951

��

�

11,973

��

�

6,912

��

Research and development

��

�

3,391

��

�

5,457

��

�

10,553

��

�

16,475

��

General and administrative

��

�

3,827

��

�

3,097

��

�

11,773

��

�

12,016

��

�

Total operating expenses

��

�

10,497

��

�

12,505

��

�

34,299

��

�

35,403

��

Loss from operations

��

�

(10,040

)�

�

(10,339

)�

�

(30,192

)�

�

11,127

��

(Loss)/gain on change in fair value of contingent consideration liability

��

�

(1,100

)�

�

(1,613

)�

�

5,349

��

�

(44,013

)�

Interest and other income/ (expense), net

��

�

��

�

��

�

��

�

��

Interest expense

��

�

(2,202

)�

�

(461

)�

�

(5,204

)�

�

(1,055

)�

��

�

Net loss

��

(13,328

)�

�

(12,412

)�

�

(30,025

)�

�

(33,923

)�

��

�

Basic and diluted net loss per share

��

(0.77

)�

�

(0.72

)�

�

(1.73

)�

�

(2.06

)�

��

�

Shares used to compute basic and diluted net loss per share

��

�

17,371

��

�

17,238

��

�

17,328

��

�

16,467

��

�

Other Comprehensive Loss

��

�

Change in unrealized gain/(loss) on marketable securities

��

�

)�

�

)�

�

)�

�

��

�

Comprehensive loss

��

(13,331

)�

�

(12,415

)�

�

(30,027

)�

�

(33,921

)�

��

�

See accompanying notes to the financial statements.

�

ALEXZA PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

�


�	��	Nine Months Ended September�30,						�
�	��	2014		�	�	2013		�
Cash flows from operating activities:	��				�
Net loss	��	$	(30,025	)�	�	$	(33,923	)�
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	��				�
Share-based compensation	��	�	2,196	��	�	�	2,499	��
Change in fair value of contingent consideration liability	��	�	(5,349	)�	�	�	44,013	��
Recognition of right to borrow asset	��	�	��	��	�	�	(2,800	)�
Amortization of debt discount, deferred interest and right-to-borrow asset	��	�	1,624	��	�	�	766	��
Amortization of premium (discount) on available-for-sale securities	��	�	106	��	�	�	(6	)�
Depreciation and amortization	��	�	2,516	��	�	�	2,511	��
Gain on disposal of property	��	�	��	��	�	�	(15	)�
Changes in operating assets and liabilities:	��				�
Receivables	��	�	(879	)�	�	�	(25	)�
Inventory	��	�	(967	)�	�	�	(2,061	)�
Prepaid expenses and other current assets	��	�	(752	)�	�	�	(943	)�
Accounts payable	��	�	(2,097	)�	�	�	1,920	��
Accrued clinical and other accrued liabilities	��	�	412	��	�	�	1,549	��
Deferred revenues	��	�	(540	)�	�	�	(2,186	)�
Other liabilities	��	�	(641	)�	�	�	(1,250	)�
	��	�	�	�	�	�	�	�
Net cash (used in) provided by operating activities	��	�	(34,396	)�	�	�	10,049	��
	��	�	�	�	�	�	�	�
Cash flows from investing activities:	��				�
Purchases of available-for-sale securities	��	�	(33,131	)�	�	�	(10,642	)�
Maturities of available-for-sale securities	��	�	18,340	��	�	�	2,000	��
Purchases of property and equipment	��	�	(2,542	)�	�	�	(1,488	)�
Proceeds from sale of property and equipment	��	�	��	��	�	�	16	��
	��	�	�	�	�	�	�	�
Net cash used in investing activities	��	�	(17,333	)�	�	�	(10,114	)�
	��	�	�	�	�	�	�	�
Cash flows from financing activities:	��				�
Proceeds from issuance of common stock and warrants and exercise of stock options and stock purchase rights	��	�	214	��	�	�	6,446	��
Change in restricted cash	��	�	(4,160	)�	�	�	5,051	��
Payment on contingent consideration liability	��	�	(251	)�	�	�	(10,313	)�
Proceeds from financing obligations, net of issuance costs	��	�	50,830	��	�	�	10,000	��
Payments of financing obligations	��	�	(584	)�	�	�	(5,027	)�
	��	�	�	�	�	�	�	�
Net cash provided by financing activities	��	�	46,049	��	�	�	6,157	��
	��	�	�	�	�	�	�	�
Net (decrease) increase in cash and cash equivalents	��	�	(5,680	)�	�	�	6,092	��
Cash and cash equivalents at beginning of period	��	�	17,306	��	�	�	17,715	��
	��	�	�	�	�	�	�	�
Cash and cash equivalents at end of period	��	$	11,626	��	�	$	23,807	��
	��	�	�	�	�	�	�	�
Supplemental Disclosure of Cash Flow Information	��				�
Non cash investing and financing activities:	��				�
Value of warrants issued with royalty securitization financing	��	$	1,721	��	�	$	��	��
	��	�	�	�	�	�	�	�
Value of the beneficial conversion feature related to borrowings against the Teva Note	��	$	1,032	��	�	$	3,112	��
	��	�	�	�	�	�	�	�
Value of right-to-borrow asset reclassified as debt discount	��	$	570	��	�	$	1,293	��
	��	�	�	�	�	�	�	�

See accompanying notes to the financial statements.

�

ALEXZA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation

Business

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

We are a pharmaceutical company focused on the research, development, and commercialization of novel proprietary products for the acute treatment of central nervous system conditions. We operate in one business segment. Our facilities and employees are currently located in the United States.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim condensed consolidated financial information. The results for the three and nine months ended September�30, 2014 are not necessarily indicative of the results to be expected for the year ending December�31, 2014 or for any other interim period or any other future year.

The accompanying unaudited condensed consolidated financial statements and notes to condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December�31, 2013 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March�25, 2014.

Basis of Consolidation

The unaudited condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Significant Risks and Uncertainties

We have incurred significant losses from operations since our inception and expect losses to continue for the foreseeable future. As of September�30, 2014, we had cash, cash equivalents, marketable securities and restricted cash of $39,047,000 and working capital of $32,355,000. We believe that, based on our cash, cash equivalents, marketable securities and restricted cash balances at September�30, 2014, estimated product revenues, milestone payments associated with the sale of ADASUVE, the proceeds from our October 2014 stock sale to Grupo Ferrer Internacional, S.A., or Ferrer (see Note 11), and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs into the fourth quarter of 2015. In light of our ongoing cost, investments in ADASUVE manufacturing and product candidate development and our projected working capital needs, we expect to need to source additional capital to finance our ongoing operations in the next twelve months. We may not be able to source sufficient capital on acceptable terms, or at all, to continue to pursue approval to commercialize ADASUVE in the United States or other countries, to continue development of our other product candidates or to continue operations. We plan to source additional capital to fund our operations and working capital, to develop our product candidates and to continue the development of our commercial manufacturing capabilities. In addition to product revenues, royalties and milestone payments, we plan to finance our operations through the sale of equity securities, utilization of debt arrangements, or additional distribution or licensing collaborations. Such funding may not be available or may be on terms that are not favorable to us. Our inability to source capital as and when needed could have a negative impact on our financial condition, results of operations or our ability to execute on our strategic initiatives.

On October 27, 2014, we received a notice from The NASDAQ Stock Market indicating that the total market value of our listed securities had not met the minimum value of $50 million for any of the 30 consecutive business days prior to that date. If our total market value of listed securities does not equal or exceed $50 million, based on the closing price of our common stock, for at least ten consecutive business days prior to April 27, 2015, our common stock may become subject to delisting from the Nasdaq Global Market. If we do not regain compliance within the 180 calendar day grace period, we may transfer the listing of our common stock to the Nasdaq Capital Market, provided that we meet the applicable requirements for continued listing on the Nasdaq Capital Market based on our most recent public filings and market information. We may also request a hearing to remain on the Nasdaq Global Market at the expiration of this 180 calendar day grace period. Even if we regain compliance or transfer the listing of our common stock to the Nasdaq Capital Market, we may subsequently fail to maintain compliance with applicable listing standards.

�

2. Summary of Significant Accounting Policies

Revenue Recognition

We recognize revenue when (i)�persuasive evidence of an arrangement exists; (ii)�delivery has occurred or services have been rendered; (iii)�the fee is fixed or determinable; and (iv)�collectability is reasonably assured. Prior to the second quarter of 2013, our revenue consisted primarily of amounts earned from collaboration agreements and under research grants with the National Institutes of Health. Beginning in the second quarter of 2013, we also have revenue from product sales and beginning in the second quarter of 2014, royalties from the sale of our products by our collaborators.

For collaboration agreements, revenues for non-refundable upfront license fee payments, where we continue to have performance obligations, are recognized as performance occurs and obligations are completed. Revenues for non-refundable upfront license fee payments where we do not have significant future performance obligations are recognized when the agreement is signed and the payments are due.

For multiple element arrangements, such as collaboration agreements in which a collaborator may purchase several deliverables, we account for each deliverable as a separate unit of accounting if both of the following criteria are met: (i)�the delivered item or items have value to the customer on a standalone basis; and (ii)�for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We evaluate how the consideration should be allocated among the units of accounting and allocate revenue to each non-contingent element based upon the relative selling price of each element. We determine the relative selling price for each deliverable using (i)�vendor-specific objective evidence, or VSOE, of selling price if it exists; (ii)�third-party evidence, or TPE, of selling price if it exists; or (iii)�our best estimated selling price for that deliverable if neither VSOE nor TPE of selling price exists for that deliverable. We then recognize the revenue allocated to each element when the four basic revenue criteria described above are met for each element.

For milestone payments received in connection with our collaboration agreements, we have elected to adopt the milestone method of accounting under Financial Accounting Standards Board Accounting Standards Codification 605-28, Milestone Method. Under the milestone method, revenues for payments which meet the definition of a milestone will be recognized as the respective milestones are achieved.

We recognize product revenue as follows:

�

Persuasive Evidence of an Arrangement.�We currently sell product through license and supply agreements with Ferrer and Teva Pharmaceuticals USA, Inc., or Teva. Persuasive evidence of an arrangement is generally determined by the receipt of an approved purchase order from the collaborator in connection with the terms of the related license and supply agreements.

�

Delivery.�Typically, ownership of the product passes to the collaborator upon shipment. Our current license and supply agreements also provide our collaborators with an acceptance period during which they may reject any product which does not conform to agreed-upon specifications. Because ADASUVE is a new product, a new technology and our first product to be commercialized, and because we do not have a history of producing product to collaborator specifications, we will not consider delivery to have occurred until after the collaborator acceptance period has ended or the collaborator has positively accepted the product. Once we have demonstrated over the course of time an ability to reliably produce the product to collaborator specifications, we will consider delivery to have occurred upon shipment in the absence of any other relevant shipment or acceptance terms.

�

Sales Price Fixed or Determinable.�Sales prices for product shipments are determined by license and supply agreements and documented in purchase orders. After the collaborator acceptance period has ended or the collaborator has positively accepted the product, our collaborators do not have any product return or replacement rights, including for expired products.

�

Collectability.�Payment for the product is contractually obligated under the license and supply agreements. We will monitor payment histories for our collaborators and specific issues as they arise to determine whether collection is probable for a specific transaction and defer revenue as necessary.

Royalty revenue from our collaboration agreements will be recognized as we receive information from our collaborators regarding product sales and collectability is reasonably assured.

Significant management judgment is used in the determination of revenue to be recognized and the period in which it is recognized.

Inventory

Inventory is stated at standard cost, which approximates actual cost, determined on a first-in first-out basis, not in excess of market value. Inventory includes the direct costs incurred to manufacture products combined with allocated manufacturing overhead, which consists of indirect costs, including labor and facility overhead. We are in the early stages of commercialization and have incurred significantly higher than normal indirect costs in the production of our inventory due to start-up manufacturing costs and low production volumes. The carrying cost of inventory is reduced so as to not be in excess of the market value of the inventory as determined by the contractual transfer prices to Ferrer and Teva. The excess over the market value is expensed to cost of goods sold. All costs associated with the ADASUVE manufacturing process incurred prior to regulatory approval and the beginning of commercial manufacturing were expensed as a component of research and development expense. If information becomes available that suggests

�

that all or certain of the inventory may not be realizable, we may be required to expense a portion, or all, of the capitalized inventory into cost of goods sold. Inventory, which is stated at the lower of cost or estimated market value, consists of the following at September�30, 2014 and December�31, 2013 (in thousands):

�


�	��	September�30, 2014		�	��	December�31, 2013		�
Raw materials	��	$	3,543	��	��	$	3,044	��
Work in process	��	�	��	��	��	�	��	��
Finished goods	��	�	871	��	��	�	403	��
	��	�	�	�	��	�	�	�
Total inventory	��	$	4,414	��	��	$	3,447	��
	��	�	�	�	��	�	�	�

New Accounting Pronouncement

In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update (�ASU�) No.�2014-15, Disclosure of Uncertainties about an Entity�s Ability to Continue as a Going Concern (�ASU 2014-15�). ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity�s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under the current guidance. ASU 2014-15 is effective for the Company in the first quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2014-15 on its consolidated financial statements will be material.

In May 2014 the Financial Accounting Standards Board, or FASB, issued the Accounting Standards Update, or ASU, No.�2014-09,�Revenue from Contracts with Customers (Topic 606), that will supersede nearly all existing revenue recognition guidance under US GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard will be effective for public entities for annual and interim periods beginning after December�15, 2016.

Entities can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Entities electing the full retrospective adoption will apply the standard to each period presented in the financial statements. This means that entities will have to apply the new guidance as if it had been in effect since the inception of all its contracts with customers presented in the financial statements. Entities that elect the modified retrospective approach will apply the guidance retrospectively only to the most current period presented in the financial statements. This means that entities will have to recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings at the date of initial application. The�new revenue standard�will be applied to contracts that are in progress at the date of initial application.

We plan to adopt the new standard on January�1, 2017. We have not yet evaluated which adoption method we plan to use or the potential effect the new standard will have on our consolidated financial statements.

3. Fair Value Accounting

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value. The three levels are:

�

Level 1 � Quoted prices in active markets for identical assets or liabilities.

�

Level 2 � Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

�

Level 3 � Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

�

The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) by major security type and contingent consideration liability measured at fair value on a recurring basis as of September�30, 2014 and December�31, 2013 (in thousands):

�

September�30, 2014

��

Level 1

�

��

Level 2

�

��

Level 3

�

��

Total

�

Assets

��

Money market funds

��

12,766

��

12,766

��

Corporate debt securities

��

�

��

�

25,761

��

�

��

�

25,761

��

�

��

�

��

�

��

�

Total assets

��

12,766

��

25,761

��

38,527

��

�

��

�

��

�

��

�

Liabilities

��

Contingent consideration liability

��

33,600

��

33,600

��

�

��

�

��

�

��

�

Total liabilities

��

33,600

��

33,600

��

�

��

�

��

�

��

�

December�31, 2013

��

Level 1

�

��

Level 2

�

��

Level 3

�

��

Total

�

Assets

��

Money market funds

��

11,345

��

11,345

��

Corporate debt securities

��

�

��

�

12,003

��

�

��

�

12,003

��

�

��

�

��

�

��

�

Total assets

��

11,345

��

12,003

��

23,348

��

�

��

�

��

�

��

�

Liabilities

��

Contingent consideration liability

��

39,200

��

39,200

��

�

��

�

��

�

��

�

Total liabilities

��

39,200

��

39,200

��

�

��

�

��

�

��

�

Cash equivalents and marketable securities

The amortized cost, fair value and unrealized gain/(loss) for our financial assets by major security type as of September�30, 2014 and December�31, 2013 are as follows (in thousands):

�

September�30, 2014

��

Amortized
Cost

�

Fair�Value

�

Unrealized
Gain/(Loss)

�

Money market funds

��

12,766

��

�

12,766

��

�

��

Corporate debt securities

��

�

25,762

��

�

25,761

��

�

)�

��

�

Total

��

�

38,528

��

�

38,527

��

�

)�

Less amounts classified as restricted cash

��

�

(4,160

)�

�

(4,160

)�

�

��

Less amounts classified as cash equivalents

��

�

(11,106

)�

�

(11,106

)�

�

��

�

Total marketable securities

��

23,262

��

�

23,261

��

�

)�

��

�

December�31, 2013

��

Amortized
Cost

�

Fair Value

�

Unrealized
Gain/(Loss)

�

Money market funds

��

11,345

��

�

11,345

��

�

��

Corporate debt securities

��

�

12,002

��

�

12,003

��

�

��

�

Total

��

�

23,347

��

�

23,348

��

�

��

Less amounts classified as cash equivalents

��

�

(14,770

)�

�

(14,770

)�

�

��

�

Total marketable securities

��

8,577

��

�

8,578

��

�

��

�

We had no sales of marketable securities during the three or nine months ended September�30, 2014 or 2013.

Contingent Consideration Liability

In connection with the exercise of our option to purchase all of the outstanding equity of Symphony Allegro, Inc., or Allegro, in 2009, we are obligated to make contingent cash payments to the former Allegro stockholders related to certain payments received by

�

us from future collaboration agreements pertaining to ADASUVE/AZ-104 (Staccato loxapine) or AZ-002 (Staccato alprazolam). In order to estimate the fair value of the liability associated with the contingent cash payments, we prepared several cash flow scenarios for ADASUVE, AZ-104 and AZ-002, which are subject to the contingent payment obligation. Each potential cash flow scenario consisted of assumptions of the range of estimated milestone and license payments potentially receivable from such collaborations and assumed royalties received from future product sales. Based on these estimates, we computed the estimated payments to be made to the former Allegro stockholders. Payments were assumed to terminate in accordance with current agreement terms or, if no agreements exist, upon the expiration of the related patents.

The projected cash flow assumptions for ADASUVE in the United States are based on the License and Supply Agreement, or the Teva Agreement, between us and Teva (see Note 9) and on internally and externally developed product sales forecasts. The timing and extent of the projected cash flows for ADASUVE for Europe, Latin America and the Commonwealth of Independent States countries, or the Ferrer Territories, are based on the Collaboration, License and Supply Agreement, or Ferrer Agreement, between us and Ferrer (see Note 9). The timing and extent of the projected cash flows for the remaining territories for ADASUVE and worldwide territories for AZ-002 and AZ-104 were based on internal estimates for potential milestones and multiple product royalty scenarios and are also consistent in structure to the most recently negotiated collaboration agreements.

We then assigned a probability to each of the cash flow scenarios based on several factors, including: the product candidate�s stage of development, preclinical and clinical results, technological risk related to the successful development of the different drug candidates, estimated market size, market risk and potential collaboration interest to determine a risk adjusted weighted average cash flow based on all of these scenarios. These probability and risk adjusted weighted average cash flows were then discounted utilizing our estimated weighted average cost of capital, or WACC, of 16.5%. Our WACC considered our cash position, competition, risk of substitute products, and risk associated with the financing of the development projects.

The fair value measurement of the contingent consideration liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 measurements are valued based on unobservable inputs that are supported by little or no market activity and reflect our assumptions in measuring fair value.

We record any changes in the fair value of the contingent consideration liability in earnings in the period of the change. Certain events including, but not limited to, the timing and terms of any collaboration agreement, clinical trial results, approval or non-approval of any future regulatory submissions and the commercial success of ADASUVE, AZ-104 or AZ-002 could have a material impact on the fair value of the contingent consideration liability, and as a result, our results of operations and financial position for the impacted period.

During the nine months ended September�30, 2014, we modified the assumptions associated with the amount and timing of milestones and royalties projected for ADASUVE and AZ-002, the probability that AZ-002 would be licensed or sold by us, and the effects of the passage of nine months on the present value computation. These items resulted in a decrease to the contingent consideration liability and a corresponding non-operating gain of $5,349,000, or $0.31 per share, for the nine months ended September�30, 2014. During the three months ended September�30, 2014 we increased the contingent liability and recognized a non-operating loss of $1,100,000, or $0.06 per share, primarily to reflect the impact of the passage of one quarter of time on the discounted cash flow model.

During the nine months ended September�30, 2013, we modified the assumptions regarding the timing and amount of certain cash flows primarily to reflect the increased probability that we would license the U.S. commercialization rights to ADASUVE to a third party in the first quarter of 2013 and the impact of the actual licensing and the terms of the Teva Agreement in the second quarter of 2013. These changes in assumptions, the change in the WACC in the nine months ended September�30, 2013, the change in the projected U.S. ADASUVE launch date to the first quarter of 2014 and the effects of the passage of three and nine months, respectively, on the present value computation resulted in an increase to the net loss of $1,613,000 and $44,013,000, or $0.09 and $2.67 per share, for the three and nine months ended September�30, 2013, respectively.

�

The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three and nine months ended September�30, 2014 and 2013 (in thousands):

�

��

Three Months Ended
September�30,

�

Nine Months Ended
September�30,

�

��

2014

�

��

2013

�

2014

�

2013

�

Beginning balance

��

32,500

��

42,000

��

�

39,200

��

�

9,600

��

Payments made

��

�

��

�

(313

)�

�

(251

)�

�

(10,313

)�

Adjustments to fair value measurement

��

�

1,100

��

�

1,613

��

�

(5,349

)�

�

44,013

��

�

��

�

Ending balance

��

33,600

��

43,300

��

�

33,600

��

�

43,300

��

�

��

�

Financing Obligations

We estimated the fair value of our financing obligations (see Note 7) using the net present value of the payments discounted at an interest rate that is consistent with our estimated current borrowing rate for similar long-term debt. We believe the estimates used to measure the fair value of the financing obligations constitute Level 3 inputs.

At September�30, 2014 and December�31, 2013, the estimated fair value of our financing obligations was $54,693,000 and $9,342,000, respectively and had book values of $63,579,000 and $11,524,000, respectively. Our payment commitments associated with these debt instruments are comprised of interest payments and principal payments and may vary based on the level of milestone and royalty payments received from Teva. The fair value of our debt will fluctuate with movements of interest rates, increasing in periods of declining rates of interest, and declining in periods of increasing rates of interest and expected duration to repay the notes based on projected levels of royalties and milestones to be received from Teva.

4. Share-Based Compensation Plans

2005 Equity Incentive Plan

In December 2005, our Board of Directors adopted the 2005 Equity Incentive Plan, or the 2005 Plan. The 2005 Plan became effective upon the closing of our initial public offering on March�8, 2006. The 2005 Plan is an amendment and restatement of our previous stock option plans. 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 our common stock outstanding on December�31 of the preceding calendar year, or (ii)�100,000�shares of common stock. Our 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, our Board of Directors adopted the 2005 Non-Employee Directors� Stock Option Plan, or the Directors� Plan. The Directors� Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to our 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. Our 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.

�

The following table sets forth the summary of option activity under our share-based compensation plans for the nine months ended September�30, 2014:

�


�	��	Outstanding Options						�
�	��	Number of Shares		�	�	Weighted�Average Exercise Price		�
Outstanding at January�1, 2014	��	�	2,121,504	��	�	$	7.53	��
Options granted	��	�	1,127,600	��	�	�	4.70	��
Options exercised	��	�	(22,842	)�	�	�	3.49	��
Options canceled	��	�	(349,758	)�	�	�	6.23	��
	��	�	�	�	�
Outstanding at September�30, 2014	��	�	2,876,504	��	�	�	6.61	��
	��	�	�	�	�

The intrinsic value of options exercised during the three and nine months ended September�30, 2014 was $5,000 and $26,000, respectively. There was no total intrinsic value of options exercised during the three and nine months ended September�30, 2013.

The following table sets forth the summary of restricted stock unit activity under our share-based compensation plans for the nine months ended September�30, 2014:

�


�	��	Number Of Shares		�	�	Weighted Average Grant-Date Fair Value		�
Outstanding at January 1, 2014	��	�	521,050	��	�	$	4.68	��
Granted	��	�	��	��	�	�	��	��
Released	��	�	(31,825	)�	�	�	4.68	��
Forfeited	��	�	(106,175	)�	�	�	4.68	��
	��	�	�	�	�
Outstanding at September 30, 2014	��	�	383,050	��	�	$	4.68	��
	��	�	�	�	�

In May 2013, our stockholders approved an amendment to the 2005 Plan and the Directors� Plan to increase the shares authorized for issuance by 2,200,000 shares and 200,000 shares, respectively. On January�1, 2014 and 2013 an additional 100,000 shares were authorized for issuance under the evergreen provisions of the 2005 Plan. On January�1, 2014 and 2013, an additional 58,751 shares and 19,812 shares, respectively, were authorized for issuance under the evergreen provisions of the Directors� Plan.

As of September�30, 2014, 453,729 and 150,000 shares remained available for issuance under the 2005 Plan and the Directors� Plan, respectively.

2005 Employee Stock Purchase Plan

The Employee Stock Purchase Plan, or ESPP, allows eligible employee participants to purchase shares of our common stock at a discount through payroll deductions. The ESPP consists of a six-month fixed offering period. Purchases are generally made on the last trading day of each October and April. Employees purchase shares at each purchase date at 85% of the market value of our common stock on the beginning or the end of the purchase period, whichever price is lower.

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 are equal to the least of (i)�1% of the total number of shares of our common stock outstanding on December�31 of the preceding calendar year, (ii)�75,000 shares of common stock, or (iii)�a lesser amount determined by our Board of Directors.

We issued 37,096 shares at a weighted average price of $3.63 under the ESPP during the three and nine months ended September�30, 2014 and 18,843 shares at a weighted average price of $3.65 under the ESPP during the three and nine months ended September�30, 2013. At September�30, 2014, 112,536 shares were available for issuance under the ESPP.

5. Share-Based Compensation

Employee Share-Based Awards

Compensation cost for employee share-based awards is based on the grant-date fair value and is recognized over the vesting period of the applicable award on a straight-line basis. We issue employee share-based awards in the form of stock options and restricted stock units under our equity incentive plans, and stock purchase rights under the ESPP.

�

Valuation of Stock Options, Stock Purchase Rights and Restricted Stock Units

During the three and nine months ended September�30, 2014 and 2013, the per share weighted average fair value of employee stock options granted were as follows:

�

��

Three�Months�Ended
September�30,

�

��

Nine�Months�Ended
September�30,

�

��

��2014��

�

��

��2013��

�

��

��2014��

�

��

��2013��

�

Stock options

��

2.55

��

3.43

��

3.13

��

3.46

��

Restricted stock units

��

�

��

�

��

�

��

�

4.67

��

Stock purchase rights

��

�

1.04

��

�

1.41

��

�

1.48

��

�

1.53

��

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 weighted average assumptions:

�

��

Three�Months�Ended
September�30,

�

Nine�Months�Ended
September�30,

�

��

2014

�

2013

�

2014

�

2013

�

Stock Option Plans

��

�

Expected term

��

�

5.0�years

��

�

5.0�years

��

�

5.0�years

��

�

5.0�years

��

Expected volatility

��

�

%�

�

%�

�

%�

�

100

%�

Risk-free interest rate

��

�

1.74

%�

�

1.47

%�

�

1.62

%�

�

0.83

%�

Dividend yield

��

�

%�

�

%�

�

%�

�

%�

Employee Stock Purchase Plan

��

�

Expected term

��

�

0.5 years

��

�

0.5 years

��

�

0.5 years

��

�

0.5 years

��

Expected volatility

��

�

%�

�

%�

�

%�

�

%�

Risk-free interest rate

��

�

0.10

%�

�

0.12

%�

�

0.67

%�

�

0.13

%�

Dividend yield

��

�

%�

�

%�

�

%�

�

%�

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 estimate assumes no dividends will be paid prior to the vesting of the restricted stock unit.

As of September�30, 2014, there was $4,627,000, $1,191,000, and $11,000 of total unrecognized compensation expense related to unvested stock option awards, unvested restricted stock units and stock purchase rights, respectively, which are expected to be recognized over a weighted average period of 2.7 years, 2.2 years, and 0.1 years, respectively.

Share-based compensation capitalized at September�30, 2014 was not material.

6. Net Loss per Share

Basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period. The following items were excluded from the net loss per share calculation for the three and nine months ended September�30, 2014 and 2013 because the inclusion of such items would have had an anti-dilutive effect:

�

��

Three Months Ended

�

��

Nine Months Ended

�

��

September�30,

�

��

September�30,

�

��

2014

�

��

2013

�

��

2014

�

��

2013

�

Stock options

��

�

2,867,209

��

�

2,031,155

��

�

2,541,809

��

�

1,541,034

��

Restricted stock units

��

�

388,263

��

�

526,950

��

�

443,719

��

�

263,475

��

Warrants to purchase common stock

��

�

6,807,727

��

�

6,462,066

��

�

6,721,312

��

�

6,462,066

��

Shares issuable upon conversion of convertible debt

��

�

5,382,363

��

�

1,115,250

��

�

4,657,757

��

�

557,625

��

�

7. Financing Obligations

Autoliv ASP, Inc.

In June 2010, in return for transfer to us of all rights, title and interest in a production line for the commercial manufacture of chemical heat packages completed or to be completed by Autoliv ASP, Inc., or Autoliv, on behalf of us, we paid Autoliv $4,000,000 in cash and issued Autoliv a $4,000,000 unsecured promissory note. In February 2011, we entered into an agreement to amend the terms of the unsecured promissory note. Under the terms of that amendment, the original $4,000,000 note was cancelled and a new unsecured promissory note was issued with a reduced principal amount of $2,800,000, or the New Note. The New Note bears interest beginning on January�1, 2011 at 8%�per annum and is being paid in 48 consecutive and equal monthly installments of approximately $68,000.

Teva Pharmaceuticals USA, Inc.

In May 2013, concurrent with the Teva Agreement (see Note 9), we entered into a Convertible Promissory Note and Agreement to Lend, dated as of May�7, 2013, between us and Teva, or the Teva Note. Under the terms of the Teva Note, we may, upon written notice to Teva, draw upon the Teva Note to fund agreed operating budgets related to ADASUVE. The aggregate drawdowns may total up to $25,000,000 and will be due and payable, together with all interest, on the fifth anniversary of the signing of the Teva Note. We may prepay, from time to time, up to one-half of the total amounts advanced plus the related interest outstanding at any time prior to the maturity date. At any time prior to five days before the maturity date, Teva will have the right to convert the then outstanding amounts into shares of our common stock at a conversion price of $4.4833 per share. The Teva Note bears simple interest of 4%�per year. We have two years from the effective date of the Teva Note to receive advances.

As of the end of the second quarter of 2014, we had fully drawn down $25,000,000 against the Teva Note. At the time of the drawdowns, the contractual conversion price was less than the value of our common stock. As a result, at each draw down date, we calculated the value of the beneficial conversion feature of the convertible note and recorded an increase to additional paid-in-capital and a discount on the Teva Note which is being amortized to interest expense over the life of the borrowing. Additionally, at each draw, we reclassified the relative portion of the unamortized right-to-borrow asset, classified as an Other Asset, (see Note 9) against the Teva Note, which will is also being amortized to interest expense over the life of the borrowing. The following table shows the effective interest rate for each drawdown after taking into consideration the beneficial ownership features and the right-to-borrow asset discount.

�

��

Draw
Amount

�

��

Beneficial
Conversion
Feature

�

��

Reclassified
Unamortized
Right-to-
Borrow

�

��

Effective
Interest
Rate

�

September 2013

��

10,000,000

��

2,455,000

��

900,000

��

�

13.9

%�

December 2013

��

�

5,000,000

��

�

657,000

��

�

393,000

��

�

9.9

%�

March 2014

��

�

5,000,000

��

�

883,000

��

�

318,000

��

�

11.6

%�

June 2014

��

�

5,000,000

��

�

148,000

��

�

252,000

��

�

6.6

%�

Royalty Securitization Financing

In March 2014, we completed a royalty securitization financing, which consisted of a private placement to qualified institutional investors of $45,000,000 of non-recourse notes issued by our wholly-owned subsidiary, or the Notes, and warrants to purchase 345,661 shares of our common stock at a price of $0.01 per share exercisable for five years from the date of issuance. The Notes bear interest at 12.25%�per annum payable quarterly beginning June�15, 2014. All royalty and milestone payments under the Teva Agreement, after paying interest, administrative fees, and any applicable taxes, will be applied to principal and interest payments on the Notes until the Notes have been paid in full.

From the proceeds of the transaction, we established a $6,890,000 interest reserve account, which is classified as a noncurrent asset, to cover any potential shortfall in interest payments. Any remaining amounts in the interest reserve account will be released to us commencing June�15, 2015, subject to meeting certain net sales targets for ADASUVE, or, if not previously released, on December�15, 2015, irrespective of ADASUVE net sales. At September�30, 2014, $4,160,000 remained in the interest reserve account.

The Notes are secured by the right to receive royalty and milestone payments under the Teva Agreement and our equity ownership in the wholly-owned subsidiary. The Notes have no other recourse to us. The Notes may not be redeemed at our option until after March�18, 2016, and may be redeemed after that date subject to the achievement of certain milestones and the payment of a redemption premium for any redemption occurring prior to March�19, 2019. The Notes are not convertible into Alexza equity, nor have we guaranteed them.

�

We valued the warrants issued to the debt holders utilizing the Black-Scholes valuation model with an assumed volatility of 87%, an estimated life of 5 years, a 1.54% risk-free interest rate and a dividend rate of 0%. The total value of the warrants, $1,721,000, was recognized as an increase to Additional Paid In Capital and as a discount to the Notes. The amount will be amortized into interest expense over a five-year period. We incurred total fees and expenses of $4,171,000, which we recorded as a noncurrent Other Asset, and are amortizing into interest expense over a five-year period.

Future Scheduled Payments

Future scheduled principal payments under the debt obligations as of September�30, 2014 are as follows (in thousands):

�


�	��	Total		�
2014 - remaining 3 months	��	�	201	��
2015	��	�	��	��
2016	��	�	��	��
2017	��	�	��	��
2018	��	�	25,000	��
Thereafter	��	�	��	��
	��	�	�	�
Total	��	$	25,201	��
	��	�	�	�

The above table excludes any payments pursuant to the $45,000,000 from the royalty securitization financing notes of our wholly-owned subsidiary, which have a legal maturity date in 2027. The principal payments by the subsidiary under the royalty securitization financing will be dependent upon the timing and amounts of royalties and milestone payments received under the Teva Agreement.

8. Facility Leases

We lease a building in Mountain View, California. We recognize rental expense on a straight-line basis over the initial term of the lease. Differences between the straight line rent expense and rent payments are classified as deferred rent liability on the balance sheet. The lease for the building expires on March�31, 2018, and we have two options to extend the lease for five years each.

9. License Agreements

Grupo Ferrer Internacional, S.A.

On October�5, 2011, we and Ferrer entered into the Ferrer Agreement to commercialize ADASUVE in the Ferrer Territories. Under the terms of the Ferrer Agreement, we received an upfront cash payment of $10,000,000, of which $5,000,000 was paid to the former stockholders of Allegro. The Ferrer Agreement provided for up to an additional $51,000,000 in additional milestone payments, contingent on approval of the EU Marketing Authorization Application, or MAA, certain individual country commercial sales initiations and royalty payments based on cumulative net sales targets in the Ferrer Territories. We are responsible for the MAA for ADASUVE. The MAA was submitted to the European Medicines Agency, or EMA, and was approved in February 2013 by the European Commission, or EC. We are also responsible for all post-authorization clinical studies required by the EMA and EC. Ferrer is responsible for the satisfaction of all other regulatory and pricing requirements to market and sell ADASUVE in the Ferrer Territories. Ferrer has the exclusive rights to commercialize the product in the Ferrer Territories. We supply ADASUVE to Ferrer for all of its commercial sales, and receive a specified per-unit transfer price paid in Euros. Either party may terminate the Ferrer Agreement for the other party�s uncured material breach or bankruptcy. The Ferrer Agreement continues in effect on a country-by-country basis until the later of the last to expire patent covering ADASUVE in such country or 12�years after first commercial sale. The Ferrer Agreement is subject to earlier termination in the event the parties mutually agree, by a party in the event of an uncured material breach by the other party or upon the bankruptcy or insolvency of either party.

In March 2012, we entered into an amendment to the Ferrer Agreement. We and Ferrer agreed to extinguish the potential MAA approval milestone payment in exchange for Ferrer�s purchase of 241,936 shares of our common stock for $12.40 per share for a total of $3,000,000, which reflected a premium on the fair value of our common stock of approximately $1,452,000 at the time of the transaction.

We evaluated whether the delivered elements under the Ferrer Agreement have value on a stand-alone basis and allocated revenue to the identified units of accounting based on relative fair value. We determined that the license and the development and regulatory services are a single unit of accounting as the licenses were determined not to have stand-alone value. We have begun to deliver all elements of the arrangement and are recognizing the $10,000,000 upfront payment as revenue ratably over the estimated performance period of the agreement of four years. The $1,452,000 premium received from the sale of common stock to Ferrer is

�

additional consideration received pursuant to the Ferrer Agreement and does not pertain to a separate deliverable or element of the arrangement, and thus is being deferred and recognized as revenue in a manner consistent with the $10,000,000 upfront payment. We recognized revenue related to the amortization of the upfront payment and premium of $364,000 and $1,457,000 during the three and nine months ended September�30, 2014, respectively and $729,000 and $2,186,000 of revenue in the same periods in 2013, respectively. As of September�30, 2014, we had deferred revenue of $3,643,000 related to the upfront payment and premium received.

The Ferrer Agreement, as amended, provides for us to receive up to $48,000,000 of additional payments related to first commercial sales in nine identified countries and cumulative net sales targets in the Ferrer Territories. The cumulative net sales targets will be recognized as royalty revenue when each target is earned and payable to us. The first commercial sales payments in the nine identified countries were or will be recognized utilizing the milestone method of revenue recognition. We believe each of these milestones is substantive as there is uncertainty that the milestones will be met, the milestone can only be achieved as a result of our past performance and the achievement of the milestone will result in additional payment to us. We will recognize milestone revenue upon first commercial sales in each of these identified countries. In 2013, we received and recognized revenue on the first milestone in the amount of $1,250,000, for the first product sale in Germany, of which $312,500 was paid to the former stockholders of Allegro (see Note 3). In January 2014, we recognized revenue in the amount of $1,000,000 from a milestone payment for the first product sale in Spain, of which $250,000 was paid to the former stockholders of Allegro (see Note 3).

Teva Pharmaceuticals USA, Inc.

In May 2013, we entered into the Teva Agreement to provide Teva with an exclusive license to develop and commercialize ADASUVE in the United States. Under the terms of the Teva Agreement, Teva is responsible for all U.S. development, regulatory and commercialization activities for ADASUVE, including the U.S. post-approval clinical studies and any additional clinical trials for new indications. Teva has the full right to sublicense its rights and obligations under the Teva Agreement. We are responsible for manufacturing and supplying ADASUVE to Teva for clinical trials and commercial sales. Teva has the exclusive rights to commercialize ADASUVE and AZ-104 in the United States and the co-exclusive rights, with us and our affiliates, to manufacture the product.

In May 2013, we received an upfront cash payment of $40,000,000 from Teva, $10,000,000 of which was paid to the former stockholders of Allegro. We are eligible to receive up to $195,000,000 in additional payments contingent on Teva�s successful completion of the ADASUVE post-approval studies in the United States and Teva achieving specified net sales targets. In addition to these payments, we supply ADASUVE to Teva for all of its clinical trials and commercial sales, and we receive a specified per-unit transfer price in an amount of the greater of our costs of commercial production or a specified per-unit price. Teva makes tiered royalty payments based on net commercial sales of ADASUVE in the United States. In March 2014, Teva announced the U.S. launch of ADASUVE. In March 2014, we completed a royalty securitization financing, in which we transferred certain rights to U.S. royalty and milestone payments under the Teva Agreement to a wholly-owned subsidiary. The subsidiary then sold $45,000,000 in notes backed by the royalty and milestone payments in a private placement to institutional accredited investors. The notes have no recourse to us, other than to our equity interest in our wholly-owned subsidiary, and we did not guarantee the notes.

Unless earlier terminated, the Teva Agreement continues in effect until the later of the last to expire patent covering ADASUVE in the United States or a specified number of years after first commercial sale. The Agreement is subject to earlier termination in the event the parties mutually agree, by a party in the event of an uncured material breach by the other party or upon the bankruptcy or insolvency of either party. Teva may also terminate the Teva Agreement in the event the U.S. Food and Drug Administration requires withdrawal or suspension of ADASUVE from the market due to safety reasons or, subject to a specified period of notice, for Teva�s convenience at any time following the first anniversary of the Teva Agreement.

We evaluated whether the delivered elements under the Teva Agreement have value on a stand-alone basis and allocated revenue to the identified units of accounting based on relative fair value. We determined that the license fees are a single unit of accounting and valued the license based on its best estimate of selling price, as VSOE and TPE of the selling price could not be determined. The selling price was estimated using discounted projected cash flows related to the licensed territory. We have delivered the license to Teva and recognized the $40,000,000 non-refundable upfront payment as revenue during the third quarter ended June�30, 2013.

As described in Note 7, in connection with the Teva Agreement, we received a right-to-borrow under the Teva Note. We have the ability to draw on the Teva Note in amounts not to exceed $25,000,000, over a two year period. As outlined in Note 7, the Teva Note has a fixed conversion price and interest rate. This right-to-borrow was considered additional consideration provided by Teva to us pursuant to the Teva Agreement. We performed an analysis using a Monte Carlo simulation model with a volatility rate of 70% and an estimated debt yield of 15%. Based on this analysis, we determined that the fair value of this right-to-borrow was $2,800,000. We recognized this amount as revenue and as another asset upon entering into the Teva Note during the quarter ended June�30, 2013. The asset is being amortized to interest expense over the two year period during which we are able to exercise the right-to-borrow. As we draw on the Teva Note, the relative portion of the unamortized right-to-borrow is accounted for as a discount on the borrowing and will be amortized to interest expense over the life of the borrowing. As of June�30, 2014, we have drawn down the full $25,000,000.

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As noted above, we are eligible to receive up to $195,000,000 of additional payments from Teva related to Teva�s successful completion of the ADASUVE post-approval studies in the United States and Teva achieving specified net sales targets. The payments related to net sales targets will be recognized as royalty revenue when each target is earned and payable to us. The payment related to the completion of the ADASUVE post-approval studies will be recognized upon completion of the studies when the payment is earned and payable to us.

10. Autoliv Manufacturing and Supply Agreement

In November 2007, we entered into a Manufacturing and Supply Agreement, or the Manufacture Agreement, with Autoliv relating to the commercial supply of chemical heat packages that can be incorporated into our Staccato device, or the Chemical Heat Packages. Autoliv had developed these Chemical Heat Packages for us pursuant to a development agreement between Autoliv and us. Under the terms of the Manufacture Agreement, Autoliv agreed to develop a manufacturing line capable of producing 10�million Chemical Heat Packages a year.

In June 2010 and February 2011, we entered into agreements to amend the terms of the Manufacture Agreement, or together the Amendments. Under the terms of the first Amendment, we paid Autoliv $4,000,000 and issued Autoliv a $4,000,000 unsecured promissory note in return for a production line for the commercial manufacture of Chemical Heat Packages. Each production line is comprised of two identical and self-sustaining �cells,� and the first such cell was completed, installed and qualified in connection with such Amendment. Under the terms of the second Amendment, the original $4,000,000 note was cancelled and the New Note was issued with a reduced principal amount of $2,800,000, and production on the second cell ceased. The New Note is payable in 48 equal monthly installments of approximately $68,000.

Subject to certain exceptions, Autoliv has agreed to manufacture, assemble and test the Chemical Heat Packages solely for us in conformance with our specifications. We pay Autoliv a specified purchase price, which varies based on annual quantities we order, per Chemical Heat Package delivered. In October 2013, Autoliv notified us of their intent to terminate, effective October 2016, the Manufacture Agreement. Prior to October 2016, we and Autoliv remain fully obligated to perform pursuant to the terms of both the Manufacture Agreement and the New Note. The Manufacture Agreement provides that during the term of the Manufacture Agreement, Autoliv will be our exclusive supplier of the Chemical Heat Packages. In addition, the Manufacture Agreement grants Autoliv the right to negotiate for the right to supply commercially any second generation Chemical Heat Package, or a Second Generation Product, and provides that we will pay Autoliv certain royalty payments if we manufacture Second Generation Products ourselves or if we obtain Second Generation Products from a third party manufacturer. Upon the termination of the Manufacture Agreement, we will be required, on an ongoing basis, to pay Autoliv certain royalty payments related to the manufacture of the Chemical Heat Packages by us or third-party manufacturers.

11. Commitments and contingencies

From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings that arise in the ordinary course of business. We make provisions for liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No such provisions have been made for the three and nine-months ended September 30, 2014 and 2013. Litigation and related matters are inherently unpredictable. If any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of operations of that period or on our cash flows and liquidity.

12. Subsequent Events

In October 2014, we entered into an amendment of the Ferrer Agreement and entered into a stock purchase agreement with Ferrer. Pursuant to the amendment and the stock purchase agreement, Ferrer purchased 2,000,000 shares of our common stock for $4.00 per share, whereby we agreed to eliminate certain future potential milestone payments under the Ferrer Agreement.

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Item�2. Management�s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section�27A of the Securities Act of 1933, as amended, and Section�21E of the Securities Exchange Act of 1934, as amended, which are subject to the �safe harbor� created by those sections. Forward-looking statements are based on our management�s beliefs and assumptions and on information currently available to our management. 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 ability of us and our collaborators to effectively and profitably commercialize ADASUVE, estimated product revenues and royalties associated with the sales of ADASUVE, the timing of the commercial launch of ADASUVE in various countries, the adequacy of our capital to support our operations, our ability to raise additional funds and the potential terms of such potential financings, our collaborators� ability to implement and assess the ADASUVE REMS program, the timing and outcome of the ADASUVE post-marketing studies, the prospects of our receiving approval to market ADASUVE in Latin America, the Commonwealth of Independent States countries and other countries, the implications of interim or final results of our other clinical trials, the progress and timing of our research programs, including clinical testing, the extent to which our issued and pending patents may protect our products and technology, the potential of our product candidates to lead to the development of safe or effective therapies, our ability to enter into collaborations, our future operating expenses, our future losses, our future expenditures and the sufficiency of our cash resources. 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.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item�1 of this Quarterly Report on Form 10-Q.

The names �Alexza Pharmaceuticals,� �Alexza,� �Staccato� and �ADASUVE� are trademarks of Alexza Pharmaceuticals, Inc. We have registered these trademarks with the U.S. Patent and Trademark Office and other international trademark offices. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

We are a pharmaceutical company focused on the research, development and commercialization of novel proprietary products for the acute treatment of central nervous system conditions. The Staccato^� system, our proprietary technology, is the foundation for our first approved product, ADASUVE^� (Staccato loxapine), and all of our product candidates. The Staccato system vaporizes excipient-free drugs to form a condensation aerosol that, when inhaled, allows for rapid systemic drug delivery. Because of the particle size of the aerosol, the drug is quickly absorbed through the deep lung into the bloodstream, providing speed of therapeutic onset that is comparable to intravenous, or IV, administration but with greater ease, patient comfort and convenience.

ADASUVE has been developed for the treatment of agitation associated with schizophrenia or bipolar disorder and has been approved for marketing in the United States by the U.S. Food and Drug Administration, or FDA, and in the European Union, or EU, by the European Commission, or EC. In the United States and the EU, ADASUVE is approved for similar indications. It is approved with a different number of dose strengths and has different risk mitigation and management plans in the United States and the EU. ADASUVE is our only approved product.

We have three product candidates in active development. AZ-002 (Staccato alprazolam) is being developed for the management of patients with acute repetitive seizures, sometimes called cluster seizures, or ARS. We plan to initiate a Phase 2a proof-of-concept study for AZ-002 in patients with epilepsy in the fourth quarter of 2014. AZ-008 and AZ-009 are pre-clinical new product candidates and both will incorporate the active pharmaceutical ingredient, or API, ropinirole, a dopamine agonist, into the Staccato system. We plan to develop AZ-008 for the treatment of restless legs syndrome and AZ-009 for hypomobility, freezing or �off periods� in Parkinson�s disease patients.

We have retained all rights to the Staccato system and to our product candidates other than ADASUVE and AZ-104 (Staccato loxapine, low-dose). For the U.S. market, we have licensed the exclusive rights to commercialize ADASUVE and AZ-104 to Teva Pharmaceuticals USA, Inc., or Teva. For Europe, Latin America and the Commonwealth of Independent States countries, or the Ferrer Territories, we have licensed the exclusive rights to commercialize ADASUVE to Grupo Ferrer Internacional S.A., or Ferrer. We intend to develop certain product candidates internally and to identify external resources or collaborators to develop and commercialize other product candidates.

We believe that, based on our cash, cash equivalents, marketable securities and restricted cash balances at June�30, 2014, estimated product revenues, milestone payments associated with the sale of ADASUVE, proceeds from our October 2014 stock sale to Ferrer, and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs into the fourth quarter of 2015. In light of our ongoing costs, investments in ADASUVE manufacturing and product candidate development and our projected working capital needs, we expect to need to source additional capital to finance our ongoing operations in the next twelve months. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate, or to alter our operations.

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Agitation � ADASUVE

Episodes of agitation afflict many people suffering from major psychiatric disorders, including schizophrenia and bipolar disorder. In the United States, approximately 2.4�million adults have schizophrenia and approximately 5.7�million adults have bipolar disorder. Of these patients, approximately 900,000 adult patients with schizophrenia and 5�million adult patients with bipolar disorder are currently receiving pharmaceutical treatment and are the target patient population for ADASUVE. More than 90% of patients with schizophrenia and bipolar disorder will experience agitation in their lifetimes. Our primary market research indicates that approximately 50% of treated acute agitation episodes are treated in a hospital setting. In the hospital setting, patients are routinely treated in medical emergency departments, psychiatric emergency services and inpatient psychiatric units, which are the settings where ADASUVE may be used if such facilities are enrolled in the ADASUVE Risk Evaluation and Mitigation Strategy, or REMS, program.

Commercialization Strategy Overview

Our global commercialization strategy for ADASUVE is to use strategic collaborations to commercialize ADASUVE, while maintaining control and primary responsibility for commercial manufacturing. We currently have two commercialization collaborations, one with Teva and one with Ferrer. We are continuing to seek additional commercialization collaborations to commercialize ADASUVE in territories outside the United States and the Ferrer Territories.

In December 2012, the FDA approved our New Drug Application, or NDA, for Staccato loxapine, as ADASUVE (loxapine) Inhalation Powder 10 mg for the acute treatment of agitation associated with schizophrenia or bipolar I disorder in adults. We transferred the ADASUVE NDA and related regulatory documents to Teva in June 2013, together with responsibility for post-approval commitments and conditions related to the U.S. ADASUVE approval. In March 2014, Teva announced the U.S. launch of ADASUVE.

In February 2013, the EC granted marketing authorization for ADASUVE in the EU. ADASUVE, 4.5 mg and 9.1 mg inhalation powder loxapine, pre-dispensed, is authorized in the EU for the rapid control of mild-to-moderate agitation in adult patients with schizophrenia or bipolar disorder. The ADASUVE marketing authorization requires that patients receive regular treatment immediately after control of acute agitation symptoms, and that ADASUVE is administered only in a hospital setting under the supervision of a healthcare professional. The ADASUVE marketing authorization also states that a short-acting beta-agonist bronchodilator treatment should be available for treatment of possible severe respiratory side-effects, such as bronchospasm. The EC granted the marketing authorization for ADASUVE on the basis of the positive opinion issued by the European Medicines Agency, or EMA, in December 2012 and is valid in all 28 EU Member States, plus Iceland, Liechtenstein and Norway.

We have primary responsibility for certain post-approval commitments related to the EU ADASUVE approval. Two of the five commitments related to the EU approval have been completed and submitted to the EMA. We have also completed the required work to extend the shelf-life of ADASUVE from 24 months to 36 months. These data have been submitted and have been accepted, so that ADASUVE now has a 36 month expiry for commercial product.

We are, and expect to continue to be, responsible for the commercial manufacturing of ADASUVE in our facility in Mountain View, California for commercialization in the United States, the Ferrer Territories and in any potential future territories. This facility has been inspected by the U.S. and EU authorities and operates under applicable U.S. and EU regulations.

We began manufacturing commercial quantities of ADASUVE in the second quarter of 2013 and continue to manufacture commercial product for Ferrer and Teva. Shipments over the last four quarters consisted of the following:

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Q4�2013

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Q1�2014

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Q2�2014

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Q3�2014

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EU Units

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11,863

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9,433

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U.S. Units

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9,307

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23,031

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Total Units

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21,170

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28,221

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27,828

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As of the end of the third quarter of 2014, we have shipped 60,847 units to Ferrer (representing six different language-based stock keeping units, or SKU�s) and 83,404 units to Teva. We believe that we have completed the initial product inventory stocking of ADASUVE for the U.S. and EU markets. We do not expect to ship any additional inventory during the fourth quarter of 2014. Beginning in 2015, we expect additional shipments of product to Ferrer and Teva to be based on product sales in their respective

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territories. We expect no product revenues, which are based on shipping finished product to our collaborators in the fourth quarter of 2014, other than the revenue associated with product shipped in the third quarter and accepted/recognized in the fourth quarter of 2014.

Because our current license and supply agreements provide our collaborators with an acceptance period during which they may reject any product that does not conform to agreed-upon specifications, revenue for units shipped may be recognized in a period subsequent to the period in which the units are shipped. With the royalties associated with our Teva agreement, royalties on actual product sales may be recognized in periods subsequent to when revenue is recognized for units shipped for inventory.

ADASUVE is our only product approved for commercialization. In the United States, ADASUVE must be administered only in healthcare facilities enrolled in the ADASUVE REMS program that have immediate access on-site to equipment and personnel trained to manage acute bronchospasm, including advanced airway management (intubation and mechanical ventilation). If Teva is not able to successfully commercialize ADASUVE in the U.S., or if Ferrer is not able to successfully commercialize ADASUVE in the Ferrer Territories, our ability to generate revenue will be jeopardized and, consequently, our business will be seriously harmed.

Commercialization Strategy and Post-Approval Commitments � United States

In May 2013, we entered into a License and Supply Agreement with Teva, or the Teva Agreement, which provides Teva with an exclusive license to develop and commercialize ADASUVE in the United States. Under the terms of the Teva Agreement, Teva is responsible for all U.S. development, regulatory and commercialization activities for ADASUVE, including the U.S. post-approval clinical studies. Teva also has rights to conduct additional clinical trials of ADASUVE for potential new indications. We are responsible for manufacturing and supplying ADASUVE to Teva for clinical trials and commercial sales. Teva has the exclusive rights to commercialize ADASUVE in the United States and the co-exclusive rights, with us and our affiliates, to manufacture the product.

As a condition of the approval of ADASUVE in the United States, a REMS program including �elements to assure safe use,� is required to be implemented and periodically assessed. Among other requirements in the REMS, ADASUVE is only available in healthcare facilities and hospitals enrolled in the ADASUVE REMS program. As an additional condition of U.S. approval, ADASUVE is subject to a post-marketing commitment and a number of post-marketing studies, including a 10,000 patient Phase 4 observational clinical study designed to gather patient safety data based on the �real-world� use of ADASUVE in the hospital setting and a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients. The data derived from any post-marketing study or trial could result in additional restrictions on the commercialization of ADASUVE through changes to the approved ADASUVE label, changes to the approved REMS, the imposition of additional post-marketing studies or trials, or even the withdrawal of the approval of ADASUVE from the market.

ADASUVE is being marketed by the Teva Select Brands team, or TSB, of Teva�s U.S. Specialty Pharmaceuticals business, which is a subsidiary of Teva Pharmaceutical Industries, Ltd. In March 2014, TSB announced the U.S. launch of ADASUVE, with dedicated sales and medical science liaison teams focusing on hospitals in the United States that treat a high volume of patients with agitation. Teva has set the per-dose price of ADASUVE and has received a C-Code from the Centers for Medicare and Medicaid Services, or CMS, to aid in reimbursement for use of ADASUVE in the hospital through the Outpatient Prospective Payment System. Teva has also launched the website for the ADASUVE REMS program (www.adasuverems.com) to provide information about the program and to allow healthcare facilities to complete the enrollment in the REMS program in order to purchase ADASUVE from specialty wholesalers. In March 2014, we completed a royalty securitization financing, in which we transferred our rights to U.S. royalty and milestone payments under the Teva Agreement to a wholly-owned subsidiary. The subsidiary then sold $45.0 million in notes backed by the royalty and milestone payments in a private placement to institutional accredited investors. The notes have no recourse to us, other than to our equity interest in our wholly-owned subsidiary, and we did not guarantee the notes.

Commercialization Strategy and Post-Approval Commitments � European Union and additional Ferrer Territory Countries

In October 2011, we entered into a commercial collaboration with Ferrer pursuant to a Collaboration, License and Supply Agreement, or the Ferrer Agreement, to commercialize ADASUVE in the Ferrer Territories. We supply ADASUVE to Ferrer for all of its commercial sales and receive a specified per-unit transfer price. We were responsible for gaining initial EU marketing authorization for ADASUVE and are responsible for specific EU post-marketing commitments required by the marketing authorization for ADASUVE. Ferrer is responsible for satisfying all other regulatory, pricing and reimbursement requirements to market and sell ADASUVE in the EU Member States and the non-EU countries of the Ferrer Territories.

The Ferrer Territories include the EU Member States and countries outside of the EU. In the EU, Ferrer has initiated a launch plan based on estimated market opportunity, timing of pricing and projected reimbursement, and coordination with distribution collaborators. ADASUVE is now available in nine countries in the EU (Germany, Austria, Romania, Sweden, Norway, Denmark, Finland, Spain and France). ADASUVE is now available in more than 260 hospitals in the EU. Ferrer anticipates

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additional EU country launches in the remainder of 2014 and 2015. In 2014, Ferrer has also received approval to market ADASUVE in Guatemala, Chile and Costa Rica. In the other non-EU Ferrer Territories, Ferrer continues to interact with various regulatory agencies and working on the required independent regulatory submissions.

In countries where Ferrer does not have a direct commercial presence, it is seeking to establish distribution agreements with companies that it believes have sales capabilities in the hospital and/or psychiatry markets. As of September�30, 2014, Ferrer had established ADASUVE distribution agreements with AOP Orphan Pharmaceuticals AG, BioProjet, Galenica SA and Medivir AB for sale of the product in countries where Ferrer does not have a direct sales organization.

As a part of its education, market conditioning and commercialization strategy, Ferrer is building awareness about agitation and ADASUVE at national and regional medical conferences, hosting medical symposia and regional educational events, and exhibiting at medical meetings with a branded ADASUVE booth in applicable territories. Also, in each country in the Ferrer Territory, we expect Ferrer to use a combination of medical science liaisons and sales representatives, as appropriate, to target hospitals and medical settings that Ferrer believes treat a high volume of patients with agitation, and to call on physicians and clinicians to educate them about agitation and promote ADASUVE.

As a condition of the ADASUVE marketing authorization in the EU, we are responsible for the conduct and funding of post-authorization studies, including:

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A benzodiazepine interaction study. This study is completed and data has been submitted to the EMA in July 2014.

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A controlled study to determine ADASUVE�s effect on cardiac rhythms, with two doses of ADASUVE. This study is completed and data has been submitted to the EMA in July 2014.

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A clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients. The initial study in this program, a Phase 1 dose-ranging study, has been initiated in collaboration with Teva and the first patient was dosed in August 2014.

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A Post-Authorization Safety Study has been initiated and the first patient was dosed in July 2014. This study is a multicenter, multinational, prospective observational study to evaluate the safety of ADASUVE when used in the routine clinical setting in agitated patients. The study is intended to enroll approximately 1,500 patients from a total of about 20 to 25 centers in five to six EU countries over a 24-month enrollment period.

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A Drug Utilization Study is expected to be initiated in the fourth quarter of 2014. This multicenter, multinational study entails retrospective review of medical records of patients receiving ADASUVE in real-world settings. The study is expected to include a total of approximately 1,000 patients from a total of about 20 to 25 centers in five to six EU countries over an 18-month enrollment period.

Commercialization Strategy � Other Countries

We continue to seek additional strategic collaborators to commercialize ADASUVE in countries outside of the United States and the Ferrer Territories.

Product Candidate Development

We have retained all rights to the Staccato system and our product candidates other than those for ADASUVE and AZ-104. We intend to capitalize on our internal resources to develop certain product candidates and to identify routes to utilize external resources to develop and commercialize other product candidates.

AZ-002 (Staccato alprazolam) for Acute Repetitive Seizures

Epilepsy, a disorder of recurrent seizures, affects approximately 2.5�million Americans, making it the third most common neurological disorder in the United States.�ARS refers to seizures that are serial, clustered, or crescendo, and ones that are distinct from the patient�s usual seizure pattern with an onset easily recognized by caregiver and physician.�Typically there is recovery between seizures. Among the implications of ARS are concerns for patient safety. Prolonged or recurrent seizure activity persisting for 30 minutes or more may result in serious injury, health impacts or death that correlate directly with seizure duration. ARS, if left untreated, has been reported to evolve into a state of persistent seizure, or status epilepticus, which has a 3% mortality rate in children and 26% in adults.

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Benzodiazepines are considered to be medications of first choice for the treatment of acute seizures. Clinical advantages of benzodiazepines include relatively rapid onset of action, high efficacy and minimal toxicity. The rapidity by which a medication can be delivered to the systemic circulation and then to the brain plays a significant role in reducing the time needed to treat seizures and reducing the likelihood of damage to the central nervous system. Current standard of care for ARS is the rectal gel formulation of diazepam, which must be administered by a caregiver or healthcare professional. In our market research, patients surveyed have commented that they find that the rectal gel takes longer to work than they would like and that the route of administration is sub-optimal and cannot be used in public. Intravenous benzodiazepines are rapid acting, but must be administered by a healthcare professional in a medical facility.

The ability to treat quickly is clinically imperative to prevent an epileptic event from evolving into status epilepticus or causing other serious complications. We believe a product that can be administered easily in the home setting to effectively treat ARS may result in avoiding a trip to the hospital for treatment or diminishing the need to use the rectal formulation of diazepam.

If approved, AZ-002 could reduce the use of IV or rectal benzodiazepines in treating patients who experience ARS. The potential benefits of AZ-002 may include a faster delivery to the blood stream, when compared to rectal delivery, and greater ease of use. AZ-002 could be administered after a first seizure in a cluster with the aim of preventing further seizures. The caregiver could provide dosing assistance between cluster seizures. We believe that alprazolam�s ability to inhibit anxiety, or anxiolytic action, may provide additional therapeutic benefits to ARS patients. We own full development and commercial rights to AZ-002. We have applied for orphan drug status with the FDA for AZ-002 and expect to apply for orphan drug status in the EU. There is no assurance that AZ-002 will receive such designation.

We plan to initiate a Phase 2a proof-of-concept study for AZ-002 in the fourth quarter of 2014. The Phase 2a clinical trial is designed to be an in-clinic, randomized, double-blind, evaluation of patients with epilepsy. The primary aim of this study will be to assess the safety and pharmacodynamic electroencephalographic effects of a single dose of AZ-002 at different dose strengths. Data from this clinical trial are expected to serve as the basis for dose determination in potential future efficacy and safety clinical studies. We own full development and commercial rights to AZ-002.

Staccato Ropinirole

We have identified two new preclinical product candidates for development based on the single-dose Staccato platform currently being manufactured in our facility. We believe using the Staccato manufacturing capability and regulatory knowledge for ADASUVE into our new product candidates could increase manufacturing efficiency, reduce costs and reduce development time. The new product candidates AZ-008 and AZ-009 will incorporate the API ropinirole, a dopamine agonist, into the Staccato system. We plan to develop AZ-008 for the acute treatment of restless legs syndrome and AZ-009 for hypomobility, freezing or �off periods� in Parkinson�s disease.

AZ-008 (Staccato ropinirole) for Acute Treatment of Restless Legs Syndrome

Restless Legs Syndrome, or RLS, affects 2-3% of the adult U.S. population. RLS is characterized by restlessness in the legs which can be accompanied by uncomfortable sensations, such as leg cramps, and an urge to move the legs. Symptoms start at rest and commonly worsen at night. About 80% of people with RLS have periodic limb movements of sleep, which can cause night-time arousals, and reduce the quality and quantity of sleep. In an acute situation, RLS may delay sleep, and can negatively affect quality of life. Over time, if RLS becomes more severe, the acute symptoms can occur in the morning, earlier in the day by two to four hours, can spread to other body parts, and increase in intensity. This is referred to as augmentation and occurs once patients start taking chronic medications to treat their symptoms.

According to physicians interviewed in our market research, RLS symptoms can occur as frequently as one to two nights per week in approximately a quarter of RLS patients. These patients are generally not taking medication chronically for RLS at this stage, their symptom occurrence is not predictable, yet the acute episodes can impair sleep and function. Once a patient has symptoms three or more times per week, they become a candidate for chronic treatment to try to prevent symptoms from occurring. Although some patients get adequate control of RLS with chronic treatment, they can still have breakthrough episodes of acute symptoms.

We believe AZ-008 could play a role in treating acute and episodic or breakthrough RLS symptoms in patients who may or may not be taking chronic treatment. We believe the benefits of AZ-008 may include: (i)�rapidly treating the acute symptoms when they occur at night which may allow patients to calm their legs and go to or get back to sleep; and (ii)�providing an acute treatment option for patients who are not yet taking chronic treatment and deferring starting chronic, maintenance therapy that can lead to augmentation of RLS symptoms. Forty-one percent of physicians surveyed in our market research (n=114) see this product candidate as a potential significant improvement over currently available options for treating these symptoms. We believe that rapidly treating the acute symptoms could address a need in RLS patients for whom the acute symptoms can seriously impair quality of life.

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AZ-009 (Staccato ropinirole) for Hypomobility, Freezing or �Off� Periods in Parkinson�s Disease

According to the Parkinson�s Disease Foundation, as many as one million people in the United States live with Parkinson�s Disease, or PD, which is a progressive neurodegenerative disorder that is characterized by a broad spectrum of motor and non-motor features that can have an impact on the function of the patient. One of these clinical features is acute and intermittent hypomobility, or freezing during �off periods� which tends to manifest in more advanced patients.

Freezing is a form of akinesia, or loss of movement, and is one of the most disabling symptoms of PD. It may occur in about half of PD patients and according to our physician survey (n=111), can occur at any time of the day, and multiple times per day or week depending on the patient. Freezing most commonly affects the legs during walking, and because of this, is a common cause of falls, which can cause substantial social and clinical consequences for patients. Our interviews with neurologists who specialize in treating PD describe a freezing episode as unpredictable and sudden, and lasting 10 to 30 minutes. Although these freezing episodes can be mitigated by treatment with dopamine agonists, only oral and injectable treatment options are currently available for patients to treat themselves at home.

According to neurologists we surveyed who specialize in treating these patients, AZ-009 could play a role in treating the PD population that is currently underserved with current treatment options for freezing. According to the physicians we surveyed, speed of onset of treatment is considered crucial in treating these episodes, and about half of surveyed physicians (n=111) see this product candidate as a potential significant improvement over currently available options for treating these symptoms. We believe the benefits of AZ-009 include the rapid relief of freezing that occurs anytime during the day, without the need for self-injection or waiting for the effects of oral medications, thus providing an as needed treatment option in this difficult-to-treat patient population in which we believe there is general dissatisfaction with treatments.

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. 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. We plan to seek additional collaborators for the worldwide development and commercialization for all of our product candidates. If we enter into additional collaboration agreements, third parties could have control over preclinical development, clinical trials or the regulatory process for some of our product candidates. Accordingly, the progress of such product candidate would 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 collaboration arrangements or how such arrangements would affect our development plans or capital requirements. We anticipate that we and any collaborators 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.

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 our product candidates, we anticipate that we and our collaborators 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.

Financing update

In May 2013, concurrent with the Teva Agreement, we entered into the Teva Note. Under the terms of the Teva Note, we may, upon written notice to Teva, draw upon the Teva Note to fund agreed operating budgets related to ADASUVE. The aggregate draw-downs may total up to $25.0 million and will be due and payable on the fifth anniversary of the signing of the Teva Note. We may prepay, from time to time, up to one-half of the total amounts advanced plus the related interest outstanding at any time prior to the maturity date. At the maturity date, Teva will have the right to convert the then outstanding amounts into shares of Alexza common stock at a conversion price of $4.4833 per share. The Teva Note bears simple interest of 4%�per year. We have two years from the effective date of the Teva Note to receive advances. In 2013, we drew down $15.0 million against the Teva Note and in 2014, we drew down the remaining $10.0 million against the Teva Note.

In March 2014, we completed a royalty securitization financing, which consisted of a private placement to qualified institutional buyers and accredited institutional investors of $45.0 million of non-recourse notes issued by our wholly-owned subsidiary, or the Notes, and warrants to purchase 345,661 shares of our common stock at a price of $0.01 per share exercisable for five years from the date of issuance. The Notes were issued by our wholly-owned subsidiary and bear interest at 12.25%�per annum payable quarterly beginning June�15, 2014. All royalty and milestone payments under the Teva Agreement, after paying interest, administrative fees, and any applicable taxes, will be applied to principal and interest payments on the Notes until the Notes have been paid in full. From the proceeds of the transaction, we established a $6.9 million interest reserve account to cover potential shortfall in interest payments.

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Any remaining amounts in the interest reserve account will be released to us commencing June�15, 2015, subject to meeting certain net sales targets for ADASUVE, or, if not previously released, on or after December�15, 2015, irrespective of ADASUVE net sales. All other payments of principal and interest on the Notes will be made from royalty revenues from sales in the U.S. of ADASUVE, as well as potential U.S. commercialization and regulatory milestone payments due to us. The Notes are secured by the right to receive royalty and milestone payments under the Teva Agreement and our equity ownership in the wholly-owned subsidiary. The Notes have no other recourse to us. The Notes may not be redeemed at our option until after March�18, 2016, and may be redeemed after that date subject to the achievement of certain milestones and the payment of a redemption premium for any redemption occurring prior to March�19, 2019. The Notes are not convertible into Alexza equity, nor have we guaranteed them. After fees and expenses, the net proceeds to us were approximately $41.0 million before the establishment of the interest reserve account.

In October 2014, we entered into an amendment of the Ferrer Agreement and entered into a stock purchase agreement with Ferrer. Pursuant to the amendment and the stock purchase agreement, Ferrer purchased 2,000,000 shares of our common stock for $4.00 per share, in exchange for the elimination of certain future potential milestone payments under the Ferrer Agreement.

We were incorporated December�19, 2000. We have funded our operations primarily through the sale of equity securities, equipment financings, debt financings and government grants. We have incurred significant losses since our inception. As of September�30, 2014, our accumulated deficit was $404.3�million and total stockholders� deficit was $49.0 million. We recognized net losses of $30.0 million, $39.6 million, $28.0 million, and $40.5�million in the nine months ended September�30, 2014 and in the years ended December�31, 2013, 2012 and 2011, respectively. We began recognizing ADASUVE product revenues in the second quarter of 2013 in the EU and in the fourth quarter of 2013 in the United States. Teva launched ADASUVE in the United States in March 2014, and we began to earn royalty revenues from U.S. sales in the second quarter of 2014. We expect our fourth quarter operating expenses to remain consistent with current levels as we expect to increase our clinical development expenditures to increase modestly as we move forward with the development of AZ-002, AZ-008 and AZ-009, which are projected to be offset by our focus on developing operational efficiencies in our commercial manufacturing efforts.

Results of Operations

Comparison of Three and Nine Months Ended September�30, 2014 and 2013

Revenue

Revenue for the three and nine months ended September�30, 2014 and 2013 were:

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Three�Months�Ended
September�30,

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��

Nine Months Ended
September�30,

�

��

2014

�

��

2013

�

��

2014

�

��

2013

�

Product revenue

��

188

��

1,646

��

294

��

Milestone revenue

��

�

��

�

1,250

��

�

1,000

��

�

1,250

��

Amortization of upfront payments

��

�

364

��

�

728

��

�

1,457

��

�

2,186

��

Royalty revenue

��

�

��

�

��

�

��

License revenue

��

�

��

�

��

�

��

�

42,800

��

�

��

�

��

�

��

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Total revenues

��

457

��

2,166

��

4,107

��

46,530

��

�

��

�

��

�

��

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We began shipping commercial units and recognizing revenue on ADASUVE in the second quarter of 2013 for shipments to Ferrer. We began shipping commercial units and recognizing revenue on ADASUVE in the fourth quarter of 2013 for shipments to Teva. As of September�30, 2014, we deferred $917,000 of revenues for products shipped during the third quarter of 2014, but not accepted until the fourth quarter of 2014, at which time we will recognize the revenues represented by these units.

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Milestone revenues in the nine months ended September�30, 2014 resulted from the achievement of the milestone associated with first commercial sale in Spain under the Ferrer Agreement.

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Amortization of upfront payments resulted from payments received under the Ferrer Agreement.

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Teva launched ADASUVE in the U.S. in March 2014.

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During 2013, we recognized license revenues associated with the Teva Agreement of $42.8 million, which consisted of the $40 million upfront payment and $2.8 million assigned to the right-to-borrow asset.

We expect Teva royalty revenue to increase in the fourth quarter of 2014 and continue to increase in 2015 as the rollout of ADASUVE in the U.S. continues. In addition, any royalty and milestone payments payable under the Teva Agreement will first be

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applied to repaying principal and interest on the $45.0 million of non-recourse notes that our wholly-owned subsidiary issued in our March 2014 royalty securitization financing before we are able to utilize any royalty or milestone payments under the Teva Agreement for general corporate purposes. We have completed the initial pipeline stocking for the product in the U.S. and in the EU. We expect no product revenues, which are based on shipping finished product to our collaborators in the fourth quarter, other than the revenue associated with product shipped in the third quarter and accepted/recognized in the fourth quarter of 2014. We expect hospital-level product sales, which will impact both our royalty revenue and our product revenue, to increase in 2015 as compared to 2014 as the worldwide rollout of ADASUVE continues.

Cost of Goods Sold

Cost of Goods Sold include the direct costs incurred to manufacture products sold combined with allocated manufacturing overhead, which consists of indirect costs, including labor and facility overhead. We are in the early stages of commercialization and have incurred significantly higher than normal indirect costs in the production of our inventory due to manufacturing start-up costs and low production volumes and expect to continue to incur higher than normal indirect costs until we get closer to our normal manufacturing capacity. The carrying cost of inventory is reduced so as to not be in excess of market value as determined by the contractual transfer prices to Ferrer and Teva. These amounts are expensed to cost of goods sold.

All costs associated with the manufacturing process incurred prior to the first commercial product produced in the second quarter of 2013 were expensed as a component of research and development expense. Cost of goods sold consist mainly of excess manufacturing costs during the period in addition to the cost of the units shipped. We expect to continue to incur high indirect costs until we get closer to our normal manufacturing capacity.

Research and Development Expenses

Research and development costs are identified as either directly attributable to one of our product candidates or as general research. Direct costs consist of personnel costs directly associated with a candidate, preclinical study costs, clinical trial costs, related clinical drug and device development, contract services and other research expenditures. Overhead, facility costs and other support service expenses are allocated to each product candidate or to general research, and the allocation is based on employee time spent on each program.

Research and development expenses were $3.4 million and $10.6 million during the three and nine months ended September�30, 2014, respectively, and $5.5 million and $16.5 million in the same periods in 2013, respectively. The decrease in research and development expenses in 2014 as compared to 2013 is primarily due to certain expenses related to manufacturing, supply chain and quality being classified as cost of goods sold or inventory in 2014, partially offset by additional expenses associated with our post-approval commitments related to the ADASUVE MAA.

We expect that research and development expenses will increase modestly in the fourth quarter of 2014 and in 2015 due to anticipated clinical expenses related to development of AZ-002, pre-clinical development work on AZ-008 and AZ-009, continued work related to the ADASUVE MAA post-approval commitments, and the continuation of the ADASUVE adolescent pharmacokinetic / dose-ranging study, which is being conducted in collaboration with Teva.

General and Administrative Expenses

General and administrative expenses were $3.8 million and $11.8 million during the three and nine months ended September�30, 2014 and $3.1 million and $12.0 million in the same periods in 2013, respectively. General and administrative expenses during the three months ended September�30, 2014 were consistent with the quarterly rates in the first half of 2014. We expect the level of general and administrative expenses in the fourth quarter of 2014 and in 2015 to be generally consistent with the quarterly level reported in the first nine months of 2014.

Change in the Fair Value of Contingent Consideration Liability

In connection with our acquisition of all of the outstanding equity of Symphony Allegro, Inc., or Allegro, in the third quarter of 2009, we are obligated to pay the former stockholders of Allegro certain percentages of cash receipts that may be generated from future collaboration transactions for ADASUVE, AZ-104 and/or AZ-002. We measure the fair value of this contingent consideration liability on a recurring basis. Any changes in the fair value of this contingent consideration liability are recognized in earnings in the period of the change. Certain events, including, but not limited to, clinical trial results, regulatory approval or nonapproval of our submissions, the timing and terms of a strategic partnership, and the commercial success of ADASUVE, AZ-104, and/or AZ-002, could have a material impact on the fair value of the contingent consideration liability, and as a result, our results of operations.

During the three months ended September�30, 2014, the change in the fair value estimate primarily reflects the passage of three months on the present value computation. The passage of the three months resulted in an increase to the contingent consideration

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liability and a corresponding non-operating loss of $1.1 million for the three months ended September�30, 2014. During the nine months ended September�30, 2014, we modified the assumptions associated with the amount and timing of milestones and royalties projected for ADASUVE and AZ-002, the probability that AZ-002 would be licensed or sold by us, and the effects of the passage of nine months on the present value computation. These items resulted in a decrease to the contingent consideration liability and a corresponding non-operating gain of $5.3 million for the nine months ended September�30, 2014.

During the three months ended September�30, 2013, non-operating loss was a result of the passage of three months on the present value computation of the discounted cash flow model. During the nine months ended September�30, 2013, we updated the contingent liability fair value model primarily to reflect the impact of the terms of the Teva Agreement. We also reduced the discount rate used to compute the fair value of the contingent consideration liability from 18.0% to 16.5% to reflect the reduction in our estimated weighted average cost of capital. These changes resulted in non-operating, non-cash losses of $1.6 million and $44.0 million during the three and nine months ended September�30, 2013, respectively.

Interest and Other Income/(Expense), Net

Interest and other income/(expense) was $14,000 and $22,000 for the three and nine months ended September�30, 2014, respectively, and $1,000 and $18,000 in the same periods in 2013, respectively. The amounts primarily represent income earned on our cash, cash equivalents, marketable securities and restricted cash. We expect interest income to remain nominal due to the low interest rate environment.

Interest Expense

Interest expense was $2.2 million and $5.2 million for the three and nine months ended September�30, 2014, respectively and $461,000 and $1.1 million in the same periods in 2013, respectively. The amounts represent interest on our borrowings from Autoliv ASP, Inc., or Autoliv, Teva, and the March 2014 royalty securitization financing. The increase in interest expense in 2014, as compared to 2013, was primarily due to the additional interest expense related to additional borrowings under the Teva Note and the royalty securitization financing. We expect interest expense to increase from first nine months of 2014 levels due to the higher average outstanding debt balances as a result of the 2014 borrowings.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private placements and public offerings of equity securities, revenues primarily from licensing and development agreements, government grants, debt instruments and payments from Allegro. We have received additional funding from financing obligations, interest earned on investments, as described below, and funds received upon exercises of stock options and exercises of purchase rights under our 2005 Employee Stock Purchase Plan, or ESPP. As of September�30, 2014, we had $39.0�million in cash, cash equivalents, marketable securities and restricted cash. Our cash, marketable security and restricted cash balances are held in a variety of interest bearing instruments, including obligations of U.S. government agencies, high credit rating corporate borrowers and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity, capital preservation and yield.

Cash Flows from Operating Activities. Net cash (used in) provided by operating activities was $34.4 million and $10.0 million during the nine months ended September�30, 2014 and 2013, respectively.

The net cash used in the nine months ended September�30, 2014, primarily reflects the net loss of $30.0 million and the $5.3 million non-operating, non-cash gain related to the decrease in the contingent consideration liability. These items were partially offset by the share-based compensation expense of $2.2 million and depreciation and amortization of $2.5 million. Cash flows from operating activities were also impacted by the decrease in�accounts payable of $2.1 million due to the timing of certain payments.

Cash flows from operating activities in the nine months ended September�30, 2013, primarily reflect the receipt of the $40 million upfront payment related to the Teva Agreement and the overall net loss of $33.9 million adjusted for the $44.0 million non-cash loss related to the increase of the contingent consideration liability, share-based compensation expense of $2.5 million and depreciation and amortization of $2.5 million. Cash flows from operating activities were also impacted by increases in accounts payable of $1.9 million and inventory of $2.1 million as we built inventory for the commercial production of ADASUVE and a decrease in deferred revenues of $2.2 million.

Cash Flows from Investing Activities. Net cash used in investing activities was $17.3 million and $10.1 million during the nine months ended September�30, 2014 and 2013, respectively. During the nine months ended September�30, 2014 and 2013, we had fixed asset acquisitions of $2.5 million and $1.5 million, respectively. During the nine months ended September�30, 2014 and 2013, we had purchases, net of maturities, of available-for-sale securities of $14.8 million and $8.6 million respectively.

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Cash Flows from Financing Activities. Net cash provided by (used in) financing activities was $46.0 million and $6.2 million during the nine months ended September�30, 2014 and 2013, respectively. Cash flows from financing activities have generally consisted of proceeds from the issuance of our common stock and net cash flows from our financing agreements. In the nine months ended September�30, 2014, we raised net proceeds of approximately $40.8 million through a royalty securitization financing and a drawdown of $10.0 million against the Teva Note. In the nine months ended September�30, 2013, we raised net proceeds of approximately $6.3 million from the sale of common stock under our equity line of credit with Azimuth. During the nine months ended September�30, 2014, we made $251,000 in payments to the former shareholders of Symphony Allegro as a result of the $1.0 million milestone payment we received from Ferrer related to the first commercial sale in Spain and royalties received from Teva. In addition, we made principal payments of $584,000 and $5.0 million on outstanding financing obligations during the nine months ended September�30, 2014 and 2013, respectively.

We believe that with current cash, cash equivalents, marketable securities and restricted cash balances, estimated product revenues, milestone payments associated with the sale of ADASUVE, proceeds from our October 2014 stock sale to Ferrer, and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs, at our current cost levels, into the fourth quarter of 2015. In light of our ongoing costs, investment in ADASUVE manufacturing and product candidate development, and our projected working capital needs, we expect to need to source additional capital to finance our ongoing operations in the next twelve months. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate or to alter our operations. We have based these estimates 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 these estimates include:

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expenditures related to the ADASUVE post-approval commitments to both the FDA and EC during this period being within budgeted levels;

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expenditures related to ADASUVE commercial manufacturing during this period being within budgeted levels;

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no unbudgeted growth in the number of our employees during this period; and

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no material shortfall in our budgeted revenues.

Our forecast of the period of time that our financial resources will be adequate to support operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in �Risk Factors.� In light of the numerous risks and uncertainties associated with the commercialization of ADASUVE, the commercial manufacturing of ADASUVE, the development of our product candidates and the extent to which we enter into additional strategic collaborations with third parties to participate in development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, including:

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the cost and timing of the development of our commercialization abilities;

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the commercial success of ADASUVE or any other product candidates that are approved for marketing;

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the cost, timing and outcomes of regulatory approvals or non-approvals;

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

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the terms and timing of any additional distribution, strategic collaboration or licensing agreements that we may establish;

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the number and characteristics of product candidates that we pursue;

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the cost of manufacturing ADASUVE in commercial quantities;

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the cost of establishing clinical supplies of our product candidates;

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the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

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the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

We will need to source additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to source additional funds when needed, we may not be able to successfully commercialize ADASUVE, perform our post-approval commitments to the FDA and EC, manufacture commercial quantities of ADASUVE or continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs, or other operations. We may seek to source additional funds through public or private financing, strategic collaborations or other arrangements. Any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. Applicable listing standards may affect our ability to consummate certain types of offerings of our securities in

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the future. Our February 2012 underwritten public offering involved the sale of 4,400,000 shares of our common stock and warrants to purchase an additional 4,400,000 shares of our common stock. Our March 2014 royalty securitization financing involved the issuance of warrants to purchase 345,661 shares of our common stock and requires interest payments by our wholly-owned subsidiary without recourse to us beginning in June 2014. If we source funds through additional collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to source capital when needed may harm our business, financial condition, results of operations, and prospects.

Contractual Obligations

Building Lease

We lease a building with 64,104 square feet of manufacturing, office and laboratory facilities in Mountain View, California, which we began to occupy in the fourth quarter of 2007. The lease expires on March�31, 2018, and we have two options to extend the lease for five years each. We believe that the Mountain View facility is sufficient for our office, manufacturing and laboratory needs for at least the next three years.

Autoliv

On November�2, 2007, we entered into a manufacturing and supply agreement, or the Manufacture Agreement, with Autoliv relating to the commercial supply of chemical heat packages that can be incorporated into our Staccato device. Autoliv had developed these chemical heat packages for us pursuant to a development agreement between Autoliv and us executed in October 2005.

In June 2010 and February 2011, we entered into agreements to amend the terms of the Manufacture Agreement, or the Amendments. Under the terms of the first of the Amendments, we paid Autoliv $4.0 million and issued Autoliv a $4.0 million unsecured promissory note in return for a production line for the commercial manufacture of chemical heat packages. Each production line is comprised of two identical and self-sustaining �cells,� and the first such cell was completed, installed and qualified in connection with such amendment. Under the terms of the second of the Amendments, the original $4.0 million note was cancelled and a new unsecured promissory note was issued with a reduced principal amount of $2.8 million, or the New Note, and production on the second cell ceased. The New Note is payable in 48 equal monthly installments of approximately $68,000.

We pay Autoliv a specified purchase price, which varies based on annual quantities ordered by us, per chemical heat package delivered. The initial term of the Manufacture Agreement expired on December�31, 2012, at which time the Manufacture Agreement automatically renewed for successive five-year renewal terms unless we or Autoliv notify the other party no less than 36 months prior to the end of the initial term.

In October�2013, we received from Autoliv notification of their intent to terminate, effective October�2016, the Manufacture Agreement. At such time, we will retain full ownership of the production lines for commercial manufacture of chemical heat packages developed for us by Autoliv, and Autoliv�s obligations under the Manufacture Agreement will terminate in full. Prior to October�2016, we and Autoliv will remain fully obligated to perform pursuant to the terms of the Manufacture Agreement.

Teva Note

On May�7, 2013, we entered into the Teva Note. Under the terms of the Teva Note, we may, upon written notice to Teva, receive advances to fund an agreed operating budget related to ADASUVE. The aggregate advances may total up to $25.0 million and will be due and payable on the fifth anniversary of the Note, or the Maturity Date. The Teva Note bears interest at 4%�per annum. Prior to the Maturity Date, we have the option to prepay up to one-half of the outstanding principal and accrued interest amount. On the Maturity Date, Teva has the option to convert the outstanding principal and accrued interest into Alexza common stock at a price of $4.4833 per share. As of September�30, 2014, we have drawn down the full $25.0 million.

Royalty Securitization Financing

On March�18, 2014, we entered into a royalty securitization financing, which consisted of a private placement to qualified institutional buyers and accredited institutional investors of $45.0 million of non-recourse notes issued by our wholly-owned subsidiary, or the Notes, and warrants to purchase 345,661 shares of our common stock at a price of $0.01 per share exercisable for five years from the date of issuance. The Notes bear interest at 12.25%�per annum payable quarterly beginning June�15, 2014. All royalty and milestone payments under the Teva Agreement, after paying interest, administrative fees and expenses, and any applicable taxes, will be applied to principal on the Notes until the Notes have been paid in full. From the proceeds of the transaction, we established a $6.9 million interest reserve account to cover potential shortfall in interest payments. Any remaining amounts in the interest reserve account will be released to us commencing June�15, 2015, subject to meeting certain net sales targets for ADASUVE, or, if not previously released, on or after December�15, 2015, irrespective of ADASUVE net sales. All other payments of principal and

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interest on the Notes will be made from royalty revenues from sales in the U.S. of ADASUVE, as well as potential U.S. commercialization and regulatory milestone payments due to us. The Notes are secured by the right to receive royalty and milestone payments under the Teva Agreement and our equity ownership in the wholly-owned subsidiary. The Notes have no other recourse to us. The Notes may not be redeemed at our option until after March�18, 2016, and may be redeemed after that date subject to the achievement of certain milestones and the payment of a redemption premium for any redemption occurring prior to March�19, 2019. The Notes are not convertible into Alexza equity, nor have we guaranteed them.

Future Minimum Payment Schedule

Our scheduled future minimum contractual payments, net of sublease income, including interest at March�31, 2014, are as follows (in thousands):

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Operating
Lease
Agreements

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��

Financing
Obligations

�

��

Total

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2014 - remaining 3 months

��

�

841

��

�

204

��

�

1,045

��

2015

��

�

3,197

��

�

��

�

3,197

��

2016

��

�

3,287

��

�

��

�

3,287

��

2017

��

�

3,386

��

�

��

�

3,386

��

2018

��

�

853

��

�

29,635

��

�

30,488

��

Thereafter

��

�

��

�

��

�

��

�

��

�

��

�

Total

��

11,564

��

29,839

��

41,403

��

�

��

�

��

�

As part of our purchase of all of the outstanding equity of Allegro in August 2009, we agreed to pay to the former stockholders of Allegro certain percentages of cash payments that may be generated from future collaboration transactions pertaining to ADASUVE/AZ-104 (Staccato loxapine) or AZ-002 (Staccato alprazolam). Through the first nine months of 2014, we have made $0.3 million in payments to the former stockholders of Allegro.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes in our critical accounting policies, estimates and judgments during the nine months ended September�30, 2014, compared to the disclosures in Part II, Item�7 of our Annual Report on Form�10-K for the year ended December�31, 2013.

Off Balance Sheet Arrangements

None.

Item�3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is confined to our cash, cash equivalents, marketable securities and restricted cash. 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 September�30, 2014, we had cash, cash equivalents, marketable securities and restricted cash of $39.0 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. We perform quarterly reviews of our investment portfolio and believe we have minimal exposure related to mortgage and other asset-backed securities. We have no exposure to auction rate securities.

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Item�4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

During the fourth quarter of 2013, we identified a material weakness related to the ineffective review and verification of internally prepared reports and analyses utilized in the financial statement closing process. This material weakness was identified during the quarter ended December�31, 2013. This material weakness did not result in the restatement of prior quarterly or annually filed financial statements.

Our management (with the participation of our chief executive officer and chief financial officer) has reviewed 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). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of September�30, 2014, our internal disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

To address the material weakness described above, we implemented remedial measures to improve and develop internal controls, processes and procedures in the financial statement close process. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.

Limitations on the Effectiveness of Controls.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

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PART II. OTHER INFORMATION

Item�1A. 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 Quarterly 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

Our management concluded that due to our need for additional capital, and the uncertainties surrounding our ability to source such funding, could have a negative impact on our financial condition, results of operations or our ability to execute on our strategic initiatives

We have incurred significant losses from operations since our inception and expect losses to continue for the foreseeable future. As of September�30, 2014, we had cash, cash equivalents, marketable securities and restricted cash of $39.0 million and working capital of $32.4 million. We believe that, based on our cash, cash equivalents, marketable securities and restricted cash balances at September�30, 2014, estimated product revenues, milestone payments associated with the sale of ADASUVE, the proceeds from our October 2014 stock sale to Ferrer, and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs into the fourth quarter of 2015. In light of our ongoing costs, investments in ADASUVE manufacturing and product candidate development, and our projected working capital needs, we expect to need to source additional capital to finance our ongoing operations in the next twelve months. We may not be able to source sufficient capital on acceptable terms, or at all, to continue to pursue approval to commercialize ADASUVE in the United States or other countries, to continue development of our other product candidates or to continue operations. We plan to source additional capital to fund our operations and working capital, to develop our product candidates and to continue the development of our commercial manufacturing capabilities. In addition to product revenues, royalties and milestone payments, we plan to finance our operations through the sale of equity securities, utilization of debt arrangements, or additional distribution or licensing collaborations. Such funding may not be available or may be on terms that are not favorable to us. Our inability to source capital as and when needed could have a negative impact on our financial condition, results of operations or our ability to execute on our strategic initiatives.

Our near-term prospects are dependent on ADASUVE.�If we or our collaborators are unable to successfully commercialize ADASUVE for the acute treatment of agitation in adults with schizophrenia or bipolar disease, our ability to generate significant revenue or achieve profitability will be adversely affected.

ADASUVE is our only product approved for marketing in the United States or the EU, and our ability to generate revenue in the near term is entirely dependent upon sales of ADASUVE.�We do not have any product approved for marketing outside of the United States or the EU. We or our collaborators may not be able to successfully commercialize ADASUVE for a number of reasons, including:

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we or our collaborators may not be able to establish or demonstrate in the medical community the safety and efficacy of ADASUVE and any potential advantages over existing therapeutics and products currently in clinical development;

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doctors may be hesitant to prescribe ADASUVE until results from our post-approval studies are available or other long term data regarding efficacy and safety become available;

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results from our post-approval studies may fail to verify the clinical benefit of ADASUVE for the treatment of agitation in patients with bipolar disorder and schizophrenia or may reveal unforeseen safety issues;

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our limited experience in marketing, selling and distributing ADASUVE;

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reimbursement and coverage policies of government and private payers such as Medicare, Medicaid, insurance companies, health maintenance organizations and other plan administrators;

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the relative price of ADASUVE as compared to alternative treatment options;

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the reliability of our estimates, including the frequency of agitation in many patients with bipolar disorder and schizophrenia;

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we or our collaborators may not have adequate financial or other resources to successfully commercialize ADASUVE;

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we may be unable to secure an adequate replacement manufacturer for sufficient quantities of the chemical heat packages in ADASUVE by October 2016 or the costs for such manufacturer to produce the chemical heat packages may be higher than the cost from Autoliv; and

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we may not be able to manufacture ADASUVE in commercial quantities or at acceptable costs.

If we or our collaborators are unable to successfully commercialize ADASUVE for the treatment of agitation in adults with schizophrenia or bipolar disorder, our ability to generate revenue from royalties and product sales and achieve profitability will be adversely affected and our stock price would likely decline.

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 $13.3 million, $39.6 million, $28.0 million, and $40.5 million for the nine months ended September�30, 2014 and the years ended December�31, 2013, 2012, and 2011, respectively. As of September�30, 2014, we had an accumulated deficit of $404.3 million and a stockholders� deficit of $48.8 million. We expect to continue to incur substantial net losses and negative operating cash flow through at least 2016. These losses and negative operating cash flows have had, and will continue to have, an adverse effect on our stockholders� equity and working capital.

Because of the numerous risks and uncertainties associated with the commercialization of ADASUVE by Teva and Ferrer, our ability to manufacture commercial quantities of ADASUVE and conduct pharmaceutical product development, we are unable to predict accurately the timing or amount of future revenues or expenses, or when, or if, we will be able to achieve or maintain profitability. To date we have not generated any significant product or royalty revenue. We have financed our operations primarily through the sale of equity securities, equipment financing, debt financing, collaboration and licensing agreements, and government grants. The size of our future net losses will depend, in part, on the rate of growth or contraction of our expenses and the level and rate of growth, if any, of our revenues. Revenues from strategic collaborations are uncertain because we may not enter into any additional strategic collaborations. If we or our collaborators are unable to successfully commercialize ADASUVE or one or more of our product candidates or if sales revenue from ADASUVE or 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.

Our operating results are unpredictable and may fluctuate. If our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline.

Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year. ADASUVE sales will be difficult to predict from period to period.�For example, we do not expect any shipments of ADASUVE in the fourth quarter of 2014. Product sales recognized during the fourth quarter of 2014 will represents units of ADASUVE that were shipped during the third quarter and accepted in the fourth quarter by our collaborators. We believe that our quarterly and annual results of operations may be negatively affected by a variety of factors, including:

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a failure to achieve a sufficient level of demand by patients and healthcare providers for ADASUVE;

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the timing and level of investment in our or our collaborators� sales and marketing efforts to support ADASUVE sales;

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the timing and level of investment in our or our collaborators� research and development activities involving ADASUVE; and

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expenditures we may incur to acquire or develop additional products.

In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee�s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price, the magnitude of the expense that we must recognize may vary significantly. Any such variance from one period to the next could cause a significant fluctuation in our operating results.

For these reasons, it is difficult for us to accurately forecast future profits or losses. As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors, which could cause the trading price of our common stock to decline, perhaps substantially.

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

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Teva�s success in commercializing ADASUVE in the United States;

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Teva�s executing the ADASUVE REMS program to the satisfaction of the FDA;

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Ferrer�s success in commercializing ADASUVE in the Ferrer Territories;

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the terms and success of any future licensing arrangement that we may enter into for the commercial rights for ADASUVE outside the United States and the Ferrer Territories;

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the development costs for our other product candidates;

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the cost and timing of complying with our post-approval commitments;

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the cost and timing of complying with the process for renewal of marketing authorization in the EU;

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

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the scope, rate of progress, results and costs of our commercial manufacturing development and commercial manufacturing activities;

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payments received under our collaborations with Ferrer and Teva and any future strategic collaborations;

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the continuation of the Ferrer and Teva collaborations under their agreed terms;

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the filing, prosecution and enforcement of patent claims; and

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

We believe that, based on our cash, cash equivalents, marketable securities and restricted cash balances at September�30, 2014, estimated product revenues and milestone payments associated with the sale of ADASUVE, proceeds from our October 2014 stock sale to Ferrer, and our current expected cash usage, we have sufficient capital resources to meet our anticipated cash needs into the fourth quarter of 2015, In light of our ongoing costs, investment in ADASUVE manufacturing and product candidate development, and our projected working capital needs, we expect to need to source additional capital to finance our ongoing operations in the next twelve months. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate, or to alter our operations. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently expect. The key assumptions underlying these estimates include:

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continuation of our Teva and Ferrer collaborations;

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

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no unbudgeted growth in the number of our employees during this period.

We may never be able to generate a sufficient amount of product or royalty revenue to cover our expenses. We did not generate any product revenues until the second quarter of 2013 and did not generate any royalty revenues until the second quarter of 2014. We do not expect any shipments of ADASUVE in the fourth quarter of 2014. Product sales recognized during the fourth quarter of 2014 will represents units of ADASUVE that were shipped during the third quarter and accepted in the fourth quarter by our collaborators. In addition, any royalty and milestone payments payable under the Teva Agreement will first be applied to repaying principal and interest on the $45.0 million of non-recourse notes that our wholly-owned subsidiary issued in our March 2014 royalty securitization financing before we are able to utilize any royalty or milestone payments under the Teva Agreement for general corporate purposes. We did not recognize any royalty revenues during the second or third quarter of 2014. Until we generate sufficient revenues to cover expenses, we expect to finance our future cash needs through public or private equity offerings, debt financings, strategic collaborations or licensing arrangements. Any financing transaction may contain unfavorable terms. For example, the terms of certain warrants we have issued in previous financings could require us to pay warrant holders a significant portion of the proceeds in a change of control transaction, potentially materially reducing the proceeds available to holders of our common stock. If we source additional funds by issuing equity securities our stockholders� equity will be diluted and debt financing, if available, may involve restrictive covenants. If we source additional funds through strategic collaborations, we may be required to relinquish rights to ADASUVE, our product candidates or our technologies, or to grant licenses on terms that are not favorable to us. Complying with the terms of the foregoing rights and restrictions may make it more difficult to complete certain types of transactions and result in delays to our fundraising efforts.

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We do not have sales and marketing capabilities, and consequently must rely on commercial collaborations to sell our products, and we and our collaborators may be unable to generate significant product revenue.

In December 2012, the FDA granted marketing approval for ADASUVE in the United States for the acute treatment of agitation associated with schizophrenia or bipolar I disorder in adults. The approval of ADASUVE is our first regulatory approval. We do not have a sales and marketing organization and as a company, we do not have significant experience in the sales and distribution of pharmaceutical products.

We have exclusively licensed the ADASUVE U.S. commercialization rights to Teva, which we believe will have a significant impact on the ultimate success of ADASUVE in the United States. Teva announced the U.S. launch of ADASUVE in March 2014. If Teva is unable to commercialize ADASUVE successfully in the United�States or Teva is unable to fulfill the post-marketing obligations that were required by the FDA as part of the ADASUVE NDA approval, our revenue will suffer and our stock price may decline. Teva�s commercialization efforts could also have an effect on investors� perception of potential sales of ADASUVE outside the United States, which could also cause a decline in our stock price and may make it more difficult for us to enter into additional strategic collaborations.

There are risks involved with utilizing Teva to sell our product. By licensing the U.S. commercialization rights to Teva, we may generate fewer revenues from the royalties and milestone payments under the Teva Agreement than if we commercialized ADASUVE on our own. Additionally, Teva may not fulfill its obligations or carry out selling and marketing activities as diligently as we would like. We could also become involved in disputes with Teva, which could lead to delays in or termination of commercialization programs and time-consuming and expensive litigation or arbitration. If Teva terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, the chances of successfully selling or marketing ADASUVE would be materially and adversely affected. Teva has the right to terminate the Teva Agreement with or without cause, upon 120 days notice. If Teva exercises this right, our business and operations and stock price may be negatively affected.

In February 2013, the EC granted a marketing authorization for ADASUVE, as ADASUVE (Staccato loxapine) 4.5 mg or 9.1 mg, inhalation powder, pre-dispensed. In October 2011, we entered into a commercial collaboration with Ferrer pursuant to the Ferrer Agreement, to commercialize ADASUVE in the Ferrer Territories. In July 2013, Ferrer launched ADASUVE in the EU, with the first commercial sale in Germany, and currently sells ADASUVE in Germany, Austria, Spain, Romania and the Nordic Countries (Sweden, Norway, Denmark and Finland). We expect Ferrer to launch ADASUVE in additional countries in the Ferrer Territories in 2014 and 2015. If Ferrer is unable to commercialize ADASUVE successfully in the various Ferrer Territories or we are unable to fulfill the post-marketing authorization commitments that were required as part of the marketing authorization granted for ADASUVE in the EU, our revenue will suffer and our stock price may decline.

We also intend to seek international distribution collaborators in addition to Ferrer for ADASUVE and our product candidates. If we are unable to enter into an international distribution collaboration, we will be unable to generate revenues from countries outside the United States and the Ferrer Territories.

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

Our relationships with Teva and Ferrer are, and any other strategic collaborations with pharmaceutical or biotechnology companies we may establish will be, subject to a number of risks including:

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business combinations or significant changes in a strategic collaborator�s business strategy may adversely affect a strategic collaborator�s willingness or ability to complete its obligations under any arrangement;

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

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strategic collaborators 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;

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

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

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

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strategic collaborators may experience financial difficulties;

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strategic collaborators 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;

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

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strategic collaborators, including Teva or Ferrer, could terminate the arrangement or allow it to expire, which would delay and may increase the cost of developing our product candidates or commercializing ADASUVE.

The REMS program for ADASUVE imposes, and any REMS on any other approved products may impose, regulatory burdens on the distribution and sales of ADASUVE or any other approved products and also on healthcare providers that may make the products commercially unattractive or impractical.

As a condition of FDA approval, Teva is required to have a REMS program for ADASUVE, and we may be required to implement a REMS program for any other product candidates we may develop. A REMS may include various elements, such as distribution of a medication guide or a patient package insert; implementation of a communication plan to educate healthcare providers of the drug�s risks; imposition of limitations on who may prescribe or dispense the drug, including training and certification requirements; or other measures that the FDA deems necessary to assure the safe use of the drug. The FDA has a wide degree of discretion in deciding which elements are necessary for the safe use of a product, and it may impose elements that significantly burden our ability to commercialize the product, or that burden healthcare providers to the extent that use of the product is severely curtailed.

For ADASUVE, the REMS program contains measures to ensure that the product is administered only in healthcare facilities enrolled in the ADASUVE REMS program that have immediate on-site access to equipment and personnel trained to manage acute bronchospasm, including advanced airway management (intubation and mechanical ventilation). The REMS program may not allow commercialization and use of ADASUVE in a commercially feasible manner. In the future, the FDA could impose additional REMS elements, such as if the REMS proves inadequate in managing the risk of bronchospasm associated with ADASUVE or if new safety risks emerge, and such additional elements could substantially burden or even eliminate our ability to commercialize ADASUVE in a feasible manner.

If we or our collaborators are unable to successfully complete the ADASUVE post-marketing studies required by the FDA and EC, or if data generated from the post-marketing studies indicate safety concerns, our sales could be diminished and our ability to generate a profit could be negatively affected.

As a condition of U.S. ADASUVE approval, there are several required post-marketing studies, including a 10,000 patient observational clinical trial that is designed to gather patient safety data based on the �real-world� use of ADASUVE in the hospital setting and a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients. The data derived from any post-approval study or trial could result in additional restrictions on the commercialization of ADASUVE through changes to the approved ADASUVE label, additional goals or elements in the REMS program, the imposition of additional post-approval studies or trials, or even the withdrawal of the approval of ADASUVE. Our business, operations and stock price may be negatively affected if any of these or similar events occur.

As a condition of the ADASUVE marketing authorization in the EU, we are responsible for the conduct and funding of post-authorization studies, including (i)�a benzodiazepine interaction study, which has been completed, (ii)�a controlled study to determine ADASUVE�s effect on cardiac rhythms, or a thorough QTc study, with two doses of ADASUVE, which has been completed, (iii)�a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients, (iv)�an observational clinical trial, and (v)�a drug utilization clinical trial. Results of the benzodiazepine interaction study and the thorough QTc study have been submitted to the EMA.

If we or our collaborators are unable to fulfill the FDA or EC post-approval obligations, or do not fulfill these obligations within an appropriate time, or if the EMA determines from the results of our completed benzodiazepine interaction study or our completed thorough QTc study that ADASUVE poses or may pose actual or possible safety risks to some patients, the NDA could be suspended, withdrawn, or limited, and the current marketing authorization in the EU could be varied, suspended or withdrawn and our business, operations and stock price may be negatively affected.

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

ADASUVE and our Staccato system-based product candidates contain electronic and other components in addition to the active pharmaceutical ingredient, or API. The cost to produce ADASUVE and our product candidates, and any additional approved products, will likely be higher per dose than the cost to produce intravenous or oral tablet products. This higher cost of goods may prevent us or our collaborators from ever selling any products at a profit. The development and production of our technology entail a number of technical challenges, including achieving adequate dependability in our production, 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.

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In October 2011, we committed to sell ADASUVE to Ferrer for a fixed transfer price, which is below our current production costs, and in May 2013, we committed to supply ADASUVE to Teva at a price based on costs of commercial production, which transfer price will convert to a fixed price upon achievement of costs equal to a specified per-unit price. Our future manufacturing costs per unit will be dependent on future demand of ADASUVE. If we and our collaborators do not generate sufficient demand, our manufacturing costs will exceed the fixed transfer price and will result in losses. In October 2013, Autoliv notified us that they were terminating, effective October 2016, the Manufacture Agreement. Prior to October 2016, Autoliv and we remain fully obligated to perform pursuant to the terms of both the Manufacture Agreement and the New Note. However, Autoliv may not continue to perform its obligations in the same manner during the termination period. If we are unable to secure an adequate replacement manufacturer for sufficient quantities of the chemical heat packages in ADASUVE by October 2016 or if the costs for such manufacturer to produce the chemical heat packages are higher than the cost from Autoliv, it will significantly impact our ability to produce our commercial devices or to produce them at quantities or at a cost to allow us to become profitable.

The availability and amount of reimbursement for ADASUVE and our product candidates and the manner in which government and private payors may reimburse for our potential products is uncertain.

Many of the patients in the United States who seek treatment with ADASUVE or any other of our products that are approved for marketing will be eligible for Medicare benefits. Other patients may be covered by private health plans. The Medicare program is administered by CMS, and coverage and reimbursement for products and services under Medicare are determined pursuant to statute, regulations promulgated by CMS, and CMS�s subregulatory coverage and reimbursement determinations. CMS�s regulations and interpretive determinations are subject to change, as are the procedures and criteria by which CMS makes coverage and reimbursement determinations and the reimbursement amounts established by statute, particularly because of budgetary pressures facing the Medicare program. For example, we anticipate that ADASUVE will be used only in the hospital inpatient and hospital outpatient settings. In the hospital inpatient setting, Medicare does not provide separate reimbursement for drugs but pays for them as part of the payment for the hospital stay. In the hospital outpatient setting, the statute establishes the payment rate for new drugs and biologicals administered incident to a physician�s service that are granted �pass-through status� at the rate applicable in physicians� offices (i.e., ASP plus six percent) for two to three years after FDA approval. For drugs and biologicals that do not have pass-through status, CMS establishes the payment rates by regulation. For 2014, these drugs are reimbursed at ASP plus six percent if they have an average cost per day exceeding $90; drugs with an average cost per day of less than $90 are not separately reimbursed. In future years, CMS could change both the payment rate and the average cost threshold, and these changes could adversely affect payment for ADASUVE. In addition, the President has proposed and Congress has considered amending the statute to reduce Medicare�s payment rates for drugs and biologicals, and if such legislation is enacted, it could adversely affect payment for ADASUVE. Moreover, ADASUVE is different from many drugs covered by Medicare Part B because it is administered by a healthcare professional through a disposable inhaler.

Effective April�1, 2013, Medicare payments for all items and services, including drugs and biologicals, were reduced by up to 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, Pub. L. No.�112-25, or BCA, as amended by the American Taxpayer Relief Act of 2012, Pub. L. 112-240, or ATRA. The BCA requires sequestration for most federal programs, excluding Medicaid, Social Security, and certain other programs, because Congress failed to enact legislation by January�15, 2012, to reduce federal deficits by $1.2 trillion over ten years. The BCA caps the cuts to Medicare payments or items and services at 2%, and requires the cuts to be implemented on the first day of the first month following the issuance of a sequestration order. The ATRA delayed implementation of sequestration from January�2, 2013, to March�1, 2013, and as a result, the Medicare cuts took effect April�1, 2013, and will remain in effect unless Congress enacts legislation to cancel the cuts. The cuts were originally scheduled to occur through 2021, but under the Bipartisan Budget Act of 2013, these cuts were extended through 2023. These cuts could adversely impact payment for ADASUVE and related procedures.

In March 2014, Teva announced the U.S. launch of ADASUVE. We expect ADASUVE to experience pricing pressures in the United States due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. We cannot be sure that reimbursement amounts, or the lack of reimbursement, will not reduce the demand for, or the price of, ADASUVE or any future products. If reimbursement is not available or is available only to limited levels, we or any collaborator may not be able to effectively commercialize ADASUVE or any future products, In addition, if we or any collaborator fail to successfully secure and maintain reimbursement coverage for ADASUVE or any future products or are significantly delayed in doing so, we or any collaborator will have difficulty achieving market acceptance of our products and our business will be harmed.

Payors also are increasingly considering new metrics as the basis for reimbursement rates, such as ASP, AMP and Actual Acquisition Cost. The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. CMS has made draft National Average Drug Acquisition Cost, or NADAC, and draft National Average Retail Price, or NARP, data publicly available on at least a monthly basis.

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In July 2013, CMS suspended the publication of draft NARP data, pending funding decisions. In November 2013, CMS moved to publishing final rather than draft NADAC data and has since made updated NADAC data publicly available on a weekly basis. Therefore, it may be difficult to project the impact of these evolving reimbursement mechanics on the willingness of payors to cover ADASUVE or any future products. As discussed below, once we or any collaborator begin to participate in government pricing programs, recent legislative changes to the 340B drug pricing program, and the Medicaid Drug Rebate program also could impact our revenues. We anticipate that a significant portion of our revenue from sales of ADASUVE will be obtained through government payors, including Medicaid, and any failure to qualify for reimbursement for ADASUVE under those programs would have a material negative effect on revenues from sales of ADASUVE.

The EU Member States are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement levels of medicinal products for human use. An EU Member State may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, including volume-based arrangements and reference pricing mechanisms. We anticipate that pricing and reimbursement decisions concerning ADASUVE in the EU will have a significant impact on the sales of the product in the EU. Failure to obtain pricing and reimbursement for ADASUVE at an appropriate level in any of the EU Member States would, in part due to EU parallel trade rules, have a material adverse effect on revenues from sales of ADASUVE.

Healthcare law and policy changes, including those based on recently enacted legislation, may impact our business in ways that we cannot currently predict and these changes could have a material adverse effect on our business and financial condition.

Healthcare costs have risen significantly over the past decade. In March 2010, the Healthcare Reform Act, or PPACA, was adopted in the United States. The Healthcare Reform Act substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions that are expected to impact our business and operations, in some cases in ways we cannot currently predict. Changes that may affect our business include those governing enrollment in federal and private healthcare programs, new Medicare reimbursement methods and rates, increased rebates and taxes on pharmaceutical products, expansion of the 340B program, and revised fraud and abuse and enforcement requirements. These changes will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.

We anticipate that with Teva�s commercialization of ADASUVE in the United States or with other potential product candidates, some of our revenue and the revenue from our collaborators may be derived from U.S. government healthcare programs, including Medicare. We expect that the Healthcare Reform Act and other healthcare reform measures that may be adopted in the future could have an adverse effect on our industry generally and the ability to successfully commercialize ADASUVE or our product candidates or could limit or eliminate our spending on development projects.

The Healthcare Reform Act made significant changes to the Medicaid Drug Rebate program, in which we expect to participate. Effective March�23, 2010, rebate liability expanded from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well. With regard to the amount of the rebates owed, the Healthcare Reform Act increased the minimum Medicaid rebate from 15.1% to 23.1% of the average manufacturer price for most innovator products and from 11% to 13% for non-innovator products; changed the calculation of the rebate for certain innovator products that qualify as line extensions of existing drugs; and capped the total rebate amount for innovator drugs at 100% of the average manufacturer price. We expect that the increased minimum rebate of 23.1% will apply to ADASUVE. In addition, the Healthcare Reform Act and subsequent legislation changed the definition of average manufacturer price. In 2012, the Centers for Medicare and Medicare Services, or CMS, the federal agency that administers the Medicare and Medicaid Drug Rebate program, issued proposed regulations to implement the changes to the Medicaid Drug Rebate program under the Healthcare Reform Act but has not yet issued final regulations. CMS is currently expected to release the final regulations in 2014. Finally, the Healthcare Reform Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government beginning in 2011. Each individual pharmaceutical manufacturer pays a prorated share of the branded prescription drug fee of $3.0 billion in 2014 (and set to increase in ensuing years), based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Additional provisions of the Healthcare Reform Act, some of which became effective in 2011, may negatively affect our future revenues.

The Healthcare Reform Act also expanded the Public Health Service�s 340B drug pricing discount program, which we expect to participate in. The 340B pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B �ceiling price� for the manufacturer�s covered outpatient drugs. The Healthcare Reform Act expanded the 340B program to include additional types of covered entities: certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Healthcare Reform Act. The Healthcare Reform Act exempts �orphan drugs� � those designated under section 526 of the FDCA � from the ceiling price requirements for these newly-eligible entities. We believe our product candidate in active development, AZ-002 (Staccato alprazolam), could qualify for orphan drug status.

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The Health Resources and Services Administration, or HRSA, which administers the 340B program, issued a final regulation to implement the orphan drug exception in July 2013. The final regulation interprets the orphan drug exception narrowly. It exempts orphan drugs from the ceiling price requirements for the newly-eligible entities only when the orphan drug is used for its orphan indication. The newly-eligible entities are entitled to purchase orphan drugs at the ceiling price when the orphan drug is not used for its orphan indication. The final regulation, which became effective October�1, 2013, is subject to a pending lawsuit that seeks to block its implementation. The narrow scope of the orphan drug exception in HRSA�s final regulation will increase the complexity of compliance, will make compliance more time-consuming, and could negatively impact our results of operations if we successfully commercialize AZ-002 (Staccato alprazolam) and AZ-002 qualifies for orphan drug status. We have applied for orphan drug status for AZ-002, and expect to apply for orphan drug status in the EU. There can be no assurance that AZ-002 will receive such designation.

The Healthcare Reform Act also obligates the Secretary of the HHS to create regulations and processes to improve the integrity of the 340B program and to update the agreement that manufacturers must sign to participate in the 340B program to obligate a manufacturer to offer the 340B price to covered entities if the manufacturer makes the drug available to any other purchaser at any price and to report to the government the ceiling prices for its drugs. HRSA is expected to issue a comprehensive proposed regulation in 2014 that will address many aspects of the 340B program. When that regulation is finalized, it could affect our obligations under the 340B program in ways we cannot anticipate. In addition, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in the inpatient setting.

Many of the Healthcare Reform Act�s most significant reforms take effect in 2014 and thereafter, and the details will be shaped significantly as the various provisions become active, especially given the political nature of the law. In 2012, the Supreme Court of the United States heard challenges to the constitutionality of the individual mandate and the viability of certain provisions of the Healthcare Reform Act. The Supreme Court�s decision upheld most of the Healthcare Reform Act and determined that requiring individuals to maintain �minimum essential� health insurance coverage or pay a penalty to the Internal Revenue Service was within Congress�s constitutional taxing authority. However, the Supreme Court struck down a provision in the Healthcare Reform Act that penalized states that choose not to expand their Medicaid programs through an increase in the Medicaid eligibility income limit from a state�s current eligibility levels to 133% of the federal poverty limit. As a result of the Supreme Court�s ruling, it is unclear whether states will expand their Medicaid programs by raising the income limit to 133% of the federal poverty level and whether there will be more uninsured patients in 2014 than anticipated when Congress passed the Healthcare Reform Act. For each state that does not choose to expand its Medicaid program, there will be fewer insured patients overall. The reduction in the number of insured patients could impact the sales, business and financial condition.

While the constitutionality of key provisions of the Healthcare Reform Act was upheld by the Supreme Court, legislative changes to it remain possible. We expect that the Healthcare Reform Act, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry generally and on our ability to successfully commercialize our product candidates or could limit or eliminate our future spending on development projects.

In addition to the Healthcare Reform Act, there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to keep these costs down while expanding individual healthcare benefits. Certain of these changes could impose limitations on the prices we will be able to charge for ADASUVE or any other product candidates that are approved or the amounts of reimbursement available for these products from governmental agencies or third-party payors, or may increase the tax obligations on life sciences companies such as ours. While it is too early to predict specifically what effect the Health Reform Act and its implementation or any future legislation or policies will have on our business, we believe that healthcare reform may have an adverse effect on our business and financial condition.

If we or any collaborator fail to comply with reporting and payment obligations under the Medicaid Drug Rebate program or other governmental pricing programs, including programs developed by countries outside the United States, after we or any collaborator begin to participate in such programs, we or any collaborator could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We expect to participate, or any collaborator to participate, in the Medicaid Drug Rebate program, established by the Omnibus Budget Reconciliation Act of 1990 and amended by the Veterans Health Care Act of 1992 as well as subsequent legislation. We also expect to participate, or any collaborator to participate, in and have certain price reporting obligations to several state Medicaid supplemental rebate programs, and we anticipate that we will have obligations to report average sales price, or ASP, for the Medicare program for future product candidates. Under the Medicaid Drug Rebate program, we will be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates will be based on pricing data that we will report on a monthly and quarterly basis to CMS, the federal agency that administers the Medicaid Drug Rebate program. These data will include the average manufacturer price, or AMP, and, in the case of innovator products, the best price, or BP, for each drug. The rebate liability resulting from this reporting will negatively impact our financial results.

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The PPACA made significant changes to the Medicaid Drug Rebate program. Effective March�23, 2010, rebate liability expanded from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well. With regard to the amount of the rebates owed, the PPACA increased the minimum Medicaid rebate from 15.1% to 23.1% of the average manufacturer price for most innovator products and from 11% to 13% for non-innovator products; changed the calculation of the rebate for certain innovator products that qualify as line extensions of existing drugs; and capped the total rebate amount for innovator drugs at 100% of the average manufacturer price. We expect that the increased minimum rebate of 23.1% will apply to ADASUVE. In addition, the PPACA and subsequent legislation changed the definition of AMP. Finally, the PPACA requires pharmaceutical manufacturers of branded prescription drugs to pay a new branded prescription drug fee to the federal government beginning in 2011. Each individual pharmaceutical manufacturer will pay a prorated share of the branded prescription drug fee of $3.0 billion in 2014 (and set to increase in ensuing years) based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Additional provisions of the Healthcare Reform Act, some of which became effective in 2011, may negatively affect our future revenues.

On July�15, 2013, CMS issued its Final Rule addressing prescription drug coverage for the Medicaid expansion population under the PPACA. The Final Rule dramatically restricts mandatory coverage of prescription drugs for the expansion Medicaid enrollees by essentially eliminating the requirement that states must cover each covered outpatient drug subject to a national rebate agreement. Although drugs provided to the new Medicaid expansion population still are subject to manufacturer rebates, state Medicaid programs are no longer required to cover all drugs subject to the national rebate agreement. Instead, states are required to cover a minimum of drugs consistent with the applicable �benchmark� plan in the state coverage for the Medicaid expansion population.

In the future, Congress could enact legislation that further increases Medicaid drug rebates or other costs and charges associated with participating in the Medicaid Drug Rebate program. The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid Drug Rebate program will increase our costs and the complexity of compliance, will be time-consuming, and could have a material adverse effect on our results of operations.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Service�s 340B drug pricing discount program in order for federal funds to be available for the manufacturer�s drugs under Medicaid and Medicare Part B. The 340B pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B �ceiling price� for the manufacturer�s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The 340B ceiling price is calculated using a statutory formula, which is based on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under the Medicaid rebate program. Changes to the definition of average manufacturer price and the Medicaid rebate amount under PPACA and CMS�s issuance of final regulations implementing those changes also could affect our 340B ceiling price calculations and negatively impact our results of operations once we or any collaborator begin to participate in the 340B program.

Compliance with the regulations associated with the 340B program will increase our costs and the complexity of compliance, will be time-consuming, and could have a material adverse effect on our results of operations once we or any collaborator begin to participate in the 340B program.

As described above, the Healthcare Reform Act expanded the 340B program to include additional types of covered entities but exempts �orphan drugs� � those designated under section 526 of the FDCA � from the ceiling price requirements for these newly-eligible entities. We believe our product candidate in active development, AZ-002 (Staccato alprazolam), could qualify for orphan drug status. HRSA issued a final regulation to implement the orphan drug exception in July 2013. The final regulation interprets the orphan drug exception narrowly. It exempts orphan drugs from the ceiling price requirements for the newly-eligible entities only when the orphan drug is used for its orphan indication. The newly-eligible entities are entitled to purchase orphan drugs at the ceiling price when the orphan drug is not used for its orphan indication. The final regulation, which became effective October�1, 2013, is subject to a pending lawsuit that seeks to block its implementation. The narrow scope of the orphan drug exception in HRSA�s final regulation will increase the complexity of compliance, will make compliance more time-consuming, and could negatively impact our results of operations if we successfully commercialize AZ-002 (Staccato alprazolam) and AZ-002 qualifies for orphan drug status.

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Federal law also requires that a company that participates in the Medicaid Drug Rebate Program report average sales price, or ASP, information to CMS for certain categories of drugs that are paid under Part B of the Medicare program. We anticipate that ADASUVE will fall into that category. Manufacturers calculate ASP based on a statutorily defined formula and interpretations of the statute by CMS as to what should or should not be considered in computing ASP. An ASP for each National Drug Code for a product that is subject to the ASP reporting requirement must be submitted to CMS no later than 30 days after the end of each calendar quarter. CMS uses these submissions to determine payment rates for drugs under Medicare Part B. Once we or any collaborator begin to participate in the Medicare program, changes affecting the calculation of ASP could affect the ASP calculations for our products and the resulting Medicare payment rate, and could negatively impact our results of operations once we begin to participate in the Medicare program.

Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by governmental or regulatory agencies and the courts. Once we or any collaborator begin to participate in the Medicaid program, the Medicaid rebate amount will be computed each quarter based on our submission to the CMS of our current AMP and BP for the quarter. If we become aware that our reporting for prior quarters was incorrect, or has changed as a result of recalculation of the pricing data, we or any collaborator will be obligated to resubmit the corrected data for a period not to exceed 12 quarters from the quarter in which the data originally were due. Such restatements and recalculations would serve to increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Once we begin to participate in the Medicaid program, any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. Price recalculations also may affect the price that we or any collaborator will be required to charge certain safety-net providers under the Public Health Service 340B drug discount program.

Once we or any collaborator begin to participate in government pricing programs, we or any collaborator will be liable for errors associated with our submission of pricing data. In addition to retroactive rebates and the potential for 340B program refunds, if we or any collaborator are found to have knowingly submitted false average manufacturer price, average sales price, or best price information to the government, we or any collaborator may be liable for civil monetary penalties in the amount of $100,000 per item of false information. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the statute provides for civil monetary penalties of up to $10,000 for each misrepresentation for each day in which the misrepresentation was applied. Failure to submit monthly/quarterly average manufacturer price, average sales price, and best price data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the information is late beyond the due date. In the event that CMS were to terminate our rebate agreement after we or any collaborator begin to participate in the Medicaid program, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs.

In September 2010, CMS and the Office of the Inspector General indicated that they intend to pursue more aggressively companies who fail to report these data to the government in a timely manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that our or any collaborator�s submissions, once we or any collaborator begin to submit pricing data to CMS, will not be found by CMS to be incomplete or incorrect.

Federal law requires that for a company to be eligible to have its products paid for with federal funds under the Medicaid and Medicare Part B programs, as well as to be purchased by certain federal agencies and grantees, it also must participate in the Department of Veterans Affairs (VA) Federal Supply Schedule, or FSS, pricing program. To participate, we or any collaborator will be required to enter into an FSS contract with the VA, under which we must make our innovator �covered drugs,� such as ADASUVE or other product candidates, available to the �Big Four� federal agencies � the VA, the Department of Defense, or DoD, the Public Health Service, and the Coast Guard � at pricing that is capped pursuant to a statutory federal ceiling price, or FCP, formula set forth in Section�603 of the Veterans Health Care Act of 1992, or VHCA. The FCP is based on a weighted average wholesaler price known as the �non-federal average manufacturer price,� or Non-FAMP, which manufacturers are required to report on a quarterly and annual basis to the VA. If a company misstates Non-FAMPs or FCPs it must restate these figures. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to penalties of $100,000 for each item of false information.

FSS contracts are federal procurement contracts that include standard government terms and conditions, separate pricing for each product, and extensive disclosure and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing is reduced to an agreed �tracking customer.� Further, in addition to the �Big Four� agencies, all other federal agencies and some non-federal entities are authorized to access FSS contracts. FSS contractors are permitted to charge FSS purchasers other than the Big Four agencies �negotiated pricing� for covered drugs that is not capped by the FCP; instead, such pricing is negotiated based on a mandatory disclosure of the contractor�s commercial �most favored customer� pricing. We cannot anticipate the pricing structure we will enter into with respect to our products. The FSS contract price may have a material adverse effect on future revenues from sales of ADASUVE.

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Once we or any collaborator enter into an FSS contract, if we or any collaborator overcharge the government in connection with the FSS contract, whether due to a misstated FCP or otherwise, we or any collaborator will be required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations under the Federal False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

If we or any collaborators 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. ADASUVE or 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 meet our revenue guidance nor will we generate sufficient product or royalty revenues to become profitable. The degree of market acceptance of ADASUVE or any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

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the ability of our collaborators� sales forces to convince potential purchasers of ADASUVE�s advantages over other treatments;

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demonstration of acceptable quality, safety and efficacy in clinical trials and meeting applicable regulatory standards for approval;

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the existence, prevalence and severity of any side effects;

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potential or perceived advantages or disadvantages compared to alternative treatments;

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therapeutic or other improvements of ADASUVE over existing or future drugs used to treat the same or similar conditions;

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

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the timing of market entry relative to competitive treatments;

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the ability to produce ADASUVE or any future products in commercial quantities at an acceptable cost, or at all;

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

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relative convenience, product dependability and ease of administration;

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the restrictions imposed on ADASUVE by the REMS program and labeling requirements;

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the strength of marketing and distribution support;

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acceptance by patients, the medical community or third-party payors;

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

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the product labeling, including the package insert, and the marketing restrictions required by the FDA or regulatory authorities in other countries.

We are subject to significant ongoing regulatory obligations and oversight, which may result in significant additional expense and limit our and our collaborators� ability to commercialize our products.

We and our collaborators are subject to significant ongoing regulatory obligations, such as safety reporting requirements, periodic and annual reporting requirements, and regulatory oversight of the promotion and marketing of our products. In addition, the manufacture, labeling, packaging, distribution, import, export, adverse event reporting, storage, advertising, promotion and recordkeeping for ADASUVE and any of our product candidates that may be approved by the FDA or foreign regulatory authorities will be subject to extensive and ongoing regulatory requirements. Teva has agreed to take responsibility at its expense to complete several post-marketing requirements that were a condition to FDA approval of ADASUVE, including the responsibility for conducting a 10,000 patient observational clinical trial designed to gather patient safety data based on the real-world use of ADASUVE, as well as a clinical program addressing the safety and efficacy of ADASUVE in agitated adolescent patients. As a condition of grant of EU marketing authorization for ADASUVE by the EC, we are responsible for the conduct and funding of post-authorization studies, including (i)�a benzodiazepine interaction study, which has been completed, (ii)�a controlled study to determine ADASUVE�s effect on cardiac rhythms, or a thorough QTc study, with two doses of ADASUVE, which has been completed, (iii)�a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients, (iv)�an observational clinical trial, and (v)�a drug utilization clinical trial.

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The FDA and foreign regulatory authorities may also impose significant restrictions on the indicated uses or marketing of our future products, or impose requirements for burdensome post-approval study commitments. For example, ADASUVE�s U.S. labeling contains a �boxed warning� regarding the risks of bronchospasm caused by the product and the increased risk of death for elderly patients with dementia-related psychosis. Boxed warnings are used to highlight warning information that is especially important to the prescriber. Products with boxed warnings are subject to more restrictive advertising and promotion regulations than products without such warnings. The terms of any product approval, including labeling, may be more restrictive than we desire and could affect the commercial potential of the product. If we become aware of previously unknown problems with any of our products in the United States or overseas or at our contract manufacturers� facilities, a regulatory agency may impose labeling changes or restrictions on our products, our collaborators, our manufacturers or on us. In such an instance, we could experience a significant drop in the sales of the affected products, our product revenues and reputation in the marketplace may suffer, and we could become the target of lawsuits.

The FDA and other governmental authorities, including foreign regulatory authorities, also actively enforce regulations prohibiting off-label promotion, and governments have levied large civil and criminal fines against companies for alleged improper promotion. Governments have also required companies to enter into corporate integrity agreements and/or non-prosecution agreements that impose significant reporting and other burdens on the affected companies.

We and our commercial collaborators are also subject to regulation by regional, national, state and local agencies, including the Drug Enforcement Administration, or DEA, the Department of Justice, the Federal Trade Commission, the Office of Inspector General of the U.S. Department of Health and Human Services and other regulatory bodies, as well as governmental authorities in those foreign countries in which we may in the future commercialize our products. The FDCA, the Public Health Service Act, the Social Security Act, and other federal and state statutes and regulations govern to varying degrees the research, development, manufacturing and commercial activities relating to prescription pharmaceutical products, including preclinical testing, approval, production, labeling, sale, distribution, import, export, post-market surveillance, advertising, dissemination of information, promotion, marketing, and pricing to government purchasers and government healthcare programs. Any manufacturing, licensing, or commercialization collaborators we have or may in the future have, including Teva and Ferrer, will be subject to many of the same requirements.

The Federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical companies on one hand and prescribers, purchasers and formulary managers on the other. Further, the Healthcare Reform Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Healthcare Reform Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common manufacturer business arrangements and activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration may be subject to scrutiny if they do not qualify for an exemption or safe harbor. We intend to comply with the exemptions and safe harbors whenever possible, but our practices or those of our commercial collaborators may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability and may be subject to scrutiny.

The Federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements with the federal government under these laws for a variety of alleged marketing activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other benefits to physicians to induce them to prescribe the company�s products; and inflating prices reported to private price publication services, which are used to set drug payment rates under government healthcare programs. Companies have been prosecuted for causing false claims to be submitted because of the marketing of their products for unapproved uses. Pharmaceutical and other healthcare companies have also been prosecuted on other legal theories of Medicare and Medicaid fraud.

The majority of U.S. states also have statutes or regulations similar to the Federal Anti-Kickback Statute and Federal False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to individual health care providers in those states. Some of these states also prohibit certain marketing related activities including the provision of gifts, meals, or other items to certain health care providers. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies to implement compliance programs or marketing codes.

Compliance with various federal and state laws is difficult and time consuming, and companies that violate them may face substantial penalties. The potential sanctions include civil monetary penalties, exclusion of a company�s products from reimbursement under government programs, criminal fines and imprisonment. Because of the breadth of these laws and the lack of extensive legal

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guidance in the form of regulations or court decisions, it is possible that some of our business activities or those of our commercial collaborators could be subject to challenge under one or more of these laws. Such a challenge could have a material adverse effect on our business and financial condition and growth prospects.

We or our commercial collaborators could become subject to government investigations and related subpoenas. Such subpoenas are often associated with previously filed qui tam actions, or lawsuits filed under seal under the Federal False Claims Act. Qui tam actions are brought by private plaintiffs suing on behalf of the federal government for alleged Federal False Claims Act violations.�The time and expense associated with responding to such subpoenas, and any related qui tam or other actions, may be extensive, and we cannot predict the results of our review of the responsive documents and underlying facts or the results of such actions.�Responding to government investigations, defending any claims raised, and any resulting fines, restitution, damages and penalties, settlement payments or administrative actions, as well as any related actions brought by stockholders or other third parties, could have a material impact on our reputation, business and financial condition and divert the attention of our management from operating our business.

The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being added to enforce these laws and to prosecute companies and individuals who are believed to be violating them. In particular, the Healthcare Reform Act includes a number of provisions aimed at strengthening the government�s ability to pursue anti-kickback and false claims cases against pharmaceutical manufacturers and other healthcare entities, including substantially increased funding for healthcare fraud enforcement activities, enhanced investigative powers, amendments to the False Claims Act that make it easier for the government and whistleblowers to pursue cases for alleged kickback and false claim violations and, beginning in March 2014 for payments made on or after August�1, 2013, public reporting of payments by pharmaceutical manufacturers to physicians and teaching hospitals nationwide. While it is too early to predict what effect these changes will have on our business, we anticipate that government scrutiny of pharmaceutical sales and marketing practices will continue for the foreseeable future and subject us and our commercial collaborators to the risk of government investigations and enforcement actions. Responding to a government investigation or enforcement action would be expensive and time-consuming, and could have a material adverse effect on our business and financial condition and growth prospects.

Similar restrictions are imposed on the promotion and marketing of medicinal products in the EU and other countries. The applicable laws at EU level and in the individual EU Member States require promotional materials and advertising concerning medicinal products to comply with the product�s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of a medicinal product. Promotion of a medicinal product which does not comply with the SmPC is considered to constitute off-label promotion. The off-label promotion of medicinal products is prohibited in the EU. The applicable laws at both EU level and in the individual EU Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of medicinal products in the EU could be penalized by administrative measures, fines and imprisonment.

Interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians� codes of professional conduct in the individual EU Member States. The provision of any inducement to physicians to prescribe, recommend, endorse, order, purchase, supply, use or administer a medicinal product is prohibited. A number of EU Member States have introduced additional rules requiring pharmaceutical companies to publically disclose their interactions with physicians and to obtain approval from employers, professional organizations and/or competent authorities before entering into agreements with physicians. Violations of these rules could lead to the imposition of fines or imprisonment.

Laws, including those governing promotion, marketing and anti-kickback provisions, industry regulations and professional codes of conduct are often strictly enforced. Increasing regulatory scrutiny of the promotional activities of pharmaceutical companies has been observed in a number of EU Member States. The Bribery Act in the United Kingdom entered into force on 1�July 2011. This Act applies to any company incorporated in or �carrying on business� in the UK, irrespective of where in the world the alleged bribery activity occurs. Even though we strive for complete and continuous adherence to all laws and rules during our promotion and marketing activities, this Act could have implications for our interactions or those of Ferrer with physicians both in and outside the UK.

Payments made to physicians in certain EU Member States must be publically disclosed and this obligation will expand to other EU Member States. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician�s employer, his/her competent professional organization, and/or the competent authorities of the individual EU Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution collaborators can have implications for us.

If we or any collaborators fail to comply with applicable federal, state, local, or foreign regulatory requirements, we or they could be subject to a range of regulatory actions that could affect our or any collaborators� ability to commercialize our products and

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could harm or prevent sales of the affected products, or could substantially increase the costs and expenses of commercializing and marketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business.

We could be adversely affected by violations of applicable anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010.

Anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010, generally prohibit directly or indirectly giving, offering, or promising anything of value to improperly induce the recipient to act, or refrain from acting, in a manner that would confer a commercial advantage. The anti-bribery provisions of the U.S. Foreign Corrupt Practices Act generally prohibit directly or indirectly giving, offering or promising an inducement to a public official (broadly interpreted) to corruptly influence the official�s actions in order to obtain a commercial advantage.�The U.K. Bribery Act of 2010 prohibits both domestic and international bribery, as well as bribery in both the private and public sectors.�In addition, an organization that �fails to prevent bribery� by anyone associated with the organization may be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented �adequate procedures� to prevent bribery.�In recent years, the U.S. Government has brought enforcement actions that resulted in significant monetary penalties against several multinational healthcare companies for violations of the U.S. Foreign Corrupt Practices Act stemming from illegal payments made to non-U.S. healthcare professionals. We plan to adopt and implement policies and procedures to ensure that those involved in the marketing, sale, and distribution of our products are both aware of these legal requirements and committed to complying therewith. However, we cannot assure that these policies and procedures will protect us from potentially illegal acts committed by individual employees or agents.�If we were found to be liable for anti-corruption law violations, we could be subject to criminal or civil penalties or other consequences that could have a material adverse effect on our business and financial condition.

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

An element of our business strategy is our intent to selectively collaborate with pharmaceutical, biotechnology and other companies to obtain assistance for the development and commercialization of ADASUVE and our product candidates. In October 2011, we entered into the Ferrer Agreement with Ferrer for the commercialization of ADASUVE in the Ferrer Territories. In May 2013, we entered into a commercial collaboration with Teva, granting Teva an exclusive license to develop and commercialize ADASUVE in the United States. We may never enter into additional strategic collaborations with third parties to develop and commercialize ADASUVE or our product candidates. Other than Teva and Ferrer, we do not currently have any strategic collaborations for ADASUVE or any of our product candidates.

We face significant competition in seeking appropriate strategic collaborators, and these strategic collaborations can be intricate and time consuming to negotiate and document. We may not be able to negotiate additional strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing strategic collaborations. We are currently seeking collaborations to commercialize ADASUVE outside of the United States and the Ferrer Territories. If we are unable to negotiate additional strategic collaborations for ADASUVE outside of the United States and the Ferrer Territories, we may be unable to maximize ADASUVE�s commercial potential.

If we are unable to negotiate additional collaborations for ADASUVE or 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 commercialization, or undertake development or commercialization activities at our own expense. In addition, we will bear all the risk related to the development of a product candidate. If we elect to increase our expenditures to fund development or commercialization activities on our own, we will 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 ADASUVE or our product candidates to market successfully and generate revenue or profit.

ADASUVE and any of our product candidates approved for marketing remain subject to ongoing regulatory review in the United States, the EU or in other countries. If we or any collaborators fail to comply with the regulations, we could lose these approvals, and the sale of any future products could be suspended. If approval is denied or limited in a country, or if a country imposes post-marketing requirements, that decision could negatively affect our ability to market our product in such countries.

Even with regulatory approval to market a particular product candidate, the FDA, the EC or another foreign regulatory authority could condition approval on conducting additional costly post-approval studies or trials or could limit the scope of our approved labeling or could impose burdensome post-approval obligations, such as those required in the United States and in the post-marketing obligations required as part of a marketing authorization in the EU. Moreover, the product may later cause adverse effects that limit or prevent its widespread use, force us to withdraw it from the market, cause the FDA, the EC or another foreign regulatory authority to impose additional obligations or restriction on marketing, or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, we will continue to be subject to FDA, EMA, EC and other foreign regulatory authority regulations, as well as

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periodic inspections to ensure adherence to applicable regulations. After receiving marketing approval, the FDA, the EC and other foreign regulatory authorities could impose extensive regulatory requirements on the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, distribution, and record keeping related to the product. The approval of the ADASUVE NDA requires Teva to implement, administer and assess at regular intervals a REMS program that, among other things, limits the use of ADASUVE to healthcare facilities enrolled in the ADASUVE REMS program.

As a condition to FDA approval of ADASUVE, Teva also has several post-approval commitments and requirements, including a 10,000 patient observational clinical trial designed to gather patient safety data based on the real-world use of ADASUVE, as well as a clinical program addressing the safety and efficacy of ADASUVE in agitated adolescent patients.

As a condition to marketing authorization for ADASUVE granted by the EC in the EU, we are responsible for the conduct and funding of post-marketing studies, including (i)�a benzodiazepine interaction study, which has been completed, (ii)�a controlled study to determine ADASUVE�s effect on cardiac rhythms, or a thorough QTc study, with two doses of ADASUVE, which has been completed, (iii)�a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients, (iv)�an observational clinical study, and (v)�a drug utilization study. Results of the benzodiazepine interaction study and the thorough QTc study have been submitted to the EMA.

The costs associated with development and approval of study protocols and the completion of studies and clinical trials�are significant. There are risks involved with relying on our own capabilities to perform the tasks required by the post-market studies for ADASUVE, as well as with entering into arrangements with third parties to perform these services.�If Teva enters into an arrangement with a third party or parties to perform the tasks required for the ADASUVE post-market studies and trials, the expense of such outsourcing could be significant, decreasing the profitability of ADASUVE. Additionally, any third party with whom we may collaborate may not fulfill its obligations or carry out activities sufficiently to satisfy FDA, EC, EMA or other U.S. or foreign regulatory authority standards, which could result in increased expenses needed to remediate any deficiencies or could even result in an FDA, EC, EMA or other U.S. or foreign regulatory authority enforcement action, including the imposition of civil money penalties and the withdrawal of approval of the product in the U.S. Finally, the data derived from any post-market study or trial could result in additional restrictions on the commercialization of ADASUVE through changes to the approved ADASUVE label, a more burdensome REMS program, the imposition of additional post-market studies or trials, or could even lead to the withdrawal of the approval of the product.

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

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restrictions on the products, suppliers or manufacturing processes;

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warning letters or untitled letters;

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injunctions, consent decrees, or the imposition of civil or criminal penalties;

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fines;

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product seizures, detentions or import or export bans;

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voluntary or mandatory product recalls and publicity requirements;

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variation, suspension or withdrawal of regulatory approvals;

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required variations of the clinical trial protocol

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suspension or termination of any clinical trials of the products;

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total or partial suspension of production;

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refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications; and

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denial of permission to file an application or supplement in a jurisdiction.

If we or our collaborators were subject to administrative or judicially-imposed sanctions arising out of enforcement of the FDA, EMA, EC or other applicable U.S. and foreign laws, it could impair our ability to manufacture and the ability of our collaborators to successfully market ADASUVE, even if such an enforcement action does not relate specifically to ADASUVE. Such enforcement could have a significant impact on our financial condition and results.

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Problems with the third parties that manufacture the API in ADASUVE or 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 ADASUVE or any of our product candidates. We have no experience in API manufacturing, and we lack the resources and the capability to manufacture any of the APIs used in ADASUVE and our product candidates, on either a clinical or commercial scale. As a result, we rely on third parties to supply the API used in ADASUVE and each of our product candidates. We expect to continue to depend on third parties to supply the API for ADASUVE and our current and future product candidates and to supply the API for ADASUVE in commercial quantities.

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 cGMP and other applicable government regulations and corresponding foreign standards. Additionally, a contract manufacturer must pass a pre-approval inspection by the FDA and corresponding foreign authorities to ensure strict compliance with cGMP prior to the FDA�s or corresponding foreign authorities� approval of any product candidate for marketing. A contract manufacturer�s failure to conform to cGMP could result in a refusal by the FDA or a corresponding foreign authority to approve or a delay in their approval of a product candidate for marketing. We are ultimately responsible for confirming that the APIs used in ADASUVE and 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 or they may not be able to supply the API in commercial quantities. If we need to find alternative suppliers of the API used in ADASUVE or 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 effect on our ability to continue clinical development of our product candidates or commercialize ADASUVE.

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.

Unless our preclinical studies demonstrate an acceptable safety profile of our product candidates, we will not be able to pursue clinical development or commercialize our product candidates.

We must satisfy the FDA and other regulatory authorities abroad, through extensive preclinical studies, that our product candidates have an acceptable safety profile. Our Staccato system creates a condensation aerosol from drug compounds, and there currently are no approved products that use a similar method of drug delivery other than ADASUVE. 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 have conducted or may not conduct in the future the types of preclinical testing ultimately required by regulatory authorities, or future preclinical tests may indicate that our product candidates are not safe for use in humans. Preclinical testing is expensive, can take many years and has 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:

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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;

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

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our product candidates may cause undesirable side effects.

Any such events would increase our costs and could delay or prevent our ability to conduct clinical testing and commercialize our product candidates, which could adversely impact our business, financial condition and results of operations.

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

Other than for ADASUVE, we have not completed all the clinical trials necessary to support an application with the FDA or other regulatory authorities abroad for approval to market any of our product candidates other than for ADASUVE in the United States and the European Union. Future clinical trials may be delayed or terminated as a result of many factors, including:

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insufficient financial resources to fund such trials;

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

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regulators, Ethics Committees or institutional review boards may not authorize us to commence a clinical trial;

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

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

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

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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;

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

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

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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.

Any delay in commencing or completing clinical trials for our product candidates could delay commercialization of our product candidates and harm our business, financial condition and results of operations. 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 results of operations.

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.

The clinical development and regulatory approval process is extremely expensive and takes many years. 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. Whether an approval will be granted, and the timing of such approval cannot be accurately predicted. If we fail to obtain regulatory approval for ADASUVE in markets outside of the United States and the Ferrer Territories or for our other product candidates in any markets where we seek regulatory approval, we will be unable to market and sell them in those locations and therefore we 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, the EMA, the EC 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. In June 2008, we announced that our Phase 2a proof-of-concept clinical trial of AZ-002 (Staccato alprazolam) did not meet either of its two primary endpoints. In September 2009, we announced that our Phase 2b clinical trial of AZ-104 (Staccato loxapine, low-dose) for the treatment of migraine did not meet its primary endpoint.

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

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. For example, in 2008 we released the preliminary results from our Phase 2a clinical trial with AZ-002 in patients with panic disorder, a separate indication from our current AZ-002 indication of ARS. The study did not meet its two primary endpoints, which were the effect of AZ-002 on the incidence of a doxapram-induced panic attack and the effect of AZ-002 on the duration of a doxapram-induced panic attack, both as compared with placebo. Our Staccato system is not similar to other approved drug delivery methods, and there is no 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, the EC and other foreign regulatory approvals.

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

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

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a product candidate may not be considered to have a favorable risk-benefit ratio;

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

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

Part of the regulatory approval process includes compliance inspections of manufacturing facilities to ensure adherence to applicable regulations and guidelines. The regulatory agency may delay, limit or deny marketing approval of our other product candidates as a result of such inspections. 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, the EMA, the EC 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. For example, ADASUVE and our other product candidates combine drug and device components in a manner that the FDA considers to meet the definition of a combination product under FDA regulations. The FDA exercises significant discretion over the regulation of combination products, including the discretion to require separate marketing applications for the drug and device components in a combination product. ADASUVE and our product candidates are being regulated as drug products under the NDA process administered by the FDA. The FDA could in the future require additional regulation of ADASUVE or our product candidates under the medical device provisions of the FDCA. Our systems are designed to comply with the QSR, which sets forth the FDA�s cGMP requirements for medical devices, and other applicable government regulations and corresponding foreign standards. If we fail to comply with these regulations, it could have a material adverse effect on our business and financial condition.

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, such as the FDA�s requirement that we perform a Phase 4 observational study and a study in adolescent patients for ADASUVE. Similarly, as a condition to EC approval of ADASUVE, we are responsible for the conduct and funding of post-authorization studies, including (i)�a benzodiazepine interaction study, which has been completed, (ii)�a controlled study to determine ADASUVE�s effect on cardiac rhythms, or a thorough QTc study, with two doses of ADASUVE, which has been completed, (iii)�a clinical program designed to evaluate the safety and efficacy of ADASUVE in agitated adolescent patients, (iv)�an observational clinical study, and (v)�a drug utilization study. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

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 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 with good clinical practices, or GCP, 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 GLP or GCP regulations and standards, 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.

If we experience problems with the manufacturers of components of ADASUVE or our product candidates, our ability to supply ADASUVE and our other product candidates will be impaired, our sales may be lower than expected and our development programs may be delayed and we may be subject to liability.

We outsource the manufacturing of the components of our Staccato system, including the printed circuit boards, the plastic airways, and the chemical heat packages to be used in our commercial single dose device. We have no experience in the manufacturing of components, other than our chemical heat packages, 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 ADASUVE and our current product candidates and any devices based on the Staccato system we develop in the foreseeable future.

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The third-party suppliers of the components of our Staccato system must meet high precision and quality standards for our finished devices 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 that our finished devices remain in strict compliance with the QSR, 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 specifications, standards and procedures necessary to ensure that our finished devices comply 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 effect on our ability to manufacture commercial quantities of ADASUVE and on our ability to continue clinical development of our product candidates or commercialize ADASUVE. In April 2014, we contracted with Autoliv to build two additional manufacturing cells, but we or a third party may not be able to use the cells to manufacture heat packages of sufficient quality, in sufficient quantity or at low enough cost to become profitable.

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 energetic materials is regulated by the U.S. government. We have entered into a manufacture agreement with Autoliv for the manufacture of the heat packages in the commercial design of our single dose version of our Staccato system. If Autoliv fails to manufacture the heat packages to the necessary specifications, or does not carry out its contractual obligations to supply our heat packages to us, or if the FDA requires different manufacturing or quality standards than those set forth in our manufacture agreement, our clinical trials or commercialization efforts may be delayed, suspended or terminated while we seek additional suitable manufacturers of our heat packages, which may prevent us from commercializing ADASUVE or our product candidates that utilize the single dose version of the Staccato system. In October 2013, Autoliv notified us of their intent to terminate, effective October 2016, the Manufacture Agreement. Prior to October 2016, Autoliv and we remain fully obligated to perform pursuant to the terms of both the Manufacture Agreement and the New Note. However, Autoliv may not continue to perform its obligations in the same manner during the termination period. If we are unable to secure an adequate replacement manufacturer for sufficient quantities of the chemical heat packages in ADASUVE or if the costs for such manufacturer to produce the chemical heat packages are higher than the cost from Autoliv, it will significantly impact our ability to produce our commercial devices or to produce them at quantities or at a cost to allow us to become profitable.

Product candidates that we may develop may require expensive carcinogenicity tests.

We combine small molecule drugs with our Staccato system to create proprietary product candidates. Some of these drugs may not have previously undergone carcinogenicity testing that is now generally required for marketing approval. We may be required to perform carcinogenicity testing with product candidates incorporating drugs that have not undergone carcinogenicity testing or may be required to do additional carcinogenicity testing for drugs that have undergone such 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, ADASUVE and our 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.

The degree of protection for our proprietary technologies, ADASUVE and our 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:

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

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

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

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

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

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

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

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any patents issued to us or our potential strategic collaborators 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

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

On September�16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law.�These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.�The United States Patent and Trademark Office has developed regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patent law associated with the Leahy-Smith Act, particularly the first inventor to file provisions, only became effective 18 months after its enactment.�Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

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

The Teva Agreement provides Teva with the first right to enforce certain of the Alexza patents listed in the FDA Orange Book as well as product-specific patents related to ADASUVE that may be identified and prosecuted during the term of the Teva Agreement. While Teva may not settle any such enforcement action without our consent, there can be no assurance that Teva would enforce the ADASUVE patents in the same manner or with the same strategy as we might if we maintained the sole right to control litigation against potential third-party infringers. Our current patents or any future patents that may be issued regarding ADASUVE or our product candidates or methods of using them, 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 ADASUVE or our product candidates if competitors devise ways of making these or similar product candidates without legally infringing our patents. The FDCA 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.

Our potential strategic collaborators� 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.

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 collaborators 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 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.

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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 ADASUVE or our product candidates, as well as methods of making or using similar or identical products. We are aware of certain pending U.S. patent applications related generally to a systemic respiratory delivery of loxapine. 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 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 would 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 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.

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 ADASUVE or 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, 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 ADASUVE or any future products that we may develop and commercialize. In addition, significant delays in the development or commercialization of ADASUVE or our product candidates could allow our competitors to bring products to market before us and impair our ability to commercialize ADASUVE or our product candidates.

We anticipate that ADASUVE will compete with various injectable formulations of other antipsychotic and benzodiazepine drugs and oral, orally-disintegrating tablet and liquid formulations of other antipsychotic drugs and benzodiazepine drugs. Only the injectable antipsychotics are approved for the treatment of agitation.

We anticipate that, if approved, AZ-002 would compete with the oral tablet forms of alprazolam and possibly IV, oral and rectal forms of other benzodiazepines.

We anticipate that, if approved, AZ-008 would compete with the oral tablet forms of dopamine agonists that are currently used to treat restless legs symptoms, including benzodiazepines, alpha-2 agonists, dopamine agonists and opioids, none of which are FDA-approved for this indication.

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We anticipate that, if approved, AZ-009 would compete with Apokyn, an apomorphine injection that is FDA-approved to treat hypomobility, �off� episodes (�end-of-dose wearing off� and unpredictable �on/off� episodes) associated with advanced Parkinson�s disease. Patients also use oral tablet forms of dopamine agonists, including carbidopa/levodopa combinations, ropinirole, pramipexole, as treatment for hypomobility, although these products are not FDA-approved for this indication.

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 ADASUVE or our product candidates obsolete. Smaller or early stage companies may also prove to be significant competitors, particularly through strategic collaborations with large and established companies. In addition, these third parties compete with us in recruiting and retaining qualified scientific, sales, marketing, 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 lose our key personnel or are unable to attract and retain additional personnel, we may be unable to develop or commercialize ADASUVE or 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 ADASUVE and our product candidates.

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

As the supplier of ADASUVE to Teva and Ferrer, we are obligated to deliver commercial supply from a qualified manufacturing facility in accordance with certain specifications. In addition, we are obligated to supply ADASUVE free from product defects or manufacturing defects from our manufacture of ADASUVE. The development, manufacture, testing, marketing and sale of combination pharmaceutical and medical device products, like ADASUVE, entail significant risk of product liability claims, lawsuits, safety alerts or recalls.�We may be held liable if any product we develop or manufacture causes injury or is found otherwise unsuitable or unsafe during product testing, manufacturing, marketing or sale, including, but not limited to quality issues, component failures, manufacturing flaws, unanticipated or improper uses of ADASUVE or any future products, design defects, inadequate disclosure of product-related risks or product-related information, or for unlawful, unfair or fraudulent competition or business practices relating to such products.�Side effects of, or design or manufacturing defects in, the products tested or commercialized by us or any collaborator could result in exacerbation of a clinical trial participant or patient�s condition, serious injury or impairment or even death.�This could result in product liability claims, lawsuits, safety alerts and/or recalls for ADASUVE or any future products, including those in clinical testing, to be commercialized, or already commercialized.�Product liability claims or lawsuits may be brought by individuals seeking relief for themselves, by persons seeking to represent a class of claimants/plaintiffs, or by a large number of individual claimants in a coordinated or mass litigation.�We cannot predict the frequency, outcome, or cost to defend or resolve product liability claims or lawsuits.

While we have not had to defend against any product liability claims or lawsuits to date, we face greater risk of product liability claims or lawsuits as we or any collaborator commercialize ADASUVE or other future products.�As ADASUVE or any future product is more widely prescribed, we believe it is likely that product liability claims or lawsuits will eventually be brought against us.�Regardless of merit or eventual outcome, such claims or lawsuits may result in decreased demand for any products or product candidates that we may develop, injury to our reputation, withdrawal of clinical trials, issuance of safety alerts, recall of products under investigation or already commercialized, costs and legal fees to defend and resolve litigation, injunctive relief, disgorgement of profits, or substantial monetary awards to clinical trial participants or patients, loss of revenue, and the inability to commercialize any products we develop. Safety alerts or recalls could result in the FDA or similar government agencies in the United States, or abroad, investigating or bringing enforcement actions regarding any products and/or practices, with resulting significant costs and negative publicity, all of which could materially adversely affect us.

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Product liability insurance is expensive, can be difficult to obtain and may not be available in the future on acceptable terms, if at all.�We currently have product liability insurance that covers commercial product and clinical trials. Partly as a result of product liability lawsuits related to pharmaceutical and medical device products, product liability and other types of insurance have become more difficult and costly for pharmaceutical and medical device companies to obtain.�Insurance may be prohibitively expensive, or may not fully cover our potential liabilities. Inability to maintain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims or lawsuits could impede or negatively affect the commercialization of ADASUVE or our product candidates. If we are sued for any injury caused by any product, our liability could exceed our insurance coverage and total assets. In addition, there is no guarantee that insurers will pay for defense and indemnity of claims or lawsuits or that coverage will be adequate or otherwise available.

A successful claim or lawsuit brought against us in excess of available insurance coverage could subject us to significant liabilities and could have a materially adverse effect on our business, financial condition, results of operations and growth prospects. Such claims could also harm our reputation and the reputation of ADASUVE or any future products, adversely affecting our ability to develop and market any products successfully.�In addition, defending a product liability claim or lawsuit is expensive and can divert the attention of key employees from operating our business.

Product recalls and safety alerts may be issued at our discretion or at the discretion of our suppliers, collaborators, government agencies, and other entities that have regulatory authority for medical device and pharmaceutical sales.�Any recall of ADASUVE could materially adversely affect our business by rendering us unable to sell ADASUVE for some time, causing us to incur significant recall costs and by adversely affecting our reputation. A recall could also result in product liability claims.

Our product candidate AZ-002 contains a drug substance that is regulated by the U.S. Drug Enforcement Administration. Failure to comply with applicable regulations and requirements 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. The DEA regulates drug substances as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest potential for abuse and Schedule V substances the lowest potential for abuse relative to the other schedules in the CSA. Alprazolam, the API in AZ-002, is regulated as a Schedule IV substance. AZ-002 is subject to DEA regulations relating to registration, security, record keeping and reporting, distribution and, if approved, physician prescription procedures, and DEA regulations may impact the availability of the scheduled substance available for clinical trials and commercial distribution. 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, financial condition and results of operations.

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 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 United States Department of Transportation, or DOT, might regulate shipments of the single dose version of our Staccato system. However, 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 results of operations. 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.

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. 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 of these materials and our liability may exceed our total assets. Compliance with environmental and other laws and regulations may be expensive, and current or future regulations may impair our research, development or production efforts.

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Certain of our suppliers are working with these types of hazardous and energetic 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 energetic 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 identified a material weakness in our internal control over financial reporting as of December�31, 2013, and our business and stock price may be adversely affected if we do not adequately address this weakness or if we have other material weaknesses or significant deficiencies in our internal control over financial reporting.

We did not adequately implement certain controls relating to our review and verification of internally prepared reports and analyses utilized in the financial statement closing process. Therefore, we identified a material weakness in our internal control over financial reporting relating to the financial statement closing process as of December�31, 2013. The existence of this or one or more other material weaknesses or significant deficiencies could result in errors in our financial statements, and substantial costs and resources may be required to rectify any internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the market price of our stock could decline significantly, we may be unable to obtain additional financing to operate and expand our business, and our business and financial condition could be harmed.

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

Numerous laws and regulations affect commercial companies, including, but not limited to, the Federal Anti-Kickback, False Claims Act, the Federal Physician Payment Sunshine Act, the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010. 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 policies generally 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.

Compliance with the Federal Anti-Kickback, False Claims Act, the Federal Physician Payment Sunshine Act, the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010 and other regulations will continue to increase our costs and require additional management resources. As we grow, we will need to continue to implement additional reporting systems, procedures and controls 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.

Our business is subject to complex corporate governance, public disclosure and accounting requirements that could adversely affect our business and financial results.

We are subject to changing rules and regulations of federal and state governments, the SEC, and the NASDAQ Global Market. These entities have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements. On July�21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. The Dodd-Frank Act contains significant corporate governance and executive compensation-related provisions, some of which the SEC, has implemented by adopting additional rules and regulations in areas such as the compensation of executives, referred to as �say-on-pay.� We cannot assure you that we are or will be in compliance with all potentially applicable regulations. If we fail to comply with the Sarbanes Oxley Act of 2002, the Dodd-Frank Act and associated SEC rules, or any other regulations or if our interpretations of these rules and regulations differ from the regulating bodies, we could be subject to a range of consequences, including restrictions on our ability to sell equity securities or otherwise raise capital funds, the de-listing of our common stock from the NASDAQ Global Market, suspension or termination of our clinical trials, restrictions on future products or our manufacturing processes, significant fines, or other sanctions or litigation. Any of such consequences could have a material adverse effect on our business, results of operations and the price of our common stock. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management�s time from other business activities.

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

Our facility, which is the location where the final manufacturing of our product occurs, is located in the San Francisco Bay Area near known earthquake fault zones and, therefore, is 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 seriously impaired. We currently may not have adequate insurance to cover our losses resulting from disasters or

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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 results of operations.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have also outsourced elements of our information technology infrastructure, and as a result we manage a number of third party vendors who may or could have access to our confidential information. The size and complexity of our information technology systems, and those of third-party vendors with whom we contract, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other cyber attacks. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent the adverse effect of such events. Significant disruptions of our information technology systems or breaches of data security could adversely affect our business.

Regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of tin, tantalum, tungsten and gold, known as conflict minerals, originating from the Democratic Republic of Congo, or the DRC, and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for public companies that use conflict minerals mined from the DRC and adjoining countries in their products. We have determined that we use at least one of these conflict minerals in the manufacture of ADASUVE and our other product candidates, although we have not yet determined the source of the conflict minerals that we use. These new disclosure requirements require us to use diligent efforts to determine which conflict minerals we use and the source of those conflict minerals, and disclose the results of our findings beginning in May 2014. There are and will be costs associated with complying with these disclosure requirements, including those costs incurred in conducting diligent efforts to determine which conflict minerals we use and the sources of conflict minerals used in ADASUVE and our other product candidates. Further, the implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in ADASUVE and our other product candidates. As there may be only a limited number of suppliers offering conflict free conflict minerals, and we cannot be sure that we will be able to obtain necessary conflict free conflict minerals in sufficient quantities or at competitive prices. In addition, we may face reputational challenges if we determine that ADASUVE and our other product candidates contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in ADASUVE and our other product candidates through the procedures we may implement. If we determine to redesign ADASUVE and our other product candidates to not use conflict minerals, we would incur costs associated with doing so.

Risks Relating to Owning Our Common Stock

Our stock price has been and may continue to be extremely volatile.

Our common stock price has experienced large fluctuations. 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:

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the success of the commercial launches of ADASUVE in the United States and the Ferrer Territories;

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our and our collaborators� ability to complete and implement our post-approval commitments for ADASUVE;

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the process and outcome of our post-approval commitments for ADASUVE;

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our ability to manufacture ADASUVE at a cost effective price;

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

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actual or anticipated cash depletion of our financial resources;

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actual or anticipated results and timing of our clinical trials;

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

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changes in the expected or actual timing of our development programs such as for AZ-002, including delays or cancellations of clinical trials for our product candidates;

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period to period fluctuations in our operating results;

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

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changes in financial estimates or recommendations by securities analysts;

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conditions or trends in the life science and biotechnology industries;

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

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developments in domestic and international governmental policy or regulations;

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

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additions or departures of key personnel;

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difficulty, or increased costs, associated with replacing Autoliv as the supplier of chemical heat packages for ADASUVE and other product candidates;

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

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sales of our common stock (or other securities) by us; and

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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.

If we sell shares of our common stock in future financings, existing common stockholders will experience immediate dilution and, as a result, our stock price may go down.

We will need to source additional capital to fund our operations to develop our product candidates and to develop our manufacturing capabilities. We may obtain such financing through the sale of our equity securities from time to time. As a result, our existing common stockholders will experience immediate dilution upon any such issuance. For example, in February 2012, we issued 4,400,000 shares of our common stock and warrants to purchase up to an additional 4,400,000 shares of our common stock in an underwritten public offering; in March 2012, we issued 241,936 shares of our common stock in a private placement to Ferrer; in July 2012 we issued 80,429 shares of our common stock to Azimuth in consideration for its execution and delivery of the Purchase Agreement; in August and September 2012, we issued an aggregate of 3,489,860 shares of our common stock to Azimuth under the Purchase Agreement; in May 2013, we issued 1,437,481 shares of our common stock to Azimuth under the Purchase Agreement; and in October 2014, we issued 2,000,000 shares of our common stock in a private placement to Ferrer. If we enter into other financing transactions in which we issue equity securities in the future, our existing common stockholders will experience immediate dilution upon any such issuance.

If we fail to maintain compliance with the listing requirements of The NASDAQ Global Market, we may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

Our common stock is currently listed on The NASDAQ Global Market. To maintain the listing of our common stock on The NASDAQ Global Market, we are required to meet certain listing requirements, including, among others, either: (i)�a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more stockholders) of at least $5 million and stockholders� equity of at least $10 million; or (ii)�a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by our executive officers, directors, affiliates and 10% or more stockholders) of at least $15 million and a total market value of listed securities of at least $50 million. On January�31, 2012, we received a notice from The NASDAQ Stock Market indicating that our common stock had not met the $1.00 per share minimum closing bid price requirement for 30 consecutive business days and that, if we were unable to demonstrate compliance with this requirement during the applicable grace periods, our common stock would be delisted after that time. We were notified that we had regained compliance with the minimum closing bid requirement on June�27, 2012 after our one-for-ten reverse stock split. On October�27, 2014, we received a notice from The NASDAQ Stock Market indicating that the total market value of our listed securitieshad not met the minimum value of $50 million for any of the 30 consecutive business days prior to that date. If our total market value

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of listed securities does not equal or exceed $50 million, based on the closing price of our common stock, for at least ten consecutive business days prior to April�27, 2015, our common stock may become subject to delisting from the Nasdaq Global Market. If we do not regain compliance within the 180 calendar day grace period, we may transfer the listing of our common stock to the Nasdaq Capital Market, provided that we meet the applicable requirements for continued listing on the Nasdaq Capital Market based on our most recent public filings and market information. We may also request a hearing to remain on the Nasdaq Global Market at the expiration of this 180 calendar day grace period. Even if we regain compliance or transfer the listing of our common stock to the Nasdaq Capital Market, we may subsequently fail to maintain compliance with applicable listing standards.

In addition, our 2012 reverse stock split may not prevent our common stock from dropping back down below The NASDAQ Global Market minimum closing bid price requirement in the future. It is also possible that we would otherwise fail to satisfy one or more NASDAQ Global Market requirements for continued listing of our common stock. As of October�31, 2014, the total market value of our publicly held shares of our common stock (excluding shares held by our executive officers, directors, affiliates and 10% or more stockholders) was $38.2 million, the total market value of our listed securities was $43.9 million and the closing bid price of our common stock was $2.26 per share. As of September�30, 2014, we had a stockholders� deficit of $48.8 million.

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PART II. OTHER INFORMATION

Item�1. Legal Proceedings

None.

Item�2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

This information has been previously included on a Current Report on Form 8-K, filed with the SEC on October�27, 2014.

Use of Proceeds from the Sale of Registered Securities

Not applicable.

Issuer Purchases of Equity Securities

None.

Item��3. Defaults Upon Senior Securities

None.

Item�4. Mine Safety Disclosures

Not applicable.

Item�5. Other Information

Not Applicable.

Item�6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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	�	Alexza Pharmaceuticals, Inc.
	�	(Registrant)

November 5, 2014	�	/s/ Thomas B. King
	�	Thomas B. King
	�	President and Chief Executive Officer
	�	(principal executive officer)

November 5, 2014	�	/s/ Mark K. Oki
	�	Mark K. Oki
	�	Senior Vice President, Finance, Chief Financial Officer and Secretary
	�	(principal financial officer and principal accounting officer)

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EXHIBIT INDEX

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��3.1	��	Restated Certificate of Incorporation. (1)

��3.2	��	Certificate of Amendment to Restated Certificate of Incorporation. (1)

��3.3	��	Certificate of Amendment to Restated Certificate of Incorporation. (1)

��3.4	��	Amended and Restated Bylaws. (2)

��3.5	��	Amendment to Amended and Restated Bylaws. (3)

��4.1	��	Specimen Common Stock Certificate. (1)

��4.2	��	Second Amended and Restated Investors� Right Agreement dated November 5, 2004, by and between the registrant and certain holders of Preferred Stock. (2)

��4.2	��	Reference is made to exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.

��10.1	��	Indenture by and between Atlas U.S. Royalty, LLC, a wholly-owned subsidiary of the registrant, and U.S. National Bank Association dated March 18, 2014. (4)

��10.2	��	Amended and Restated Purchase Option Agreement by and among Registrant, Symphony Allegro Holdings LLC and Symphony Allegro, Inc. dated June 15, 2009. (4)

��31.1	��	Certification required by Rule 13a-14(a) or Rule 15d-14(a).

��31.2	��	Certification required by Rule 13a-14(a) or Rule 15d-14(a).

��32.1�	��	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

101.INS	��	XBRL Instance Document (filed electronically herewith).

101.SCH	��	XBRL Taxonomy Extension Schema Document (filed electronically herewith).

101.CAL	��	XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith).

101.DEF	��	XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith).

101.LAB	��	XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith).

101.PRE	��	XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith).

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�	Furnished herewith.

(1)	Incorporated by reference to exhibits to our Registration Statement on Form S-3 (File No.�333-182341) as filed with the SEC on June�26, 2012.

(2)	Incorporated by reference to exhibits to our Registration Statement on Form S-1 filed on December�22, 2005, as amended (File No.�333-130644).

(3)	Incorporated by reference to our Annual Report on Form 10-K (File No. 000-51820) as filed with the SEC on March�17, 2008.

(4)	Filed herewith.

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Exhibit 10.1

Execution Version

INDENTURE

dated as of March�18, 2014

by and between

ATLAS U.S. ROYALTY, LLC,

a Delaware limited liability company,

as issuer of the Notes described herein,

and

U.S. BANK NATIONAL ASSOCIATION,

a national banking association,

as initial trustee of the Notes described herein

and as Operating Bank (as defined herein)

Table of Contents

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�	�	�	��	Page		�
GRANTING CLAUSE			��	�	1	��

HABENDUM CLAUSE			��	�	2	��

ARTICLE I						��
GENERAL						��

Section 1.1	�	Rules of Construction and Defined Terms	��	�	3	��
Section 1.2	�	Officer�s Certificates and Opinions	��	�	3	��
Section 1.3	�	Acts of Noteholders	��	�	4	��

ARTICLE II						��
THE NOTES						��

Section 2.1	�	Amount of Notes; Terms; Form; Execution and Delivery	��	�	5	��
Section 2.2	�	Restrictive Legends	��	�	9	��
Section 2.3	�	Registrar, Paying Agent and Calculation Agent	��	�	11	��
Section 2.4	�	Paying Agent to Hold Money in Trust	��	�	12	��
Section 2.5	�	Method of Payment	��	�	13	��
Section 2.6	�	Minimum Denominations	��	�	14	��
Section 2.7	�	Transfer and Exchange; Cancellation	��	�	14	��
Section 2.8	�	Mutilated, Destroyed, Lost or Stolen Notes	��	�	15	��
Section 2.9	�	Payments of Transfer Taxes	��	�	16	��
Section 2.10	�	Book-Entry Provisions	��	�	16	��
Section 2.11	�	Special Transfer Provisions	��	�	18	��
Section 2.12	�	Temporary Definitive Notes	��	�	21	��
Section 2.13	�	Statements to Noteholders	��	�	21	��
Section 2.14	�	Identification Numbers	��	�	22	��
Section 2.15	�	Refinancing Notes	��	�	23	��
Section�2.16	�	Subordinated Notes	��	�	24	��
Section 2.17	�	Contingent Payment Debt Instrument Status	��	�	26	��

ARTICLE III						��
ACCOUNTS; PRIORITY OF PAYMENTS						��

Section 3.1	�	Establishment of Accounts	��	�	26	��
Section 3.2	�	Investments of Cash	��	�	28	��
Section 3.3	�	Payments and Transfers In Connection with Issuance of Notes	��	�	29	��
Section 3.4	�	Calculation Date Calculations	��	�	30	��
Section 3.5	�	Payment Date First Step Transfers	��	�	32	��
Section 3.6	�	Payment Date Second Step Withdrawals	��	�	32	��
Section 3.7	�	Interest Reserve Account and Capital Account; Interest Shortfalls	��	�	33	��
Section 3.8	�	Redemptions	��	�	34	��
Section 3.9	�	Procedure for Redemptions	��	�	35	��

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ARTICLE IV						��
DEFAULT AND REMEDIES						��

Section 4.1	�	Events of Default	��	�	37	��
Section 4.2	�	Acceleration, Rescission and Annulment	��	�	38	��
Section 4.3	�	Other Remedies	��	�	39	��
Section 4.4	�	Limitation on Suits	��	�	40	��
Section 4.5	�	Waiver of Existing Defaults	��	�	41	��
Section 4.6	�	Restoration of Rights and Remedies	��	�	41	��
Section 4.7	�	Remedies Cumulative	��	�	42	��
Section 4.8	�	Authority of Courts Not Required	��	�	42	��
Section 4.9	�	Rights of Noteholders to Receive Payment	��	�	42	��
Section 4.10	�	Trustee May File Proofs of Claim	��	�	42	��
Section 4.11	�	Undertaking for Costs	��	�	42	��
Section 4.12	�	Control by Noteholders	��	�	43	��
Section 4.13	�	Senior Trustee	��	�	43	��
Section 4.14	�	Application of Proceeds	��	�	43	��
Section 4.15	�	Waivers of Rights Inhibiting Enforcement	��	�	43	��
Section 4.16	�	Security Interest Absolute	��	�	44	��
Section 4.17	�	Observer	��	�	44	��

ARTICLE V						��
REPRESENTATIONS AND WARRANTIES AND COVENANTS						��

Section 5.1	�	Representations and Warranties	��	�	46	��
Section 5.2	�	Covenants	��	�	47	��
Section 5.3	�	Reports and Other Deliverables by the Issuer	��	�	53	��

ARTICLE VI						��
THE TRUSTEE						��

Section 6.1	�	Acceptance of Trusts and Duties	��	�	53	��
Section 6.2	�	Copies of Documents and Other Notices	��	�	54	��
Section 6.3	�	Representations and Warranties	��	�	55	��
Section 6.4	�	Reliance; Agents; Advice of Counsel	��	�	56	��
Section 6.5	�	Not Acting in Individual Capacity	��	�	58	��
Section 6.6	�	Compensation of Trustee	��	�	58	��
Section 6.7	�	May Hold Notes	��	�	58	��
Section 6.8	�	Corporate Trustee Required; Eligibility	��	�	58	��
Section 6.9	�	Reports by the Trustee	��	�	58	��
Section 6.10	�	Pledge and Security Agreement and Other Transaction Documents	��	�	59	��
Section 6.11	�	Collateral	��	�	59	��
Section 6.12	�	Preservation and Disclosure of Noteholder Lists	��	�	59	��
Section 6.13	�	Audit Rights	��	�	60	��
Section 6.14	�	Compliance with Applicable Anti-Terrorism and Anti-Money Laundering Regulations	��	�	61	��
Section 6.15	�	Jurisdiction of Trustee	��	�	61	��
Section 6.16	�	Notice of Event of Default to the Equityholder	��	�	61	��

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ARTICLE VII						��
SUCCESSOR TRUSTEES, REGISTRARS, PAYING AGENTS AND CALCULATION AGENTS						��

Section 7.1	�	Resignation and Removal of Trustee, Registrar, Paying Agent or Calculation Agent	��	�	61	��
Section 7.2	�	Appointment of Successor	��	�	62	��

ARTICLE VIII						��
INDEMNITY						��

Section 8.1	�	Indemnity	��	�	63	��
Section 8.2	�	Noteholders� Indemnity	��	�	64	��
Section 8.3	�	Survival	��	�	64	��

ARTICLE IX						��
MODIFICATION						��

Section 9.1	�	Modification with Consent of Noteholders	��	�	64	��
Section 9.2	�	Modification Without Consent of Noteholders	��	�	65	��
Section 9.3	�	Subordination; Priority of Payments	��	�	66	��
Section 9.4	�	Execution of Amendments by Trustee	��	�	67	��

ARTICLE X						��
SUBORDINATION						��

Section 10.1	�	Subordination of the Notes	��	�	67	��

ARTICLE XI						��
DISCHARGE OF INDENTURE; SURVIVAL						��

Section 11.1	�	Discharge of Indenture; Survival	��	�	68	��
Section 11.2	�	Release of Security Interest in Certain Collateral	��	�	69	��

ARTICLE XII						��
MISCELLANEOUS						��

Section 12.1	�	Right of Trustee to Perform	��	�	69	��
Section 12.2	�	Waiver	��	�	70	��
Section 12.3	�	Severability	��	�	70	��
Section 12.4	�	Restrictions on Exercise of Certain Rights	��	�	70	��
Section 12.5	�	Notices	��	�	70	��
Section 12.6	�	Assignments	��	�	71	��
Section 12.7	�	Application to Court	��	�	71	��
Section 12.8	�	GOVERNING LAW	��	�	71	��
Section 12.9	�	Jurisdiction	��	�	72	��
Section�12.10	�	Counterparts	��	�	73	��
Section�12.11	�	Table of Contents and Headings	��	�	73	��

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iii


Section�12.12	�	Trust Indenture Act	��	�	73	��
Section�12.13	�	Confidential Information	��	�	74	��
Section�12.14	�	Limited Recourse	��	�	74	��
Section�12.15	�	Tax Matters	��	�	75	��
Section�12.16	�	Waiver	��	�	76	��
Section�12.17	�	Distribution Reports	��	�	76	��
Section�12.18	�	U.S.A. Patriot Act	��	�	76	��

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Schedule�A	��	Cumulative Net Sales Requirement, by Quarter, for Issuance of Additional Class A Notes

Annex A	��	Rules of Construction and Defined Terms

Exhibit A	��	Form of Class A Note
Exhibit B	��	Form of Confidentiality Agreement
Exhibit C	��	Agents for Service of Process
Exhibit D	��	Coverage of Distribution Report
Exhibit E	��	UCC Financing Statements
Exhibit F	��	Form of Certificate of Euroclear or Clearstream for Permanent Regulation S Global Note
Exhibit G	��	Form of Certificate of Beneficial Owner of Temporary Regulation S Global Note
Exhibit H	��	Form of Certificate of Euroclear or Clearstream for Payments
Exhibit I	��	Form of Certificate of Proposed Transferor
Exhibit J	��	Form of Certificate of Certain Proposed Institutional Accredited Investor Transferees
Exhibit K	��	Form of Portfolio Interest Certificate

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INDENTURE

This INDENTURE, dated as of March�18, 2014, is by and between ATLAS U.S. ROYALTY, LLC, a Delaware limited liability company, as issuer of the Notes described herein, and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as initial trustee of the Notes described herein and as Operating Bank.

GRANTING CLAUSE

NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Notes by the Noteholders, and for other good and valuable consideration, the receipt of which is hereby acknowledged, in order to secure (i)�the prompt payment of the principal of, Premium (if any) and interest on, and all other amounts due with respect to, the Notes from time to time Outstanding hereunder, (ii)�the payment of any fees, expenses or other amounts that the Issuer is obligated to pay under or in respect of the Notes or this Indenture, (iii)�the payment and performance of all the obligations of the Issuer in respect of any amendment, modification, extension, renewal or refinancing of the Notes and (iv)�the performance and observance by the Issuer of all the agreements, covenants and provisions expressed or implied herein and in the Notes for the benefit of the Noteholders (collectively, the �Secured Obligations�) and for the uses and purposes and subject to the terms and provisions hereof, the Issuer does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and confirm unto the Trustee, its successors and assigns, for the security and benefit of the Noteholders from time to time, a security interest in all right, title and interest of the Issuer in, to and under the following described property, rights and privileges (such property, rights and privileges, including all other property, rights and privileges hereafter specifically subjected to the lien of this Indenture or any indenture supplemental hereto, in each case whether now owned or hereafter acquired, being collectively referred to herein as the �Collateral�):

(1) the Purchased Assets;

(2) the Transaction Documents and other agreements to which the Issuer is a party, including those relating to the rights of the Issuer in respect of the sale, contribution, assignment, transfer, conveyance, grant and servicing of the Purchased Assets;

(3) (A) all Accounts established under this Indenture at any time, (B)�all amounts from time to time credited to such Accounts, (C)�all cash, financial assets and other investment property, instruments, documents, chattel paper, general intangibles, accounts and other property from time to time credited to such Accounts or representing investments and reinvestments of amounts credited to such Accounts and (D)�all interest, principal payments, dividends and other distributions payable on or with respect to, and all proceeds of, (i)�all property so credited or representing such investments and reinvestments and (ii)�such Accounts;

(4) all of the Issuer�s rents, issues, profits, revenues and other income of the property subjected or required to be subjected to the lien of this Indenture;

(5) all other property and assets of the Issuer with respect to which a security interest can be created under Article 9 of the UCC, including all goods, deposit accounts, investment property, financial assets, letter-of-credit rights, supporting obligations, commercial tort claims, accounts, contract rights and general intangibles and all other cash;

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(6) all rights of the Issuer (contractual and otherwise) constituting, arising under, connected with or in any way related to any or all of the foregoing property;

(7) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software (owned by the Issuer) that at any time evidence or contain information relating to any of the foregoing property or are otherwise necessary or helpful in the collection thereof or realization thereupon;

(8) all documents of title, policies and certificates of insurance, securities, chattel paper and other documents or instruments evidencing or pertaining to any of the foregoing property of the Issuer; and

(9) all proceeds and products of any and all of the foregoing property;

BUT SUBJECT TO all of the terms and conditions of this Indenture.

HABENDUM CLAUSE

TO HAVE AND TO HOLD all and singular the aforesaid property unto the Trustee, its successors and assigns, in trust for the benefit and security of the Noteholders from time to time of each class of the Notes, without any priority of any one class of Notes over any other class of Notes by reason of difference in time of issuance or otherwise, except as expressly provided herein, and for the uses and purposes and subject to the terms and provisions set forth in this Indenture.

PROVIDED, HOWEVER, that, notwithstanding any of the foregoing provisions or anything to the contrary herein, so long as no Event of Default shall have occurred and be continuing, the Issuer shall have the right, to the exclusion of the Trustee and the Noteholders, to exercise in the Issuer�s name all rights and powers of the Issuer under the Purchase and Sale Agreement and any other agreement (including any other Transaction Documents) to which the Issuer is or may be a party or third party beneficiary (including the Counterparty License Agreement), except as otherwise set forth in any such agreement, and SUBJECT TO all of the terms and conditions of this Indenture.

It is hereby further agreed that any and all property described or referred to in the Granting Clause that is hereafter acquired by the Issuer shall ipso facto, and without any other conveyance, assignment or act on the part of the Issuer or the Trustee, become and be subject to the Security Interest herein granted as fully and completely as though specifically described herein, but nothing contained in this paragraph shall be deemed to modify or change the obligations of the Issuer contained in the foregoing paragraphs.

The Issuer does hereby ratify and confirm this Indenture and the other Transaction Documents to which it is a party and, subject to the other terms of this Indenture, does hereby agree that it will not take or omit to take any action, the taking or omission of which might result in an alteration or impairment of the assignment hereunder or of any of the rights created by any thereof.

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It is expressly agreed that anything herein contained to the contrary notwithstanding, the Issuer shall remain liable under the Transaction Documents and any other contracts and agreements included in the Collateral to the extent set forth therein and shall remain obligated to perform all of the duties and obligations of the Issuer thereunder to the same extent as if this Indenture had not been executed in accordance with and pursuant to the terms and provisions thereof, the exercise by the Trustee of any of its rights hereunder shall not release the Issuer from any of its duties or obligations under any such Transaction Documents or other contracts or agreements included in the Collateral, and, prior to the foreclosure of the lien of this Indenture under Section�4.3, the Trustee and the Noteholders shall have no obligation or liability under any thereof by reason of or arising out of this Indenture or the assignment hereunder, nor shall the Trustee or the Noteholders be required or obligated in any manner to perform or fulfill any obligations or duties of the Issuer under or pursuant to any Transaction Document or any other contract or agreement included in the Collateral or, except as herein expressly provided, to make any payment, make any inquiry as to the nature or sufficiency of any payment received by it, present or file any claim or take any action to collect or enforce any claim for payment assigned hereunder or the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times; provided, however, that, in exercising any right of the Issuer under any Transaction Document or any other contract or agreement included in the Collateral, the Trustee and the Noteholders shall be bound by, and shall comply with, the provisions thereof applicable to the Issuer in respect of the exercise of such right and the confidentiality provisions set forth therein to the extent permitted by Applicable Law.

IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:

ARTICLE I

GENERAL

Section 1.1 Rules of Construction and Defined Terms. The rules of construction set forth in Annex A shall apply to this Indenture and are hereby incorporated by reference into this Indenture as if set forth fully in this Indenture. Capitalized terms used but not otherwise defined in this Indenture shall have the respective meanings given to such terms in Annex A, which is hereby incorporated by reference into this Indenture as if set forth fully in this Indenture. Not all terms defined in Annex A are used in this Indenture.

Section 1.2 Officer�s Certificates and Opinions. Upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture (other than directions under Sections 2.5(d), 3.2, 3.3, 3.6(c), 3.7 and 11.2, which shall require neither an Officer�s Certificate nor an Opinion of Counsel, and direction under Section�3.8 and 3.9, which shall require only an Officer�s Certificate), the Issuer shall furnish to the Trustee an Officer�s Certificate stating that, in the opinion of the signer thereof in his or her capacity as such, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional Officer�s Certificate or Opinion of Counsel need be furnished.

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Every Officer�s Certificate or Opinion of Counsel with respect to compliance with a condition precedent or covenant provided for in this Indenture (other than certificates or opinions provided pursuant to Section�5.3) or any indenture supplemental hereto (except as otherwise specified therein) shall include:

(a) a statement that each individual signing such certificate or opinion has read such condition precedent or covenant and the definitions in this Indenture relating thereto;

(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(c) a statement to the effect that, in the opinion of each such individual in his or her capacity as such, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such condition precedent or covenant has been complied with; and

(d) a statement as to whether, in the opinion of each such individual, such condition precedent or covenant has been complied with.

Section 1.3 Acts of Noteholders.

(a) Any direction, consent, waiver or other action provided by this Indenture in respect of the Notes of any class to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by an agent or proxy duly appointed in writing, and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee or to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the �Act� of the Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose under this Indenture and conclusive in favor of the Trustee or the Issuer, if made in the manner provided in this Section�1.3(a).

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the Person executing such instrument acknowledged to him or her the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or such other officer and, where such execution is by an officer of a corporation or association, trustee of a trust or member of a partnership, on behalf of such corporation, association, trust or partnership, such certificate or affidavit shall also constitute sufficient proof of his or her authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other reasonable manner that the Trustee deems sufficient.

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(c) In determining whether the Noteholders have given any Direction under this Indenture, Notes owned by the Issuer, the Equityholder or any Affiliate of any such Person shall be disregarded and deemed not to be Outstanding for purposes of any such determination. In determining whether the Trustee shall be protected in relying upon any such Direction, only Notes that a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Notwithstanding the foregoing, if any such Person or Persons owns 100% of the Notes of any class Outstanding, such Notes shall not be so disregarded as aforesaid.

(d) Notwithstanding the definition of �Record Date�, the Issuer may, at its option, by delivery of Officer�s Certificate(s) to the Trustee, set a record date other than the Record Date to determine the Noteholders in respect of the Notes of any class entitled to give any Direction in respect of such Notes. Such record date shall be the record date specified in such Officer�s Certificate, which shall be a date not more than 30 days prior to the first solicitation of Noteholders in connection therewith. If such a record date is fixed, such Direction may be given before or after such record date, but only the Noteholders of the applicable class at the close of business on such record date shall be deemed to be Noteholders for the purposes of determining whether Noteholders holding the requisite proportion of Outstanding Notes of such class have authorized, agreed or consented to such Direction, and for that purpose the Outstanding Notes of such class shall be computed as of such record date; provided, that no such Direction by the Noteholders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than one year after the record date.

(e) Any Direction or other action by the Noteholder of any Note shall bind the Noteholder of every Note issued upon the transfer thereof, in exchange therefor or in lieu thereof, whether or not notation of such action is made upon such Note, and any Direction or other action by the Beneficial Holder of any Beneficial Interest in any Note shall bind any transferee of such Beneficial Interest.

ARTICLE II

THE NOTES

Section 2.1 Amount of Notes; Terms; Form; Execution and Delivery.

(a) The Outstanding Principal Balance of any class of Notes that may be authenticated and delivered from time to time under this Indenture shall not exceed, with respect to the Original Class�A Notes, the initial Outstanding Principal Balance for the Original Class�A Notes in the amount of $45,000,000, as set forth in the definition thereof, with respect to any Additional Class�A Notes, $25,000,000, or, with respect to any class (or sub-class) of Subordinated Notes or any class of Refinancing Notes, the Outstanding Principal Balance authorized in the Resolution and set forth in an indenture supplemental hereto establishing such Subordinated Notes or Refinancing Notes; provided, that (i)�any Additional Class�A Notes shall be issued in accordance with Section�2.1(g), (ii)�any Refinancing Notes shall be issued in accordance with Section�2.15 and (iii)�any Subordinated Notes shall be issued in accordance with Section�2.16.

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(b) There shall be issued, authenticated and delivered on the Closing Date and on the date of issuance of any Additional Class�A Notes, any Subordinated Notes or any Refinancing Notes to each of the Noteholders Notes in the principal amounts and maturities and bearing the interest rates, in each case in registered form and, in the case of the Original Class�A Notes and any Additional Class�A Notes, substantially in the form set forth in Exhibit A or, in the case of any Subordinated Notes or any Refinancing Notes, substantially in the form set forth in any indenture supplemental hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements typewritten, printed, lithographed or engraved thereon, as may, consistently herewith, be prescribed by the Trustee. The Trustee shall authenticate Notes and make Notes available for delivery only upon the written order of the Issuer signed by a Responsible Officer of the Issuer. Such order shall specify the aggregate principal amount and type of Notes to be authenticated, the date of issue, whether they are to be issued as Global Notes or Definitive Notes and delivery instructions.

Notes, if so provided herein or in any indenture supplemental hereto, shall be issued in the form of permanent certificated Notes in definitive, registered form in substantially the form set forth in Exhibit A (collectively with any definitive, fully registered Notes issued pursuant to Section�2.10(b), the �Definitive Notes�). Definitive Notes of each class shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods.

Any Notes offered and sold to QIBs in reliance on Rule 144A shall be issued initially in the form of one or more permanent global certificates in fully registered form without payment coupons, substantially in the form set forth in the applicable Exhibit to this Indenture or in any indenture supplemental hereto (each, a �144A Global Note�), registered in the name of the nominee of DTC, deposited with the Trustee as custodian for DTC, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of each 144A Global Note may from time to time be increased or decreased by adjustments made on the books and records of the Registrar, as hereinafter provided.

Any Notes offered and sold to Institutional Accredited Investors in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more temporary global Notes in registered form substantially in the form set forth in the applicable Exhibit to this Indenture or in any indenture supplemental hereto (each, a �Temporary Regulation S Global Note�), registered in the name of the nominee of DTC, deposited with the Trustee, as custodian for DTC, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. At any time following the applicable Regulation S Global Note Exchange Date, upon receipt by the Trustee and the Issuer of a certificate substantially in the form of Exhibit F, executed by Euroclear or Clearstream, as the case may be, together with copies of certificates from Euroclear or Clearstream, as the case may be, certifying that it has received certification of non-U.S. beneficial ownership of a Temporary Regulation S Global Note (or portion thereof) with respect to any Notes to be exchanged, one or more permanent Global Notes for such Notes in registered form substantially in the form set forth in the applicable Exhibit to this Indenture or in any indenture supplemental hereto (each, a �Permanent Regulation S Global Note� and, together with each Temporary Regulation S Global Note, the �Regulation S Global Notes�) duly executed by the Issuer and authenticated by the Trustee as hereinafter provided shall be deposited with the Trustee, as custodian for DTC, and the Registrar shall reflect on its books and records the date

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and a decrease in the principal amount of the Temporary Regulation S Global Note of such class in an amount equal to the principal amount of such Temporary Regulation S Global Note exchanged. Until the Regulation S Global Note Exchange Date with respect to any Temporary Regulation S Global Note, Beneficial Interests in such Temporary Regulation S Global Note may be held only through Agent Members acting for and on behalf of Euroclear and Clearstream.

(c) Interest shall accrue on any class of Fixed Rate Notes from the date of issuance of such Fixed Rate Notes and shall be computed for each Interest Accrual Period on the basis of a 360-day year consisting of twelve 30-day months on the Outstanding Principal Balance of such Notes. Interest shall accrue on any class of Floating Rate Notes from the date of issuance of such Floating Rate Notes and shall be computed for each Interest Accrual Period on the basis of a 360-day year and the actual number of days elapsed in such Interest Accrual Period on the Outstanding Principal Balance of such Notes. If any interest payment is not made when due on a Payment Date, the unpaid portion of such interest payment will accrue interest at the rate then applicable to the Notes, compounded quarterly, until paid in full.

(d) On the date of any Refinancing, the Issuer shall issue and deliver, as provided in Section�2.15, an aggregate principal amount of Refinancing Notes having the maturities and bearing the interest rates and such other terms authorized by one or more Resolutions and set forth in any indenture supplemental hereto providing for the issuance of such Refinancing Notes or specified in the form of such Refinancing Notes, in each case in accordance with Section�2.15.

(e) On the date of any Subordinated Note Issuance, the Issuer shall issue and deliver, as provided in Section�2.16, an aggregate principal amount of Subordinated Notes having the maturities and bearing the interest rates and such other terms authorized by one or more Resolutions and set forth in any indenture supplemental hereto providing for the issuance of such Subordinated Notes or specified in the form of such Subordinated Notes, in each case in accordance with Section�2.16.

(f) The Notes shall be executed on behalf of the Issuer by the manual or facsimile signature of a Responsible Officer of the Issuer or any individual authorized to do so by a Responsible Officer of the Issuer.

(g) As long as no Event of Default has occurred and is continuing, if the Milestone Payment of $15,000,000 related to the successful completion of the FDA mandated studies for the Product has been applied to the payment of interest on and principal of the Notes pursuant to Section�3.6(a) and cumulative Net Sales of the Product from January�1, 2014 through the end of the calendar quarter in which such Milestone Payment was made (as evidenced by one or more reports of Counterparty) equal or exceed the applicable amount for the applicable calendar quarter set forth in Schedule A, then the Issuer may issue and deliver, no later than six months after the end of such calendar quarter, in accordance with this Section�2.1(g), Additional Class�A Notes in an aggregate principal amount up to $25,000,000 substantially in the form set forth in Exhibit A without the consent of any Noteholder. The Additional Class�A Notes shall have the same terms as the Original Class�A Notes, except that the issuance price, the issuance date and the initial Payment Date may vary. Notwithstanding the foregoing, the Additional Class�A Notes shall be treated as a single class with the Original Class�A Notes for all purposes

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hereunder and will rank pari passu in right of payment and security with the Original Class�A Notes. If the Issuer determines that any Additional Class�A Notes are issued as part of a �qualified reopening� for U.S. federal income tax purposes, such Additional Class�A Notes will have the same CUSIP number as the Original Class�A Notes. If the Issuer determines that any such Additional Class�A Notes are not issued as part of such a �qualified reopening�, any such Additional Class�A Notes will be required to have a CUSIP number that is different than the CUSIP number of the Original Class�A Notes, and therefore, will not be fungible with the Original Class�A Notes for U.S. federal income tax purposes. On the date of issuance, if any, of Additional Class�A Notes, as a condition to the issuance of such Additional Class�A Notes, the Issuer shall deliver to the Trustee, in addition to the written order of the Issuer pursuant to Section�2.1(b), an Officer�s Certificate complying with Section�1.2 and certifying that the cumulative Net Sales of the Product equal or exceed the applicable amount set forth in Schedule A and shall issue and deliver the aggregate principal amount of Additional Class�A Notes set forth in such written order and as authorized by one or more Resolutions. There are no limitations on the use of proceeds from the issuance of any such Additional Class�A Notes, including making distributions to the Equityholder. Prior to the issuance of any such Additional Class�A Notes, any or all of the following, as applicable, with respect to such issuance of Additional Class�A Notes shall have been determined by the Issuer and set forth in such Resolution and in any indenture supplemental hereto or specified in the form of such Additional Class�A Notes, as the case may be, with respect to such Additional Class�A Notes to be issued:

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(i)

the aggregate principal amount of any such Additional Class�A Notes;

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(ii)

the proposed date of issuance of such Additional Class�A Notes; and

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(iii)

the use of proceeds of such Additional Class�A Notes.

(h) Each Note bearing the manual or facsimile signature of any individual who at the time such Note was executed was authorized to execute such Note by a Responsible Officer of the Issuer shall bind the Issuer, notwithstanding that any such individual has ceased to hold such authority thereafter but prior to the authentication and delivery of such Notes or any payment thereon.

(i) At any time and from time to time after the execution of any Notes, the Issuer may deliver such Notes to the Trustee for authentication and, subject to the provisions of Section�2.1(j), the Trustee shall authenticate such Notes by manual signature upon receipt by it of a written order of the Issuer. The Notes shall be authenticated on behalf of the Trustee by any Responsible Officer of the Trustee.

(j) No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless it shall have been executed on behalf of the Issuer as provided in Section�2.1(f) and authenticated by or on behalf of the Trustee as provided in Section�2.1(i). Such signatures shall be conclusive evidence that such Note has been duly executed and authenticated under this Indenture. Each Note shall be dated the date of its authentication.

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Section 2.2 Restrictive Legends. Each Note (and all Notes issued in exchange therefor or upon registration of transfer or substitution thereof) shall bear the following legend on the face thereof (the �Legend�):

NEITHER THIS NOTE NOR ANY INTEREST HEREIN HAS BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE �SECURITIES ACT�), THE SECURITIES LAWS OF ANY STATE OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION, NOR IS SUCH REGISTRATION CONTEMPLATED. NEITHER THIS NOTE NOR ANY INTEREST HEREIN MAY BE ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, SOLD OR OFFERED FOR SALE OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EXEMPTION FROM SUCH REGISTRATION THEREUNDER AND ANY OTHER APPLICABLE SECURITIES LAW REGISTRATION REQUIREMENTS. EACH PERSON OR ENTITY THAT ACQUIRES OR ACCEPTS THIS NOTE OR AN INTEREST HEREIN BY SUCH ACQUISITION OR ACCEPTANCE (1)�REPRESENTS THAT (A)�IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) AND, IF SUBSEQUENT TO THE INITIAL ACQUISITION HEREOF, IS PURCHASING THIS NOTE IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, OR (B)�IT IS AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN SUBPARAGRAPH (a)�(1), (2), (3)�OR (7)�OF RULE 501 UNDER THE SECURITIES ACT (AN �INSTITUTIONAL ACCREDITED INVESTOR�) THAT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (2)�AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE OR AN INTEREST HEREIN, EXCEPT (A)�TO ALEXZA PHARMACEUTICALS, INC. (THE �SELLER�), THE ISSUER OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, (B)�FOR SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO AN ENTITY IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT OR (C)�TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT IS PURCHASING THIS NOTE OR AN INTEREST HEREIN, AS THE CASE MAY BE, IN COMPLIANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT AND (3)�AGREES THAT IT WILL GIVE TO EACH PERSON OR ENTITY TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE TERMS �OFFSHORE TRANSACTION� AND �U.S. PERSON� HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE REFERRED TO HEREINAFTER CONTAINS A PROVISION REQUIRING THE REGISTRAR APPOINTED THEREUNDER TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.

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BY ITS PURCHASE AND ACCEPTANCE OF THIS NOTE, EACH PURCHASER WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I)�NO PLAN ASSETS (AS DEFINED BELOW) WILL BE USED TO PURCHASE THIS NOTE OR (II) PLAN ASSETS WILL BE USED TO PURCHASE THIS NOTE BUT (A)�THE PURCHASE AND HOLDING OF THIS NOTE WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (�ERISA�), OR THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE �CODE�), BY REASON OF THE APPLICATION OF ONE OR MORE STATUTORY OR ADMINISTRATIVE EXEMPTIONS OR OTHERWISE AND WILL NOT CONSTITUTE A VIOLATION OF SIMILAR LAWS OR (B)�SUCH ASSETS ARE NOT CONSIDERED PLAN ASSETS BY REASON OF BEING HELD IN A SEPARATE ACCOUNT OF AN INSURANCE COMPANY, UNDER WHICH AMOUNTS PAYABLE OR CREDITED TO THE PLAN AND TO ANY PARTICIPANT OR BENEFICIARY OF THE PLAN ARE NOT AFFECTED BY THE INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNT. �PLAN ASSETS� HAS THE MEANING GIVEN TO IT BY SECTION 3(42) OF ERISA AND REGULATIONS OF THE U.S. DEPARTMENT OF LABOR, BUT ALSO INCLUDES ASSETS OF AN EMPLOYEE BENEFIT PLAN (WITHIN THE MEANING OF SECTION 3(3) OF ERISA) SUBJECT TO LAWS OR REGULATIONS THAT ARE SUBSTANTIALLY SIMILAR TO SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE.

THIS NOTE MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS SET FORTH IN THE INDENTURE REFERRED TO HEREINAFTER, AND, IN ADDITION, EACH PERSON OR ENTITY THAT ACQUIRES OR ACCEPTS THIS NOTE OR AN INTEREST HEREIN BY SUCH ACQUISITION OR ACCEPTANCE AGREES TO COMPLY WITH THE TRANSFER RESTRICTIONS SET FORTH IN SUCH INDENTURE, AND FURTHER ACKNOWLEDGES AND AGREES TO THE PROVISIONS SET FORTH IN SUCH INDENTURE.

THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT UNDER SECTIONS 1272, 1273 AND 1275 OF THE CODE AND IS SUBJECT TO THE RULES FOR CONTINGENT PAYMENT DEBT INSTRUMENTS UNDER U.S. TREASURY REGULATION SECTION 1.1275-4(b). FOR INFORMATION REGARDING THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, THE YIELD TO MATURITY, THE COMPARABLE YIELD AND THE PROJECTED PAYMENT SCHEDULE FOR THIS NOTE, YOU SHOULD SUBMIT A WRITTEN REQUEST TO THE ISSUER AT THE FOLLOWING ADDRESS: 2091 STIERLIN COURT, MOUNTAIN VIEW, CALIFORNIA 94043, ATTENTION: CHIEF FINANCIAL OFFICER.

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Each Global Note shall also bear the following legend on the face thereof:

UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE�& CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE�& CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OR ENTITY IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE�& CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE�& CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR�S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREINAFTER.

Each Temporary Regulation S Global Note shall also bear the following legend on the face thereof:

THIS NOTE IS A TEMPORARY REGULATION S GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER AND IS SUBJECT TO RESTRICTIONS ON THE TRANSFER AND EXCHANGE THEREOF AND ON THE PAYMENT OF INTEREST THEREON AS SPECIFIED IN THE INDENTURE REFERRED TO HEREINAFTER.

Section 2.3 Registrar, Paying Agent and Calculation Agent.

(a) With respect to each class of Notes, there shall at all times be maintained an office or agency (which shall initially be the Corporate Trust Office) where the Notes of such class may be presented or surrendered for registration of transfer or for exchange (including any additional registrar, each, a �Registrar�) and for payment thereof (including any additional paying agent, each, a �Paying Agent�) and where notices and demands to or upon the Issuer in respect of such Notes may be served. The Trustee shall be the initial Paying Agent and Registrar. The Issuer shall cause each Registrar to keep a register of such class of Notes for which it is acting as Registrar and of their transfer and exchange (the �Register�). Written notice of the location of each such other office or agency and of any change of location thereof shall be given by the Trustee to the Issuer and the Noteholders of such class of Notes. In the event that no such office or agency shall be maintained or no such notice of location or of change of location shall be given, presentations and demands may be made and notices may be served at the Corporate Trust Office.

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(b) The Trustee shall act as the Calculation Agent hereunder. To the extent not otherwise specifically provided herein, the Trustee shall furnish to the Calculation Agent, and the Calculation Agent shall furnish to the Trustee, upon written request such information and copies of such documents as the Trustee or the Calculation Agent may have and as are necessary for the Calculation Agent and the Trustee to perform their respective duties under Article III or otherwise. So long as there are Floating Rate Notes Outstanding under this Indenture, there shall at all times be a Calculation Agent. Upon the request of a Noteholder of Floating Rate Notes, the Calculation Agent will provide to such Noteholder the interest rate borne by such Floating Rate Notes on the date of such request and, if determined, the interest rate borne by such Floating Rate Notes for the next Interest Accrual Period.

(c) Each Authorized Agent shall be a bank, trust company or corporation organized and doing business under the laws of the U.S., any state or territory thereof or of the District of Columbia, with a combined capital and surplus of at least $50,000,000 (or having a combined capital and surplus in excess of $5,000,000 and the obligations of which, whether now in existence or hereafter incurred, are fully and unconditionally Guaranteed by a bank, trust company or corporation organized and doing business under the laws of the U.S., any state or territory thereof or of the District of Columbia and having a combined capital and surplus of at least $50,000,000) and shall be authorized under the laws of the U.S., any state or territory thereof or the District of Columbia to exercise corporate trust powers, subject to supervision by federal or state authorities (such requirements, the �Eligibility Requirements�). Each Registrar other than the Trustee shall furnish to the Trustee, at least five Business Days prior to each Payment Date, and at such other times as the Trustee may request in writing, a copy of the Register maintained by such Registrar.

(d) The Issuer agrees to pay, or cause to be paid, from time to time to each Authorized Agent reasonable compensation for its services and to reimburse it for its reasonable expenses to be agreed with each such Authorized Agent.

(e) Each Authorized Agent shall be entitled to all of the protections, immunities, indemnities, rights and privileges of the Trustee set forth in this Indenture, whether or not expressly stated herein.

Section 2.4 Paying Agent to Hold Money in Trust. The Trustee shall require each Paying Agent other than the Trustee to agree in writing that all moneys deposited with any Paying Agent for the purpose of any payment on the Notes shall be deposited and held in trust for the benefit of the Noteholders entitled to such payment, subject to the provisions of this Section�2.4. Moneys so deposited and held in trust shall constitute a separate trust fund for the benefit of the Noteholders with respect to which such money was deposited.

The Trustee may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent, and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

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Section 2.5 Method of Payment.

(a) On each Payment Date, the Trustee shall, or shall instruct a Paying Agent to, pay, subject to Section�3.6, to the extent of the Available Collections Amount for such Payment Date and any funds withdrawn from the Interest Reserve Account or the Capital Account by the Trustee pursuant to Section�3.7, to the Noteholders all interest, principal and Premium, if any, on each class of Notes in the amounts determined by the Calculation Agent pursuant to Section�3.4; provided, that payment on a Temporary Regulation S Global Note shall be made to the Noteholder thereof only in conformity with Section�2.5(c). Each payment on any Payment Date other than the final payment with respect to any class of Notes shall be made by the Trustee or Paying Agent to the Noteholders as of the Record Date for such Payment Date. The final payment with respect to any class of Notes, however, shall be made only upon presentation and surrender of such Note by the Noteholder or its agent at an office or agency of the Trustee or Paying Agent in New York City.

(b) At such time, if any, as the Notes of any class are issued in the form of Definitive Notes, payments on a Payment Date shall be made by the Trustee or the Paying Agent by check mailed to each Noteholder of a Definitive Note on the applicable Record Date at its address appearing on the Register maintained with respect to such class of Notes. Alternatively, upon application in writing to the Trustee, not later than the applicable Record Date, by a Noteholder holding Definitive Notes, any such payments shall be made by wire transfer to an account designated by such Noteholder at a financial institution in New York City; provided, that, in each case, the final payment for any class of Notes shall be made only upon presentation and surrender of the Definitive Notes of such class by the Noteholder or its agent at an office or agency of the Trustee or Paying Agent in New York City. Payments in respect of the Notes represented by a Global Note (including principal, Premium, if any, and interest) shall be made by wire transfer of immediately available funds to the account specified by DTC.

(c) The beneficial owner of a Temporary Regulation S Global Note may arrange to receive payments through Euroclear or Clearstream on such Temporary Regulation S Global Note only after delivery by such beneficial owner to Euroclear or Clearstream, as the case may be, of a written certification substantially in the form of Exhibit G and upon delivery by Euroclear or Clearstream, as the case may be, to the Paying Agent of a certification or certifications substantially in the form of Exhibit H. No interest shall be paid to any beneficial owner and no interest shall be paid to Euroclear or Clearstream on such beneficial owner�s interest in a Temporary Regulation S Global Note unless Euroclear or Clearstream, as the case may be, has provided such a certification to the Paying Agent with respect to such interest.

(d) To the extent that the full Interest Amount due on the Notes is not paid in full on any Payment Date and funds are deposited into the Collection Account or the Capital Account following such Payment Date but prior to the third Business Day prior to the succeeding Calculation Date, at the written direction of the Issuer (and, in the case of the Capital Account, the Equityholder), only to the extent of Dollars on deposit in the Collection Account and, if directed by the Issuer and the Equityholder, the Capital Account, notwithstanding anything to the

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contrary in this Indenture, the Trustee shall use such funds (subject to the requirement in Section�3.7 that such a withdrawal shall be made from the Capital Account in respect of not more than six Payment Dates in total and not more than three consecutive Payment Dates) to pay to the Noteholders of record the overdue Interest Amount; provided, that all Expenses with respect to such preceding Payment Date contemplated by Section�3.6(a)(ii) and all Expenses for which the Issuer has previously submitted supporting documentation pursuant to and as contemplated by Section�3.6(c), in each case, shall have been paid. With each such payment, the Trustee shall make available a brief statement to Noteholders eligible to access Distribution Reports indicating the aggregate amount of funds received and the balance of overdue interest (an interest thereon) to which any such payment is being applied. Any such payment of overdue Interest Amount shall be made to the Noteholders of record as of the third Business Day preceding the date of each such payment. Any funds that are deposited on or after the third Business Day prior to the succeeding Calculation Date shall be held in the Collection Account or the Capital Account, as applicable, and applied in accordance with this Indenture on the succeeding Payment Date.

(e) The payment of any Interest Amount in respect of a class of Notes on a particular Payment Date shall be deemed allocated first to any unpaid Interest Amount due prior to such Payment Date (together with Additional Interest thereon) and second to any Interest Amount due on such Payment Date.

(f) If the Final Legal Maturity Date with respect to the Original Class�A Notes and any Additional Class�A Notes is not a Business Day, the payment scheduled to be made on such Final Legal Maturity Date shall be made on the succeeding Business Day without the payment of Additional Interest.

Section 2.6 Minimum Denominations. Each class of Notes shall be issued in minimum denominations of $250,000 or integral multiples of $1,000 in excess thereof.

Section 2.7 Transfer and Exchange; Cancellation. The Notes are issuable only in fully registered form without coupons. A Noteholder may transfer a Note only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such proposed transferee shall succeed to the rights of a Noteholder only upon, final acceptance and registration of the transfer by the Registrar.

Prior to the due presentment for registration of transfer of a Note and satisfaction of the requirements specified in the last sentence of the preceding paragraph, the Issuer and the Trustee may deem and treat the applicable registered Noteholder as the absolute owner and holder of such Note for the purpose of receiving payment of all amounts payable with respect to such Note and for all other purposes and shall not be affected by any notice to the contrary. The sole registered holder of a Global Note shall be DTC. The Registrar (if different from the Trustee) shall promptly notify the Trustee in writing and the Trustee shall promptly notify the Issuer of each request for a registration of transfer of a Note by furnishing the Issuer a copy of such request.

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Furthermore, any Beneficial Holder of a Global Note shall, by acceptance of a Beneficial Interest therein, agree that, subject to Section�2.10(b) and Section�2.11, transfers of Beneficial Interests in such Global Note may be effected only through a book-entry system maintained by DTC and that ownership of a Beneficial Interest in such Global Note shall be reflected in a book-entry system maintained by DTC (and/or the Agent Members) in accordance with the applicable procedures of DTC (and/or the Agent Members). When Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including, in the case of a transfer, that such Notes are duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and Registrar duly executed by the Noteholder thereof or by an attorney who is authorized in writing to act on behalf of the Noteholder). To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Notes at the Registrar�s request. Except as set forth in Section�2.8 and Section�2.9, no service charge shall be made for any registration of transfer or exchange or redemption of the Notes.

The Registrar shall not be required to exchange or register the transfer of any Notes as above provided during the 15-day period preceding the Final Legal Maturity Date of any such Notes or following any notice of Redemption or Refinancing of Notes in respect of the portion of the Notes being so redeemed or refinanced. The Registrar shall not be required to exchange or register the transfer of any Notes that have been selected, called or are being called for Redemption or Refinancing except, in the case of any Notes where written notice has been given that such Notes are to be redeemed in part, the portion thereof not so to be redeemed.

Any Person (including the Issuer) at any time may deliver Notes to the Trustee for cancellation. The Trustee and no one else shall cancel and destroy in accordance with its customary practices in effect from time to time (subject to the record retention requirements of the Exchange Act or other applicable law, rule or regulation) any such Notes, together with any other Notes surrendered to it for registration of transfer, exchange or payment. The Issuer may not issue new Notes (other than Refinancing Notes issued in connection with any Refinancing) to replace Notes it (or any other Person) has redeemed, paid or delivered to the Trustee for cancellation.

Section 2.8 Mutilated, Destroyed, Lost or Stolen Notes. If any Note shall become mutilated, destroyed, lost or stolen, the Issuer shall, upon the written request of the Noteholder thereof and presentation of the Note or satisfactory evidence of destruction, loss or theft thereof to the Trustee or Registrar, issue, and the Trustee shall authenticate and the Trustee or Registrar shall deliver in exchange therefor or in replacement thereof, a new Note, payable to such Noteholder in the same principal amount, of the same maturity, with the same payment schedule, bearing the same interest rate and dated the date of its authentication. If the Note being replaced has become mutilated, such Note shall be surrendered to the Trustee or the Registrar and forwarded to the Issuer by the Trustee or such Registrar. If the Note being replaced has been destroyed, lost or stolen, the Noteholder thereof shall furnish to the Issuer, the Trustee and the Registrar (a)�such security or indemnity as may be required by the Issuer, the Trustee and the Registrar to save each of them harmless and (b)�evidence satisfactory to the Issuer, the Trustee and the Registrar of the destruction, loss or theft of such Note and of the ownership thereof (an affidavit from any QIB being satisfactory evidence). The Noteholders will be required to pay any Tax or other governmental charge imposed in connection with such exchange or replacement and any other expenses (including the reasonable fees and expenses of the Trustee and the Registrar) connected therewith.

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Section 2.9 Payments of Transfer Taxes. Upon the transfer of any Note or Notes pursuant to Section�2.7, the Issuer or the Trustee may require from the party requesting such new Note or Notes payment of a sum to reimburse the Issuer or the Trustee for, or to provide funds for the payment of, any transfer Tax or similar governmental charge payable in connection therewith.

Section 2.10 Book-Entry Provisions.

(a) Global Notes shall (i)�be registered in the name of DTC or a nominee of DTC, (ii)�be delivered to the Trustee as custodian for DTC and (iii)�bear the Legend. In accordance with the requirements of DTC, the Issuer will cause the Trustee to authenticate an additional Global Note or additional Global Notes in the appropriate principal amount such that no Global Note may exceed an aggregate principal amount of $500,000,000 at any time.

Members of, or participants in, DTC (�Agent Members�) shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC, or the Trustee as its custodian, or under such Global Note, and DTC may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of such Global Note for all purposes whatsoever.

Whenever notice or other communication to the Noteholders or Beneficial Holders of any class of Global Notes is required under this Indenture, unless and until Definitive Notes shall have been issued pursuant to Section�2.10(b), the Trustee shall give all such notices and communications specified herein to be given to Noteholders and Beneficial Holders of such class of Global Notes to DTC, and shall make available additional copies as requested by Agent Members, provided that Distribution Reports and related materials and other notices and communications pursuant to Sections 2.13, 4.17, 6.2, 6.12 and 6.13 shall be provided directly to Noteholders and Beneficial Holders (and not to DTC or Agent Members), in each case solely to the extent that the Trustee shall have been provided with a copy of a Confidentiality Agreement executed and delivered to the Registrar by such Noteholders or Beneficial Holders.

Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of the Issuer or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices governing the exercise of the rights of a Noteholder under any Global Note. Neither the Issuer nor the Trustee shall be liable for any delay by DTC in identifying the Agent Members in respect of the Global Notes, and the Issuer and the Trustee may conclusively rely on, and shall be fully protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of any Global Notes to be issued).

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(b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to DTC, its successors or their respective nominees. Interests of Agent Members in a Global Note may be transferred in accordance with the rules and procedures of DTC and the provisions of Section�2.11. Definitive Notes shall be issued to the individual Agent Members or Beneficial Holders or their nominees in exchange for their Beneficial Interests in a Global Note with respect to any class of Notes only if (i)�the Issuer advises the Trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities as depositary with respect to such class of Notes and the Trustee or the Issuer is unable to appoint a qualified successor within 90 days of such notice or (ii)�during the occurrence of an Event of Default with respect to such class of Notes, any Noteholder requests that all or a portion of a Global Note be exchanged for a Definitive Note. Upon the occurrence of any event described in the preceding sentence, the Trustee shall notify all affected Noteholders of such class, through DTC, of the occurrence of such event and of the availability of Definitive Notes of such class; provided, however, that in no event shall the Temporary Regulation S Global Note be exchanged for Definitive Notes prior to the later of (x)�the Regulation S Global Note Exchange Date and (y)�the date of receipt by the Issuer of any certificates determined by it to be required pursuant to Rule 903 or 904 under the Securities Act. Upon surrender to the Trustee of the Global Notes of such class held by DTC, accompanied by registration instructions from DTC for registration of Definitive Notes, the Issuer shall issue and the Trustee shall authenticate and deliver the Definitive Notes of such class to the Agent Members and Beneficial Holders of such class or their nominees in accordance with the instructions of DTC.

None of the Issuer, the Registrar, the Paying Agent or the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such registration instructions. Upon the issuance of Definitive Notes of such class, the Trustee shall recognize the Persons in whose name the Definitive Notes are registered in the Register as Noteholders hereunder. Neither the Issuer nor the Trustee shall be liable if the Trustee or the Issuer is unable to locate a qualified successor to DTC.

Definitive Notes of any class will be transferable and exchangeable for Definitive Notes of the same class at the office of the Trustee or the office of the Registrar upon compliance with the requirements set forth in this Indenture. In the case of a transfer of only part of a holding of Definitive Notes, a new Definitive Note shall be issued to the transferee in respect of the part transferred and a new Definitive Note in respect of the balance of the holding not transferred shall be issued to the transferor and may be obtained at the office of the Registrar.

(c) Any Beneficial Interest in one of the Global Notes as to any class that is transferred to a Person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Beneficial Interests in such other Global Note for as long as it remains such an interest.

(d) Any Definitive Note delivered in exchange for an interest in a Global Note pursuant to Section�2.10(b) shall bear the Legend applicable to a Global Note.

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Section 2.11 Special Transfer Provisions.

(a) With respect to any proposed transfer of any Note (or a Beneficial Interest therein), the Registrar shall reflect the transfer of such Note or Beneficial Interest on its books and records (along with any appropriate increase or decrease in the principal amount of any Global Note) upon receipt by the Registrar of instructions given in accordance with DTC�s and the Registrar�s procedures and compliance with the provisions of this Section�2.11, if applicable. For the avoidance of doubt, the requirements imposed by Sections 2.11(b), 2.11(c), 2.11(d) and 2.11(e) shall not apply to transfers of Notes (or Beneficial Interests therein) to the Seller, the Issuer or any of their respective Subsidiaries.

(b) With respect to any proposed transfer of a Beneficial Interest in a 144A Global Note or a Permanent Regulation S Global Note, if the proposed transferor is an Agent Member, upon receipt by the Registrar of (A)�except with respect to a transfer to a QIB or to the Issuer, a certificate substantially in the form of Exhibit J (such certificate also to be delivered to the Issuer), (B)�if requested by the Issuer or the Trustee, an Opinion of Counsel acceptable to the Issuer that such transfer is in compliance with the Securities Act, and (C)�instructions given in accordance with DTC�s and the Registrar�s procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the 144A Global Note or the Permanent Regulation S Global Note, as the case may be, in an amount equal to the principal amount of the Beneficial Interest in the Global Note to be transferred.

(c) The following provisions shall apply with respect to any proposed transfer of a Beneficial Interest in a 144A Global Note or a Permanent Regulation S Global Note or a proposed transfer of a Definitive Note to a QIB (excluding Non-U.S. Persons):

(i) If the Note to be transferred consists of (A)�Definitive Notes, the Registrar shall reflect the transfer on its books and records if such transfer is being made by a proposed transferor who has delivered such Note and checked the box provided for on the form of Note stating, or has otherwise advised the Issuer and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Issuer and the Registrar in writing, that (x)�it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account are QIBs within the meaning of Rule 144A, (y)�it is, or such QIBs are, aware that the sale to it or them is being made in reliance on Rule 144A and acknowledge that it has or they have received such information regarding the Issuer as it has or they have requested pursuant to Rule 144A or has or have determined not to request such information, and (z)�it is, or such QIBs are, aware that the transferor is relying upon the foregoing representations in order to claim the exemption from registration provided by Rule 144A or (B)�a Beneficial Interest in a 144A Global Note, the transfer of such Beneficial Interest may be effected only through the book-entry system maintained by DTC in accordance with the procedures of DTC.

(ii) If the proposed transferee is an Agent Member, and the Note to be transferred is a Definitive Note, upon receipt by the Registrar of the documents referred to in Section�2.11(c)(i), and instructions given in accordance with DTC�s and the Registrar�s procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the applicable 144A Global Note in an amount equal to the principal amount of the Definitive Note to be transferred, and the Trustee shall cancel the Definitive Note so transferred (upon written direction from the Registrar if different from the Trustee).

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(iii) If the proposed transferee is an Agent Member, and the Note to be transferred is represented by a Beneficial Interest in a Permanent Regulation S Global Note, upon receipt by the Registrar of the documents referred to in Section�2.11(c)(i) and instructions given in accordance with DTC�s and the Registrar�s procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Permanent Regulation S Global Note in an amount equal to the principal amount of the Beneficial Interest in such Permanent Regulation S Global Note to be transferred, and the Registrar shall reflect on its books and records an increase in the principal amount of the 144A Global Note in an amount equal to such transferred amount.

(d) With respect to any proposed transfer of a Beneficial Interest in a Temporary Regulation S Global Note to an Institutional Accredited Investor that is a Non-U.S. Person, the Registrar shall reflect on its books and records the transfer of such Beneficial Interest if the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit I (such certificate also to be delivered to the Issuer) (in which case the transferee will receive a corresponding Beneficial Interest in the Temporary Regulation S Global Note).

(e) Except as set forth in Section�2.11(d), the following provisions shall apply with respect to any transfer of a Note (or a Beneficial Interest therein) to a Non-U.S. Person:

(i) Except as set forth in Section�2.11(d), prior to the applicable Regulation S Global Note Exchange Date, the Registrar shall not register or reflect on its books and records any proposed transfer of a Note (or a Beneficial Interest therein) to a Non-U.S. Person.

(ii) The Registrar shall register or reflect on its books and records, as the case may be, any proposed transfer of a Note (or a Beneficial Interest therein) to any Non-U.S. Person that is an Institutional Accredited Investor if the Note to be transferred is a Definitive Note or a Beneficial Interest in a 144A Global Note, upon receipt of a certificate substantially in the form of Exhibit I from the proposed transferor.

(iii) (A) If the proposed transferor is an Agent Member holding a Beneficial Interest in a 144A Global Note, upon receipt by the Registrar of (x)�the documents, if any, required by Section�2.11(e)(ii) and (y)�instructions in accordance with DTC�s and the Registrar�s procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the 144A Global Note in an amount equal to the principal amount of the Beneficial Interest in such 144A Global Note to be transferred, and (B)�if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with DTC�s and the Registrar�s procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Permanent Regulation S Global Note of the relevant class in an amount equal to the principal amount of the Beneficial Interest in such 144A Global Note or any Definitive Notes issued in exchange for such Beneficial Interest in such 144A Global Note to be transferred, and the Trustee shall cancel the Definitive Note, if any, so transferred or decrease the amount of the 144A Global Note (upon written direction from the Registrar if different from the Trustee).

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(f) Upon the transfer, exchange or replacement of Notes bearing the Legend, the Registrar shall deliver only Notes that bear the Legend.

(g) By its acceptance of any Note bearing the Legend, each Noteholder of such Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Legend and agrees that it will transfer such Note (or the Beneficial Interest therein) only as provided in this Indenture and in accordance with the Legend. The Registrar shall not register or reflect on its books and records a transfer of any Note (or any Beneficial Interest therein) unless such transfer complies with the restrictions on transfer of such Note set forth in this Indenture and in accordance with the Legend. In connection with any transfer of Notes (or Beneficial Interests therein), each Noteholder (or Beneficial Holder) agrees by its acceptance of the Notes (or Beneficial Interests therein) to furnish the Trustee the certifications and legal opinions (if requested and required pursuant hereto) described herein to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided, that the Trustee shall not be required to determine (but may conclusively rely on a determination made by the Issuer with respect to) the sufficiency of any such legal opinions.

(h) The Notes shall be issued pursuant to an exemption from registration under the Securities Act. The Issuer agrees that it will not at any time (i)�apply to list, list or list upon notice of issuance, (ii)�consent to or authorize an application for the listing or the listing of, or (iii)�enable or authorize the trading of, the Notes on an established securities market, including (w)�a national securities exchange registered under the Exchange Act or exempted from registration because of the limited volume of transactions, (x)�a foreign securities exchange that, under the law of the jurisdiction where it is organized, satisfies regulatory requirements that are analogous to the regulatory requirements under the Exchange Act applicable to exchanges described in Section�2.11(h)(iii)(w), (y)�a regional or local exchange or (z)�an over-the-counter market or interdealer quotation system that regularly disseminates firm buy or sell quotations by identified brokers or dealers by electronic means or otherwise, as the term �established securities market� and the terms in this Section�2.11(h) are defined for purposes of Section�7704 of the Code.

(i) The Trustee shall retain copies of all letters, notices and other written communications received pursuant to Section�2.10 or this Section�2.11. The Issuer shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Trustee.

(j) After the Closing Date with respect to the Original Class�A Notes (or the date of issuance with respect to any Additional Class�A Notes, any Subordinated Notes or any Refinancing Notes), forms of Confidentiality Agreements will be available to Noteholders, Agent Members and Beneficial Holders and proposed transferees of the Notes (or the Beneficial Interests therein) from the Registrar, initially at the Corporate Trust Office. The Registrar shall promptly, but in any event no later than two Business Days after receipt thereof, furnish the Trustee, the Issuer and the Servicer with a copy of each executed Confidentiality Agreement received by the Registrar.

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(k) Notwithstanding any other provision contained in this Indenture to the contrary, any Noteholder or Beneficial Holder may assign a security interest in, or pledge, all or any portion of the Notes (or any interest therein) held by it to a lender or a trustee or collateral agent (or other similar representative) under any indenture, loan agreement or similar agreement to which such Noteholder or Beneficial Holder is party in support of any obligations of such Noteholder or Beneficial Holder to a holder or holders of securities or other obligations issued by such Noteholder or Beneficial Holder; provided, that no such assignment or pledge shall release the assigning or pledging Noteholder or Beneficial Holder from its obligations hereunder.

Section 2.12 Temporary Definitive Notes. Pending the preparation of Definitive Notes of any class, the Issuer may execute and the Trustee may authenticate and deliver temporary Definitive Notes of such class that are printed, lithographed, typewritten or otherwise produced, in any denomination, containing substantially the same terms and provisions as are set forth in the applicable Exhibit or in any indenture supplemental hereto, except for such appropriate insertions, omissions, substitutions and other variations relating to their temporary nature as a Responsible Officer of the Issuer executing such temporary Definitive Notes may determine, as evidenced by his or her execution of such temporary Definitive Notes.

If temporary Definitive Notes of any class are issued, the Issuer shall cause such Definitive Notes of such class to be prepared without unreasonable delay. After the preparation of Definitive Notes of such class, the temporary Definitive Notes shall be exchangeable for Definitive Notes upon surrender of such temporary Definitive Notes at the Corporate Trust Office, without charge to the Noteholder thereof. Upon surrender for cancellation of any one or more temporary Definitive Notes of any class, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor Definitive Notes of like class, in authorized denominations and in the same aggregate principal amounts. Until so exchanged, such temporary Definitive Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes.

Section 2.13 Statements to Noteholders.

(a) On each Payment Date and any other date for distribution of any payments with respect to any class of Notes then Outstanding, the Trustee shall deliver a report, covering the information set forth in Exhibit D and prepared by the Servicer, giving effect to such payments (each, a �Distribution Report�), to (i)�each Noteholder and Beneficial Holder that has executed and delivered to the Registrar a Confidentiality Agreement, (ii)�the Issuer, (iii)�the Calculation Agent and (iv)�the Equityholder, and to no other Person.

(b) Each Distribution Report provided to each Noteholder and Beneficial Holder by the Trustee for each Payment Date pursuant to Section�2.13(a), commencing June�15, 2014, or other date for distribution of payments on the Notes, shall be accompanied by (i)�a statement prepared by the Servicer setting forth an analysis of the Collection Account activity for the period commencing the day next following the preceding Calculation Date and ending on the Calculation Date relating to such Payment Date and (ii)�the information with respect to

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collections and payments, if any, that the Issuer shall have provided to the Trustee pursuant to Section�5.3(c) (or the Servicer shall have provided to the Trustee pursuant to Section�3.1 of the Servicing Agreement) during the Interest Accrual Period then ended (including any reports produced by Counterparty pursuant to Section�8.7 of the Counterparty License Agreement), in each case, which information shall be treated confidentially pursuant to the terms of the Confidentiality Agreement.

(c) After the end of each calendar year but not later than the latest date permitted by Applicable Law, the Trustee shall (or shall instruct any Paying Agent to) furnish to each Person who at any time during such calendar year was a Noteholder of any class of Notes a statement (for example, a Form 1099 or any other means required by Applicable Law) prepared by the Trustee containing the sum of the amounts determined pursuant to the information covered by Exhibit D with respect to the class of Notes for such calendar year or, in the event such Person was a Noteholder of any class of Notes during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to the Trustee and that a Noteholder shall reasonably request as necessary for the purpose of such Noteholder�s preparation of its U.S. federal income or other tax returns. So long as any of the Notes are registered in the name of DTC or its nominee, such report and such other items will be prepared on the basis of such information supplied to the Trustee by DTC and the Agent Members and will be delivered by the Trustee to DTC and by DTC to the applicable Beneficial Holders in the manner described above. In the event that any such information has been provided by any Paying Agent directly to such Person through other tax-related reports or otherwise, the Trustee in its capacity as Paying Agent shall not be obligated to comply with such request for information.

(d) At such time, if any, as the Notes of any class are issued in the form of Definitive Notes, the Trustee shall prepare and deliver the information described in Section�2.13(c) to each Noteholder of a Definitive Note of such class for the relevant period of registered ownership of such Definitive Note as appears on the books and records of the Trustee.

(e) The Trustee shall be at liberty to sanction any method of giving notice to the Noteholders of any class if, in its opinion, such method is reasonable, having regard to the number and identity of the Noteholders of such class and/or to market practice then prevailing, is in the best interests of the Noteholders of such class, and any such notice shall be deemed to have been given on such date as the Trustee may approve; provided, that notice of such method is given to the Noteholders of such class in such manner as the Trustee shall require.

Section 2.14 Identification Numbers. The Issuer in issuing the Notes may use CUSIP, CINS, ISIN, private placement or other identification numbers (if then generally in use), and, if so, the Trustee shall use such CUSIP, CINS, ISIN, private placement or other identification numbers, as the case may be, in notices of redemption or exchange as a convenience to Noteholders; provided, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes; provided, further, that failure to use CUSIP, CINS, ISIN, private placement or other identification numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice.

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Section 2.15 Refinancing Notes.

(a) Subject to Section�2.15(b), Section�2.15(c) and Section�2.15(d), the Issuer may issue Refinancing Notes pursuant to this Indenture solely for the purpose of refinancing all, but not part, of the Outstanding Principal Balance of any class of Notes (including a refinancing of Refinancing Notes). Each refinancing of any series or class of Notes with the proceeds of an offering of Refinancing Notes (a �Refinancing�) shall be authorized pursuant to one or more Resolutions. Each Refinancing Note shall be designated generally as a Note for all purposes under this Indenture, with such further designations added or incorporated in such title as specified in the related Resolution and set forth in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, as the case may be. The Refinancing Notes may, at the option of the Issuer, rank equal in priority relative to the series or class of Notes being refinanced. Refinancing Notes may be issued on any Business Day.

(b) On the date of any Refinancing, the Issuer shall issue and sell an aggregate principal amount of Refinancing Notes (when added to the Available Collections Amount and any funds in the Interest Reserve Account, the Redemption Account or the Capital Account used or to be used in connection with such Refinancing) resulting in proceeds in an amount sufficient to pay in full the applicable Redemption Price of the Notes being refinanced in whole thereby plus the Refinancing Expenses relating thereto. The proceeds of each sale of Refinancing Notes shall be used to the extent necessary to make the deposit required by Section�3.9 for a Redemption of the Notes to be refinanced and to pay such Refinancing Expenses.

(c) Each Refinancing Note shall contain such terms as may be established in or pursuant to the related Resolution (subject to Section�2.1(d)) and set forth in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes to the extent permitted below. Prior to the issuance of any Refinancing Notes, any or all of the following, as applicable, with respect to the related issue of Refinancing Notes shall have been determined by the Issuer and set forth in such Resolution and in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, as the case may be:

(i) the series or class of Notes to be refinanced by such Refinancing Notes;

(ii) the aggregate principal amount of each series or class of Refinancing Notes that may be issued in respect of such Refinancing;

(iii) the proposed date of such Refinancing;

(iv) the Final Legal Maturity Date of each series or class of such Refinancing Notes;

(v) the rate at which such Refinancing Notes shall bear interest or the method by which such rate shall be determined;

(vi) the denomination or denominations in which any series or class of such Refinancing Notes shall be issuable;

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(vii) whether such Refinancing Notes will be subject to redemption pursuant to Section�3.8(c);

(viii) whether any such Refinancing Notes are to be issuable initially in temporary or permanent global form and, if so, whether beneficial owners of interests in any such permanent global Refinancing Note may exchange such interests for Refinancing Notes of such series or class and of like tenor and of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section�2.7, and the circumstances under which and the place or places where any such exchanges may be made and the identity of any initial depositary therefor;

(ix) the ranking in priority of such Refinancing Notes relative to any other series or classes (or sub-classes) of Notes; and

(x) any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating to the series or class of Refinancing Notes (which terms shall comply with Applicable Law and not violate any restrictions of this Indenture).

(d) If any of the terms of any issue of Refinancing Notes are established by action taken pursuant to one or more Resolutions, such Resolutions shall be delivered to the Trustee setting forth the terms of such Refinancing Notes.

Section 2.16 Subordinated Notes.

(a) Subject to Section�2.16(b), Section�2.16(c), Section�2.16(d) and Section�2.16(e), the Issuer may issue one or more series of Subordinated Notes pursuant to this Indenture (each, a �Subordinated Note Issuance�) for any purpose, including, at the option of the Issuer, for the purpose of funding a redemption of the Class�A Notes, in whole or in part. Each Subordinated Note Issuance shall be authorized pursuant to one or more Resolutions. Each Subordinated Note shall be designated generally as a Note for all purposes under this Indenture. Each Subordinated Note shall have such further designations added or incorporated in such title as specified in the related Resolution and set forth in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes, as the case may be. There are no limitations on the use of proceeds from the issuance of any such Subordinated Notes, including making distributions to the Equityholder and redeeming the Class�A Notes in whole or in part.

(b) If the proceeds of the Subordinated Notes are being used to redeem any of the Notes, on the date of any Subordinated Note Issuance, the Issuer shall issue and sell an aggregate principal amount of Subordinated Notes in an amount not less than the amount sufficient, together with any amounts available in the Capital Account, to pay in full the applicable Redemption Price of the Notes being redeemed thereby plus the Transaction Expenses relating thereto. The proceeds of each sale of such Subordinated Notes shall be used to make any deposit required by Section�3.9, to the extent applicable, to pay such Transaction Expenses and/or for such other purposes, if any, as shall be specified in the Resolution authorizing the issuance of such Subordinated Notes.

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(c) Each Subordinated Note shall contain such terms as may be established in or pursuant to the related Resolution (subject to Section�2.1(e)) and set forth in any indenture supplemental hereto providing for the issuance of such Notes or specified in the form of such Notes to the extent permitted herein, shall rank in priority relative to any other series or classes (or sub-classes) of Subordinated Notes as specified in such Resolution and set forth in an indenture supplemental hereto and, in any event, shall be subordinate to the Class�A Notes to the extent provided in this Indenture. Prior to the issuance of any such Subordinated Notes, any or all of the following, as applicable, with respect to the related Subordinated Note Issuance shall have been determined by the Issuer and set forth in such Resolution and in any indenture supplemental hereto or specified in the form of such Subordinated Notes, as the case may be, with respect to such Subordinated Notes to be issued:

(i) the aggregate principal amount of any such Subordinated Notes that may be issued;

(ii) the proposed date of such Subordinated Note Issuance;

(iii) the Final Legal Maturity Date of any such Subordinated Notes;

(iv) whether any such Subordinated Notes are to have the benefit of any reserve account and, if so, the amount and terms thereof;

(v) the rate at which such Subordinated Notes shall bear interest or the method by which such rate shall be determined;

(vi) the denomination or denominations in which such Subordinated Notes shall be issuable;

(vii) whether such Subordinated Notes will be subject to redemption pursuant to Section�3.8(c);

(viii) whether any such Subordinated Notes are to be issuable initially in temporary or permanent global form and, if so, whether beneficial owners of interests in any such permanent global Subordinated Note may exchange such interests for Subordinated Notes of like tenor and of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section�2.7, and the circumstances under which and the place or places where any such exchanges may be made and the identity of any initial depositary therefor;

(ix) the ranking in priority of such Subordinated Notes relative to any other series or classes (or sub-classes) of Notes;

(x) the use of proceeds of such Subordinated Note Issuance; and

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(xi) any other terms, conditions, rights and preferences (or limitations on such rights and preferences) relating to such Subordinated Notes (which terms shall comply with Applicable Law and not violate any restrictions of this Indenture).

(d) If any of the terms of any issue of Subordinated Notes are established by action taken pursuant to one or more Resolutions, such Resolutions shall be delivered to the Trustee setting forth the terms of such Subordinated Notes.

(e) Any Subordinated Notes shall be subordinated to the Class�A Notes pursuant to the priority of payment provisions under this Indenture, and no payments of principal, interest or Premium, if any, may be made on such Subordinated Notes from the Available Collections Amount until the Class�A Notes have been paid in full. In addition, while any Class�A Notes are Outstanding, Subordinated Notes may only be redeemed by the Issuer with proceeds from Refinancing Notes in respect of such Subordinated Notes or capital contributions from the Equityholder.

Section 2.17 Contingent Payment Debt Instrument Status. (a)�The Issuer intends that, for U.S. federal income tax purposes, the Notes will be treated as indebtedness subject to the U.S. Treasury Regulations governing contingent payment debt instruments, and (b)�the Issuer shall report to the Trustee annually and upon request, as needed, the information for the Notes that would otherwise be required to complete an IRS Form 8281 for the Notes for that calendar year, and upon request, as needed, including the amount of each of interest accrued and original issue discount in an amount per $1,000 principal amount of the Notes in accordance with the Issuer�s determination of both the �comparable yield� and �projected payment schedule� for the Notes. The Trustee agrees to file with the IRS and provide to each holder of the Notes an IRS Form 1099-OID reflecting the information provided by the Issuer for each calendar year. The �comparable yield� and �projected payment schedule� for the Notes may be obtained by contacting the Issuer at the address set forth in Section�12.5. The Issuer shall provide the Trustee with the information described in clause (b)�above no later than the end of each calendar year and promptly upon request and such other specific information as may then be relevant under the Code. The Trustee shall be entitled to rely on the calculations and reports provided by the Issuer under this Section�2.17 and shall have no duty to verify or otherwise inquire as to the accuracy or the compliance of such information with applicable laws, rules and regulations.

ARTICLE III

ACCOUNTS; PRIORITY OF PAYMENTS

Section 3.1 Establishment of Accounts.

(a) Pursuant to the terms of the Servicing Agreement, the Issuer will cause the Servicer, acting on behalf of the Issuer, to establish and maintain with the Operating Bank on its books and records in the name of the Issuer, subject to the Liens established under this Indenture, (i)�a collection account (the �Collection Account�), (ii)�a redemption account (the �Redemption Account�), (iii)�a capital contribution account (the �Capital Account�), (iv)�an interest reserve account (the �Interest Reserve Account�) and (v)�any additional accounts the establishment of which is set forth in a Resolution delivered by the Issuer to the Servicer and the Trustee, in each case at such time as is set forth in this Section�3.1 or in such Resolution. Each Account shall be

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established and maintained as an Eligible Account so as to create, perfect and establish the priority of the Liens established under this Indenture in such Account and all cash, Eligible Investments and other property from time to time deposited therein and otherwise to effectuate the Liens under this Indenture. Each Account shall bear a designation clearly indicating that the funds or other assets deposited therein are held for the benefit of the Trustee.

(b) The Trustee as the Operating Bank shall have sole dominion and control over the Accounts (including, among other things, the sole power to direct withdrawals or transfers from such Accounts and to direct the investment and reinvestment of funds in such Accounts, subject to Section�3.2). The Trustee as the Operating Bank shall make withdrawals and transfers from the Accounts in accordance with the terms of this Indenture based on the Relevant Information and as calculated by the Calculation Agent pursuant to this Indenture. Each of the Issuer and the Trustee, in its capacity as the Operating Bank, acknowledges and agrees that the Accounts are �securities accounts� within the meaning of Section�8-501 of the UCC and that the Trustee has �control�, for purposes of Section�9-314 of the UCC, of such Accounts that are maintained with the Trustee as the Operating Bank. The Trustee as the Operating Bank hereby confirms that it has established the following accounts in the name of the Issuer: (a)�the Collection Account (account number 208636000); (b)�the Redemption Account (account number 208636010); (c)�the Capital Account (account number 208636003); and (d)�the Interest Reserve Account (account number 208636004) (collectively, the �Closing Day Accounts�). The Issuer irrevocably directs the Trustee as the Operating Bank to, and the Trustee, the Issuer and the Trustee as the Operating Bank hereby agree that the Trustee as the Operating Bank shall comply with all instructions originated by the Trustee directing the disposition of funds in any Closing Day Account or any other Account maintained with the Trustee as the Operating Bank and all entitlement orders originated by the Trustee with respect to any Closing Day Account or any other Account, in each case without further consent by the Issuer. The Issuer and the Trustee as the Operating Bank further agree that (i)�the jurisdiction of the Trustee as the Operating Bank for purposes of the UCC shall be the State of New York and (ii)�the Trustee as the Operating Bank hereby subordinates any security interest it may now or hereafter have in any Account to the security interest therein of the Trustee. The Trustee as the Operating Bank shall, subject to the terms of this Indenture, treat the Trustee as entitled to exercise the rights that comprise any financial asset credited to any Closing Day Account or any other Account. In furtherance of the foregoing, and without limiting the effectiveness thereof, the Trustee and the Operating Bank will comply with orders from the Trustee directing the Trustee as the Operating Bank to hold, transfer or dispose of any financial assets or any part thereof in any Closing Day Account or any other Account maintained with the Trustee as the Operating Bank, in each case as the Trustee may from time to time specify, without obtaining the consent of the Issuer. The crediting by the Trustee as Operating Bank to an Account of any property that is not otherwise a financial asset by virtue of Section�8-102(a)(9)(i) of the UCC or Section�8-102(a)(9)(ii) of the UCC, including cash, shall constitute the �express agreement� of the Trustee as Operating Bank under Section�8-102(a)(9)(iii) of the UCC that such property is a financial asset under such Section�8-102(a)(9)(iii) of the UCC. The control over the Accounts granted to the Trustee herewith shall, for purposes of Section�9-203(b)(3)(D) of the UCC, be deemed to be pursuant to this Indenture, which the parties hereto agree and acknowledge constitutes the Issuer�s security agreement within the meaning of Section�9-102(a)(73) of the UCC.

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(c) If, at any time, any Account ceases to be an Eligible Account, the Issuer will cause the Servicer or an agent thereof to, within ten Business Days, establish a new Account meeting the conditions set forth in this Section�3.1 in respect of such Account and transfer any cash or investments in the existing Account to such new Account, and, from the date such new Account is established, it shall have the same designation as the existing Account. If the Operating Bank should change at any time, then the Issuer will cause the Servicer, acting on behalf of the Issuer, to thereupon promptly establish replacement Accounts as necessary at the successor Operating Bank and transfer the balance of funds in each Account then maintained at the former Operating Bank pursuant to the terms of the Servicing Agreement to such successor Operating Bank. The Issuer agrees that, if any Account is established or maintained with any Operating Bank other than the Trustee, the Issuer shall cause (or direct the Servicer to cause) such Operating Bank to enter into an agreement with the Trustee, the Issuer and the Servicer pursuant to which such Operating Bank agrees to comply with any and all instructions of the Trustee directing the disposition, investment and reinvestment of funds in all Accounts maintained with such Operating Bank without the further consent of the Issuer (or the Servicer), and the Issuer shall take (or direct the Servicer to take) such other actions as are required to establish the Trustee�s �control�, for purposes of Section�9-104 or Section�9-106, as applicable, of the UCC, over any such Accounts.

(d) Except as expressly provided herein, all Collections shall be deposited in the Collection Account and transferred therefrom in accordance with the terms of this Indenture. No funds shall be deposited in the Collection Account that do not constitute Collections, except as expressly provided in this Indenture, without the prior written consent of the Trustee.

(e) The funds or other assets deposited in the Redemption Account shall be held for the benefit of the Noteholders of Notes that are the subject of such Redemption. All amounts received for the purpose of any such Redemption shall be deposited in such Redemption Account and shall be held in such Account until such amounts are applied to pay the Redemption Price of such Notes (together with related Expenses) and such Notes are cancelled by the Trustee.

(f) Except as expressly provided herein, all capital contributions made to the Issuer shall be deposited and held in the Capital Account and transferred therefrom (i)�to the Noteholders in payment of any Interest Amount in accordance with Section�2.5(d) or Section�3.7, (ii)�on the Final Legal Maturity Date, to the Noteholders in payment of the Outstanding Principal Balance in accordance with Section�3.7, (iii)�to the Redemption Account only to the extent specifically provided for in any written notice of an Optional Redemption delivered to the Trustee pursuant to Section�3.8(b), (iv)�to the Equityholder only to the extent permitted by Section�5.2(b) and (v)�to the Equityholder only to the extent permitted by Section�3.7.

(g) Amounts shall be deposited into the Interest Reserve Account only pursuant to Section�3.3(a)(iii) or Section�3.7. All such amounts shall be held in such Interest Reserve Account and transferred therefrom only pursuant to Section�3.7 or Section�3.8.

Section 3.2 Investments of Cash. So long as no Event of Default has occurred and is continuing, the Servicer (on behalf of the Issuer) may direct the Trustee in writing to invest and reinvest the funds on deposit in the Collection Account and the Interest Reserve Account in Eligible Investments, to the extent such Eligible Investments are available to the relevant

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Operating Bank, and advise the Trustee in writing of any depository institution or trust company described in the proviso to the definition of Eligible Investments; provided, however, that, so long as an Event of Default has occurred and is continuing, the Trustee shall direct each Operating Bank to invest such amount in Eligible Investments described in clause (d)�of the definition thereof from the time of receipt thereof until such time as such amounts are required to be distributed pursuant to the terms of this Indenture. In the absence of written direction delivered to the Trustee from the Servicer, the Trustee shall direct each Operating Bank to invest any funds in the U.S. Bank Global Trust Services Money Market Deposit Account. The Trustee shall direct each Operating Bank to make such investments and reinvestments in accordance with the terms of the following provisions:

(a) the Eligible Investments shall have maturities and other terms such that sufficient funds shall be available to make required payments pursuant to this Indenture on the Business Day preceding the next occurring Payment Date after such investment is made;

(b) all interest and earnings on Eligible Investments held in the Accounts shall be invested in Eligible Investments on an overnight basis and credited to the appropriate Account until the next Payment Date; and

(c) the Issuer acknowledges that regulations of the U.S. Comptroller of the Currency grant the Issuer the right to receive confirmations of security transactions as they occur, and the Issuer specifically waives receipt of such confirmations to the extent permitted by Applicable Law and acknowledges that the Operating Bank will instead furnish monthly cash transaction statements that will detail all investment transactions as set forth in this Indenture.

Section 3.3 Payments and Transfers In Connection with Issuance of Notes.

(a) On the Closing Date, the Trustee shall, subject to the receipt of written direction from the Issuer, upon receipt of the Note Purchase Price in the Trustee Closing Account established pursuant to Section�3.1 of the Purchase Agreements, make the following payments from such proceeds in the amounts so directed in writing by the Issuer:

(i) to such Persons and in such amounts as shall be specified by the Issuer, such Transaction Expenses as shall be due and payable in connection with the issuance and sale of the Notes;

(ii) to the Seller, in accordance with the Purchase and Sale Agreement, the amount by which the Note Purchase Price exceeds the sum of (x)�such Transaction Expenses and (y)�the Initial Interest Reserve Amount; and

(iii) to the Interest Reserve Account, the Initial Interest Reserve Amount.

(b) On the date of issuance of any Additional Class�A Notes, Subordinated Notes or Refinancing Notes, the Trustee shall, subject to the receipt of written direction from the Issuer and upon receipt of the proceeds of the sale of such Notes, make such payments and transfers as shall be specified in this Indenture, the related Resolution and any indenture supplemental hereto in respect of such Notes, copies of which Resolution and indenture supplemental hereto shall be attached to such written direction.

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(c) The Trustee shall hold all funds received on or prior to the Closing Date from the Note Purchasers in trust for the Note Purchasers pending the Closing Date. Upon receipt by the Trustee of the aggregate Note Purchase Price (as identified in the Issuer�s written direction pursuant to Section�3.3(a)) from all Note Purchasers, the Trustee shall disburse the Note Purchase Price in accordance with this Section�3.3. If the aggregate Note Purchase Price shall not have been received by the Trustee by 3:30 p.m. (New York City time) on the Closing Date, or if the closing of the transactions contemplated by the Purchase Agreements shall not otherwise be capable of being consummated by 3:30 p.m. (New York City time) on the Closing Date, then each Note Purchaser who has paid its respective portion of the Note Purchase Price shall have the right to instruct the Trustee in writing at or after 3:30 p.m. (New York City time) on the Closing Date to return such portion of the Note Purchase Price to such Note Purchaser prior to the close of business on the Closing Date or as soon thereafter as reasonably practicable.

Section 3.4 Calculation Date Calculations.

(a) As soon as reasonably practicable after each Calculation Date (a �Relevant Calculation Date�), but in no event later than 12:00 noon (New York City time) on the second Business Day prior to the succeeding Payment Date, the Calculation Agent shall, based on the Calculation Date Information received by the Calculation Agent, and based on information known to it or Relevant Information provided to it, make the following determinations and calculations (and each of the Trustee and the Issuer (for itself and on behalf of the Servicer) agrees to provide any Relevant Information reasonably requested by the Calculation Agent for the purpose of making such determinations and calculations):

(i) the Available Collections Amount for such Payment Date;

(ii) (x) the amount of Collections received during the period commencing the day immediately following the Calculation Date that preceded such Relevant Calculation Date and ending on such Relevant Calculation Date, (y)�the amount, if any, to be transferred to the Collection Account from, or otherwise withdrawn from, the Interest Reserve Account and the Capital Account as of the Relevant Calculation Date on such Payment Date in accordance with Section�3.7, and (z)�the amount of payments, if any, made pursuant to Section�2.5(d) from each of the Collection Account and the Capital Account;

(iii) the balance of funds on deposit in each Account other than the Collection Account on such Relevant Calculation Date and the amount of interest and earnings (net of losses and investment expenses), if any, on investments of funds on deposit therein from the day immediately following the Calculation Date that preceded such Relevant Calculation Date and ending on such Relevant Calculation Date;

(iv) the balance of funds on deposit in the Collection Account on such Relevant Calculation Date and the amount of interest and earnings (net of losses and investment expenses), if any, on investments of funds on deposit therein from the day immediately following the Calculation Date that preceded such Relevant Calculation Date and ending on such Relevant Calculation Date;

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(v) Taxes owed by the Issuer;

(vi) (x) all other Expenses due and payable on such Payment Date and not previously paid or reimbursed, and to be paid or reimbursed, pursuant to Section�3.6(a)(ii), in the amounts shown on all supporting documentation therefor and attached to the Calculation Date Information received by the Calculation Agent, and (y)�all Expenses previously reimbursed and paid to the Issuer in respect of Expenses pursuant to Section�3.6(c) from the day immediately following the Calculation Date that preceded such Relevant Calculation Date and ending on such Relevant Calculation Date;

(vii) the applicable interest rate on each class of Floating Rate Notes (if any) determined on the Reference Date for the Interest Accrual Period beginning on such Payment Date and the Interest Amount (including any Additional Interest) on each class of Floating Rate Notes and Fixed Rate Notes for such Payment Date;

(viii) if such Payment Date is a Redemption Date on which a Redemption of Notes is scheduled to occur, the amount necessary to pay the Redemption Price (and related Expenses) of the Notes to be repaid on such Redemption Date and the Redemption Premium, if any, to be paid as part of such Redemption Price;

(ix) the Interest Amount due to Noteholders of each class of Notes on such Payment Date and the difference, if any, between the Interest Amount due to the Noteholders of each class of Notes on such Payment Date and the Available Collections Amount for such Payment Date, after giving effect to the payment of all amounts to be paid or reimbursed on such Payment Date pursuant to Section�3.6(a)(i) and Section�3.6(a)(ii) (such difference in respect of the Class�A Notes, an �Interest Shortfall�), and, with respect to each Interest Shortfall, the amount to be withdrawn from the Interest Reserve Account and/or the Capital Account, if any, determined as provided in Section�3.7;

(x) the Outstanding Principal Balance of each class of Notes on such Payment Date immediately prior to any principal payment with respect to the Outstanding Principal Balance on such Payment Date and the amount of any principal payment with respect to the Outstanding Principal Balance to be made in respect of each class of Notes on such Payment Date, taking into account the other payments to be made as principal payments on such Payment Date entitled to priority pursuant to Section�3.6;

(xi) the amounts, if any, distributable to the Issuer on such Payment Date pursuant to Section�3.6(a)(vii); and

(xii) any other information, determinations and calculations reasonably required in order to give effect to the terms of this Indenture and the other Transaction Documents.

(b) Following the calculations and determinations by the Calculation Agent described in Section�3.4(a), and not later than 1:00 p.m., New York City time, on the second Business Day prior to the succeeding Payment Date, the Calculation Agent shall provide to each of the Issuer, the Servicer and the Trustee a calculation report (a �Calculation Report�) listing the determinations and calculations set forth in Section�3.4(a). All calculations made by the Calculation Agent shall, in the absence of manifest error, be binding and conclusive for all purposes upon the Noteholders, the Beneficial Holders, the Servicer, the Issuer and the Trustee.

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Section 3.5 Payment Date First Step Transfers. On each Payment Date, the Trustee shall transfer from any Account (other than the Collection Account and the Capital Account) to the Collection Account the amount of interest and earnings (net of losses and investment expenses), if any, earned as a result of investments of funds on deposit therein from the day immediately following the Calculation Date that preceded the Relevant Calculation Date and ending on the Relevant Calculation Date.

Section 3.6 Payment Date Second Step Withdrawals.

(a) Subject to Section�3.6(d), on each Payment Date, after the applicable transfers provided for in Section�3.5 have been made, the Trustee shall distribute (or instruct the Paying Agent to distribute) from the Collection Account the amounts set forth below in the order of priority set forth below but, in each case, only to the extent that all amounts then required to be paid ranking prior thereto have been paid in full:

(i) first, to the Issuer for the payment of all Taxes owed by the Issuer, if any;

(ii) second, to the payment of all Expenses not previously paid or reimbursed, in the amounts shown in all supporting documentation attached to the Calculation Date Information received by the Calculation Agent, taking into account any amounts previously paid pursuant to Section�3.6(c);

(iii) third, to the Trustee for distribution to the Noteholders of the Class�A Notes, the ratable payment of the Interest Amount then due and payable on the Class�A Notes, taking into account any amounts previously or concurrently paid pursuant to this Indenture, including any amounts to be paid pursuant to Section�3.7, in each case on such Payment Date;

(iv) fourth, to the Trustee for distribution to the Noteholders of the Class�A Notes as principal payments on the Class�A Notes (without Premium or penalty), allocated pro rata in proportion to the Outstanding Principal Balance of such Class�A Notes held by such Noteholders, until the Outstanding Principal Balance of the Class�A Notes has been paid in full;

(v) fifth, to the Trustee for distribution to the Noteholders of the Subordinated Notes, if any, the principal of and any Interest Amount on the Subordinated Notes in accordance with the terms of the Subordinated Notes until the Subordinated Notes have been paid in full;

(vi) sixth, to the ratable payment of all other obligations under this Indenture until all such amounts are paid in full; and

(vii) seventh, to the Issuer, all remaining amounts.

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(b) To the extent the Issuer receives amounts from the Trustee from the Collection Account pursuant to Section�3.6(a)(vii), such amounts may be distributed by the Issuer to the Equityholder (or as otherwise directed by the Equityholder or any Person designated by the Equityholder to give such directions) in its sole discretion. The provisions contained in this Section�3.6(b) may not be amended, modified, waived or terminated (including pursuant to any termination of this Indenture) without the prior written consent of the Equityholder, and the provisions contained in this Section�3.6(b) shall survive the termination of this Indenture. The parties hereto specifically agree that each Equityholder (i)�is and shall be an express third-party beneficiary of the provisions of this Section�3.6(b) and (ii)�shall have the right to enforce any provision of this Section�3.6(b).

(c) Notwithstanding anything herein to the contrary, so long as no Event of Default shall have occurred and be continuing, the Calculation Agent shall, on the 15th day of each calendar month (other than any month in which a Payment Date falls) or, if such 15th day is not a Business Day, the next Business Day, reimburse and pay to the Issuer (or such other appropriate Person identified at the written instruction of the Issuer), from the Collection Account, an amount equal to the lesser of (i)�all Expenses not previously paid or reimbursed and (ii)�the balance of the Collection Account, in either case upon delivery to the Calculation Agent by the Issuer, not less than three Business Days prior to such 15th day or next Business Day, as the case may be, of a written notice as to the amount of such Expenses.

(d) Notwithstanding anything herein to the contrary, the priority of payments set forth in Section�3.6(a) shall be adjusted to give effect to any inaccuracy set forth in any report of an accounting firm pursuant to Section�6.13(b), such that each Person shall be restored on the succeeding Payment Date (or, if necessary, the succeeding Payment Dates) to the cash flow position that such Person would have been in had the accurate amounts set forth in such report been paid in accordance with Section�3.6(a) on the relevant prior Payment Dates.

Section 3.7 Interest Reserve Account and Capital Account; Interest Shortfalls.

(a) If the Calculation Agent has determined that an Interest Shortfall exists pursuant to the Calculation Report with respect to any Payment Date on or prior to December�15, 2015, and there is a positive balance in the Interest Reserve Account on the Relevant Calculation Date preceding such Payment Date, then on such Payment Date, the Trustee shall withdraw from the Interest Reserve Account an amount equal to the lesser of the Interest Shortfall and the balance in the Interest Reserve Account and distribute it to the Noteholders of the Class�A Notes in payment of the Interest Amount.

(b) So long as no Event of Default has occurred and is continuing, if (i)�on the June�15, 2015 Payment Date, cumulative Net Sales of the Product from January�1, 2014 through March�31, 2015 (as evidenced by one or more reports of Counterparty) equal or exceed $50,715,998.60, or (ii)�on the September�15, 2015 Payment Date, cumulative Net Sales of the Product from January�1, 2014 through June�30, 2015 (as evidenced by one or more reports of Counterparty) equal or exceed $68,960,519.95, and in either case there is a positive balance in the Interest Reserve Account on the Relevant Calculation Date preceding such Payment Date after giving effect to any withdrawals from the Interest Reserve Account pursuant to Section�3.7(a), then, on such Payment Date, upon written request by the Issuer, accompanied by an

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Officer�s Certificate to the effect that the conditions set forth in this Section�3.7(b) have been met, the Trustee shall withdraw from the Interest Reserve Account any such balance, and distribute it to the Equityholder. So long as no Event of Default has occurred and is continuing, on the December�15, 2015 Payment Date, if there is a positive balance in the Interest Reserve Account on the Relevant Calculation Date preceding such Payment Date after giving effect to any withdrawals from the Interest Reserve Account pursuant to Section�3.7(a), then, on such Payment Date, the Trustee shall withdraw from the Interest Reserve Account any such balance, and distribute it to the Equityholder.

(c) If the amount available in the Interest Reserve Account (if any) is less than the amount of any Interest Shortfall and there is a positive balance in the Capital Account on the Relevant Calculation Date preceding a Payment Date, then on such Payment Date the Trustee shall, if directed in writing by the Issuer and the Equityholder, withdraw from the Capital Account an amount equal to the lesser of (i)�the amount by which the Interest Shortfall exceeds the amount, if any, withdrawn from the Interest Reserve Account and (ii)�the balance in the Capital Account and distribute it to the Noteholders of the Class�A Notes in payment of the Interest Amount; provided, that the Trustee shall (a)�make such a withdrawal from the Capital Account in respect of not more than six Payment Dates in total prior to the Final Legal Maturity Date and in respect of not more than any three consecutive Payment Dates and (b)�distribute any funds remaining in the Capital Account to the Equityholder upon its written request in the event that withdrawals from the Capital Account have been made in respect of six Payment Dates. If funds from the Interest Reserve Account and the Capital Account are insufficient or otherwise not made available to pay the remaining Interest Shortfall, then the unpaid Interest Shortfall shall accrue interest at the interest rate applicable to the Class�A Notes compounded quarterly. Notwithstanding the foregoing, if, on the Final Legal Maturity Date, (x)�the portion of the Available Collections Amount available to pay in full the Outstanding Principal Balance on the Class�A Notes, after giving effect to the other payments to be made on the Final Legal Maturity Date and entitled to priority pursuant to Section�3.6, are insufficient to pay in full the Outstanding Principal Balance on the Class�A Notes, and (y)�there is a positive balance in the Capital Account after giving effect to any withdrawal therefrom in respect of any Interest Shortfall, then on the Final Legal Maturity Date the Trustee shall withdraw from the Capital Account an amount equal to the lesser of the Outstanding Principal Balance on the Class�A Notes and the balance in the Capital Account and distribute it to the Noteholders of the Class�A Notes for payment of all or any portion of the Outstanding Principal Balance on the Class�A Notes. The Trustee may conclusively rely on the calculation of the Calculation Agent of any amount calculated pursuant to this Section�3.7, and such calculation shall be binding on the Issuer and Noteholders.

Section 3.8 Redemptions.

(a) On any Redemption Date, the Trustee shall distribute the amounts in the Redemption Account as provided herein and in the applicable Resolution, including:

(i) to the extent Subordinated Notes or Refinancing Notes were issued for the purpose of funding such Redemption, paying to such Persons as shall be specified by the Issuer such Transaction Expenses as shall be due and payable in connection with the issuance and sale of the applicable Subordinated Notes or Refinancing Notes;

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(ii) remitting to the Noteholders of the class of Notes to be redeemed, in accordance with the Resolution authorizing such Redemption (and, if such Redemption Date is a Payment Date, after application of Section�3.6 and Section�3.7), an amount equal to the Redemption Price plus Premium, if any, allocated, in the event of a Redemption of such Notes in part, pro rata in proportion to the Outstanding Principal Balance of such Notes held by such Noteholders; and

(iii) making such other distributions and payments as shall be authorized and directed by the Resolution and indentures supplemental hereto executed in connection with such Redemption.

(b) Subject to the provisions of Section�3.8(c) and Section�3.9, on any Redemption Date (and, if such Redemption Date is a Payment Date, to the extent that any Class�A Notes will remain Outstanding after application of Section�3.6 and Section�3.7), the Issuer may elect to redeem the Class�A Notes, in whole, but not in part, out of the proceeds of any Refinancing Notes, or, in whole or in part, out of amounts available in the Capital Account or the Redemption Account for such purpose, if any, including the proceeds of any Subordinated Notes, in each case, at the Redemption Price (any such redemption, an �Optional Redemption�). The Issuer shall give written notice of any such Optional Redemption to the Trustee and the Servicer not later than five Business Days prior to the date on which notice is to be given to Noteholders in accordance with Section�3.9(a) (unless the Trustee and any such Servicer agree to waive or limit the requirement for such notice). Such written notice to the Trustee shall include a copy of the Resolution authorizing such Optional Redemption, and shall set forth the relevant information regarding such Optional Redemption, including the information to be included in the notice given pursuant to Section�3.9(a) and whether or not any amounts available in the Capital Account shall be used for such Redemption.

(c) An indenture supplemental hereto providing for the issuance of any Subordinated Notes or Refinancing Notes may authorize one or more redemptions, in whole or in part, of such Notes, on such terms and subject to such conditions as shall be specified in such indenture supplemental hereto; provided, that, while any Class�A Notes are Outstanding, such Subordinated Notes may only be redeemed by the Issuer with proceeds from Refinancing Notes in respect of such Subordinated Notes or capital contributions from the Equityholder.

(d) The application of Collections to principal payments on any Notes shall not be deemed to be a redemption or partial redemption of such Notes.

Section 3.9 Procedure for Redemptions.

(a) The Trustee, upon the written request and at the expense of the Issuer, shall give written notice in respect of any Redemption of any class of Notes under Section�3.8 to each Noteholder of such Notes at least 20 days but not more than 60 days before such Redemption Date. Each notice in respect of a Redemption given pursuant to this Section�3.9(a) shall state (A)�the Redemption Date, (B)�the Redemption Price of the Notes to be redeemed, (C)�in the case of a Redemption of the Notes of any class in part, the portion of the Outstanding Principal Balance of the Notes that is expected to be redeemed, (D)�that Notes to be redeemed in a Redemption in whole must be surrendered (which action may be taken by any Noteholder or its authorized

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agent) to the Trustee to collect the Redemption Price on such Notes, (E)�that, unless the Issuer fails to pay the Redemption Price, interest on Notes called for Redemption in whole shall cease to accrue on and after the Redemption Date and (F)�if such Redemption is conditional upon the occurrence of any event or condition, such event or condition. If mailed in the manner herein provided, the notice shall be conclusively presumed to have been given whether or not the Noteholder receives such notice.

(b) Any such notice, at the election of the Issuer, may state that such Redemption is conditional upon the occurrence of any event, including the receipt of the redemption moneys in an amount sufficient to pay the principal of and Premium, if any, and interest on the Notes being redeemed and related Transaction Expenses by the Trustee on or before the Redemption Date and that such notice shall be of no force and effect, and the Issuer shall not be required to redeem such Notes, unless such event has occurred.

(c) If notice in respect of a Redemption for any Notes shall have been given as provided in Section�3.9(a) and such notice shall not contain the language permitted at the Issuer�s option under Section�3.9(b), such Notes shall become due and payable on the Redemption Date at the Corporate Trust Office at the applicable Redemption Price, and, unless there is a default in the payment of the applicable Redemption Price, interest on such Notes shall cease to accrue on and after the Redemption Date. Upon presentation and surrender of such Notes at the Corporate Trust Office, such Notes shall be paid and redeemed at the applicable Redemption Price. On or before any Redemption Date in respect of such a Redemption, the Issuer shall, to the extent an amount equal to the Redemption Price of such Notes (and any Transaction Expenses relating thereto as of the Redemption Date) is not then held by the Issuer or on deposit in the Redemption Account, deposit or cause to be deposited in the Redemption Account an amount in immediately available funds so that the total amount in the Redemption Account shall be sufficient to pay such Redemption Price (and any Transaction Expenses relating thereto as of the Redemption Date).

(d) If notice in respect of a Redemption for any Notes shall have been given as provided in Section�3.9(a) and such notice shall contain the language permitted at the Issuer�s option under Section�3.9(b), such Notes shall become due and payable on the Redemption Date at the Corporate Trust Office at the applicable Redemption Price and interest on such Notes shall cease to accrue on and after the Redemption Date; provided, that, in each case, the Issuer shall have deposited or caused to be deposited in the Redemption Account on or prior to 11:00 a.m. (New York City time) on the Redemption Date an amount sufficient to pay the Redemption Price (and any Transaction Expenses relating thereto as of the Redemption Date). Upon the Issuer making such deposit and presentation and surrender of such Notes at the Corporate Trust Office, such Notes shall be paid and redeemed at the applicable Redemption Price. If the Issuer shall not make such deposit on or prior to 11:00 a.m. (New York City time) on the Redemption Date, the notice in respect of Redemption shall be of no force and effect, and the principal on such Notes or specified portions thereof shall continue to bear interest as if such notice in respect of Redemption had not been given.

(e) If requested in writing by the Issuer at least one Business Day prior to the Redemption Date, on or prior to the Redemption Date, the Trustee shall transfer the amounts set forth in such written request in the Capital Account to the Redemption Account.

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(f) All Notes that are redeemed will be surrendered to the Trustee for cancellation and may not be reissued or resold.

ARTICLE IV

DEFAULT AND REMEDIES

Section 4.1 Events of Default. Each of the following events or occurrences shall constitute an �Event of Default� hereunder with respect to any class of Notes (except for clauses (a), (b), (c)�and (d)�below in which the potential events or occurrences that would constitute an Event of Default are specific to certain classes of Notes, in which case such Event of Default shall be constituted only with respect to such classes of Notes (and not all classes of Notes)), and each such Event of Default shall be deemed to exist and continue so long as, but only so long as, it shall not have been waived or remedied, as applicable:

(a) (i) failure to pay interest on the Class�A Notes due on any Payment Date (other than the Final Legal Maturity Date) within five days of such Payment Date, but only to the extent of the Available Collections Amount available for interest payments pursuant to the priority of payments in Section�3.6, any funds in the Interest Reserve Account and any capital contributed to the Issuer by the Equityholder as described in Section�3.1(f) and made available for interest payments pursuant to Section�3.7, or (ii)�failure to pay principal of the Class�A Notes due on any Payment Date (other than the Final Legal Maturity Date or any Redemption Date) within five days of such Payment Date, but only to the extent of the Available Collections Amount available for principal payments pursuant to the priority of payments in Section�3.6;

(b) (i) failure to pay interest on the Class�A Notes due on any Payment Date (other than the Final Legal Maturity Date or as set forth in Section�4.1(a)) in full on or prior to the succeeding Payment Date, together with Additional Interest thereon, and (ii)�in the case of any class or series of Notes other than the Class�A Notes, except as provided in the related Resolution and set forth in any indenture supplemental hereto providing for the issuance of such Notes pursuant to Section�2.15 or Section�2.16, failure to pay interest on any Notes of such class or series on the Payment Date that such interest is due, in each case regardless of whether or not funds are then available therefor in the Collection Account;

(c) (i) failure to pay principal of and Premium, if any, and accrued and unpaid interest on any class or series of Notes on the applicable Final Legal Maturity Date or (ii)�if all conditions to the Redemption have been satisfied and subject to Section�3.9(b), failure to pay the Redemption Price when due on any Redemption Date for such class or series;

(d) failure to pay any other amount in respect of any class or series of Notes when due and payable in connection with such class or series of Notes and the continuance of such default for a period of 30 or more days after written notice thereof is given to the Issuer by the Trustee;

(e) failure by the Issuer to comply with any covenant, obligation, condition or provision binding on it under this Indenture or the Notes (other than a payment default for which provision is made in Section�4.1(a), Section�4.1(b), Section�4.1(c) or Section�4.1(d)); provided, that, (i)�if the consequences of the failure can be cured, such failure continues for a period of 30

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days or more after written notice thereof has been given to the Issuer by the Trustee at the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, and (ii)�except in respect of a covenant, obligation, condition or provision already qualified in respect of Material Adverse Change, such failure is a Material Adverse Change;

(f) the Issuer becomes subject to a Voluntary Bankruptcy or an Involuntary Bankruptcy;

(g) any judgment or order for the payment of money in excess of $1,000,000 shall be rendered against the Issuer and such judgment or order is not paid or otherwise discharged and remains unstayed for a period of ten days after such judgment or order becomes final and non-appealable;

(h) the Issuer becomes an investment company required to be registered under the Investment Company Act;

(i) the Issuer is classified as a corporation or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes;

(j) the Seller shall have failed to perform any of its covenants under the Purchase and Sale Agreement where, except in respect of a covenant already qualified in respect of Material Adverse Change, such failure is a Material Adverse Change;

(k) the Equityholder shall have failed to perform any of its covenants under the Pledge and Security Agreement where, except in respect of a covenant already qualified in respect of Material Adverse Change, such failure is a Material Adverse Change; or

(l) the Trustee shall fail to have a first-priority perfected security interest in any of the Collateral, in any of the Issuer Pledged Equity or in any material portion of the other Issuer Pledged Collateral, subject only to Permitted Liens.

Section 4.2 Acceleration, Rescission and Annulment.

(a) If an Event of Default with respect to the Notes (other than an Acceleration Default) occurs and is continuing, the Senior Trustee may, and, upon the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, shall, subject to Section�4.12, give an Acceleration Notice to the Issuer. Upon delivery of such an Acceleration Notice (and so long as such Acceleration Notice has not been rescinded and annulled pursuant to this Indenture), the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall be immediately due and payable. At any time after the Senior Trustee or such Noteholders have so declared the Outstanding Principal Balance of the Notes to be immediately due and payable, and prior to the exercise of any other remedies pursuant to this Article IV, the Senior Trustee, upon the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, shall, subject to Section�4.5(a) and Section�4.12, by written notice to the Issuer, rescind and annul such declaration and thereby annul its consequences if (i)�there has been paid to or deposited with the Trustee an amount sufficient to pay all overdue installments of interest on the Notes, and the principal of, and Premium, if any, on, the Notes that would have become due otherwise than by

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such declaration of acceleration, (ii)�the rescission would not conflict with any judgment or decree and (iii)�all other Defaults and Events of Default, other than non-payment of interest and Premium, if any, on and principal of the Notes that have become due solely because of such declaration of acceleration, have been cured or waived. If an Acceleration Default occurs, the Outstanding Principal Balance of the Notes and all accrued and unpaid interest thereon shall automatically become immediately due and payable without any further action by any party.

(b) Notwithstanding this Section�4.2, Section�4.3 and Section�4.12, after the occurrence and during the continuation of an Event of Default, no Noteholders of any class of Notes other than the Senior Class of Notes shall be permitted to give or direct the giving of an Acceleration Notice, or to exercise any remedy in respect of such Event of Default, and no Person other than the Senior Trustee, at the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, may give an Acceleration Notice or exercise any such remedy.

(c) Within 30 days after the occurrence of an Event of Default in respect of any class of Notes, the Trustee shall give to the Noteholders notice, transmitted by mail, of all uncured or unwaived Defaults known to it on such date; provided, that the Trustee may withhold such notice with respect to a Default (other than a payment default with respect to interest, principal or Premium, if any) if it determines in good faith that withholding such notice is in the interest of the affected Noteholders.

Section 4.3 Other Remedies. Subject to the provisions of this Indenture and the Pledge and Security Agreement, if an Event of Default shall have occurred and be continuing, then the Senior Trustee may, but only at the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, pursue any available remedy by proceeding at law or in equity to collect the payment of principal, Premium, if any, or interest due on the Notes or to enforce the performance of any provision of the Notes, this Indenture, the Servicing Agreement or the Pledge and Security Agreement, including any of the following, to the fullest extent permitted by Applicable Law, subject to the receipt of such Direction:

(a) The Senior Trustee may, but shall not be required to, obtain the appointment of a Receiver of the Collateral as provided in Section�12.7 and the Issuer consents to and waives any right to notice of any such appointment.

(b) The Senior Trustee may, without notice to the Issuer and at such time as the Senior Trustee in its sole discretion may determine, exercise any or all of the Issuer�s rights in, to and under or in any way connected with or related to any or all of the Collateral, including (i)�demanding and enforcing payment and performance of, and exercising any or all of the Issuer�s rights and remedies with respect to the collection, enforcement or prosecution of, any or all of the Collateral (including the Purchased Assets and the Issuer�s rights under the Purchase and Sale Agreement), in each case by legal proceedings or otherwise, (ii)�settling, adjusting, compromising, extending, renewing, discharging and releasing any or all of, and any legal proceedings brought to collect or enforce any or all of, the Purchased Assets and otherwise under the Transaction Documents and (iii)�preparing, filing and signing the name of the Issuer on (A)�any proof of claim or similar document to be filed in any bankruptcy or similar proceeding involving the Collateral (including the Purchased Assets) and (B)�any notice of lien, assignment or satisfaction of lien, or similar document in connection with the Collateral (including the Purchased Assets).

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(c) Subject to the Pledge and Security Agreement (including the provisions of Section�11.1 of the Pledge and Security Agreement), the Senior Trustee may, without notice except as specified herein, and as required by Applicable Law, in accordance with Applicable Law, sell or cause the sale of all or any part of the Collateral in one or more parcels at public or private sale, at any of the Senior Trustee�s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Senior Trustee may deem commercially reasonable, provided, that, so long as the Counterparty License Agreement remains in force, the Senior Trustee shall make any such sale only to a Person that is a Permitted Holder. The Issuer agrees that, to the extent notice of sale shall be required by Applicable Law, at least ten days� notice to the Issuer of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Senior Trustee shall not be obligated to make any sale of all or any part of the Collateral regardless of notice of sale having been given. The Senior Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(d) The Senior Trustee may, instead of exercising the power of sale conferred upon it by Section�4.3(c) and Applicable Law, proceed by a suit or suits at law or in equity to foreclose the Security Interest and sell all or any portion of the Collateral under a judgment or a decree of a court or courts of competent jurisdiction, provided, that, so long as the Counterparty License Agreement remains in force, the Senior Trustee shall make any such foreclosure sale only to a Person that is a Permitted Holder.

(e) The Senior Trustee may require the Issuer to, and the Issuer hereby agrees that it shall at its expense and upon request of the Senior Trustee, forthwith assemble all or part of the Collateral as directed by the Senior Trustee and make it available to the Senior Trustee at a place to be designated by the Senior Trustee that is reasonably convenient to both parties.

(f) In addition to the rights and remedies provided for in this Indenture, the Senior Trustee may exercise in respect of the Collateral all the rights and remedies of a secured party upon default under the UCC (whether or not the UCC applies to the affected property included in the Collateral) and under all other Applicable Law; provided, that, so long as the Counterparty License Agreement remains in force, the Senior Trustee shall cause any sale of the Collateral to be made only to a Person that is a Permitted Holder.

(g) The Senior Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.

Section 4.4 Limitation on Suits. Without limiting the provisions of Section�4.9 and the final sentence of Section�12.4, no Noteholder shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, the Pledge and Security Agreement or the Notes, for the appointment of a Receiver or trustee or for any other remedy hereunder, unless:

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(a) such Noteholder is a holder of the Senior Class of Notes and has previously given written notice to the Senior Trustee of a continuing Event of Default;

(b) the Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes make a written request to the Senior Trustee to pursue a remedy hereunder;

(c) such Noteholder or Noteholders offer to the Senior Trustee an indemnity satisfactory to the Senior Trustee against any costs, expenses and liabilities to be incurred in complying with such request;

(d) the Senior Trustee does not comply with such request within 60 days after receipt of the request and the offer of indemnity; and

(e) during such 60-day period, Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes do not give the Senior Trustee a Direction inconsistent with such request.

No one or more Noteholders may use this Indenture to affect, disturb or prejudice the rights of another Noteholder or to obtain or seek to obtain any preference or priority not otherwise created by this Indenture and the terms of the Notes over any other Noteholder or to enforce any right under this Indenture, except in the manner herein provided.

Section 4.5 Waiver of Existing Defaults.

(a) The Senior Trustee, upon the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, by written notice to the Issuer may waive any existing Default (or Event of Default) hereunder and its consequences, except a Default (or Event of Default) (i)�in the payment of the interest on, principal of and Premium, if any, on any Note or (ii)�in respect of a covenant or provision hereof that under Article IX cannot be modified or amended without the consent of the Noteholder of each Note affected thereby. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default (or Event of Default) or impair any right consequent thereon.

(b) Any written waiver of a Default or an Event of Default given by the Senior Trustee to the Issuer in accordance with the terms of this Indenture shall be binding upon the Senior Trustee and the other parties hereto. Unless such writing expressly provides to the contrary, any waiver so granted shall extend only to the specific event or occurrence that gave rise to the Default or Event of Default so waived and not to any other similar event or occurrence that occurs subsequent to the date of such waiver.

Section 4.6 Restoration of Rights and Remedies. If the Senior Trustee or any Noteholder of the Senior Class of Notes has instituted any proceeding to enforce any right or remedy under this Indenture, and such proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Senior Trustee or such Noteholder, then in every such case the Issuer, the Senior Trustee and the Noteholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Senior Trustee and the Noteholders shall continue as though no such proceeding has been instituted.

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Section 4.7 Remedies Cumulative. Each and every right, power and remedy herein given to the Trustee specifically or otherwise in this Indenture shall be cumulative and shall, to the extent permitted by Applicable Law, be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Trustee, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Trustee in the exercise of any right, remedy or power or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any Default on the part of the Issuer or to be an acquiescence.

Section 4.8 Authority of Courts Not Required. The parties hereto agree that, to the greatest extent permitted by Applicable Law, the Trustee shall not be obliged or required to seek or obtain the authority of, or any judgment or order of, the courts of any jurisdiction in order to exercise any of its rights, powers and remedies under this Indenture, and the parties hereby waive any such requirement to the greatest extent permitted by Applicable Law.

Section 4.9 Rights of Noteholders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Noteholder to receive payment of interest on, principal of, or Premium, if any, on any Note on or after the respective due dates therefor expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Noteholder.

Section 4.10 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of any Noteholder allowed in any judicial proceedings relating to any obligor on the Notes, its creditors or its property.

Section 4.11 Undertaking for Costs. All parties to this Indenture agree, and each Noteholder by its acceptance hereof shall be deemed to have agreed, that, in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys� fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defense made by the party litigant. This Section�4.11 does not apply to a suit instituted by the Trustee, a suit instituted by any Noteholder for the enforcement of the payment of interest, principal, or Premium, if any, on any Note on or after the respective due dates expressed in such Note or a suit by a Noteholder or Noteholders holding at least 10% of the Outstanding Principal Balance of the Notes.

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Section 4.12 Control by Noteholders. Subject to this Article IV and to the rights of the Trustee hereunder, Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust, right or power conferred on the Trustee under any Transaction Document; provided, that:

(a) such Direction shall not be in conflict with any Applicable Law or with this Indenture and would not involve the Trustee in personal liability or unindemnified expense;

(b) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Noteholders of such class not taking part in such Direction; and

Section 4.13 Senior Trustee. The Trustee irrevocably agrees (and the Noteholders (other than the Noteholders represented by the Senior Trustee) shall be deemed to agree by virtue of their purchase of the Notes) that the Senior Trustee shall have all of the rights granted to it under this Indenture, including the right to direct the Trustee to take certain action as provided for in this Indenture, and the Trustee hereby agrees to act in accordance with each such authorized direction of the Senior Trustee.

Section 4.14 Application of Proceeds. All cash proceeds received by the Senior Trustee in respect of any sale of, collection from or other realization upon all or any part of the Collateral shall be deposited in the Collection Account and first applied to pay all fees, expenses and indemnities owed to the Senior Trustee, and each other Trustee hereunder, and the remaining cash proceeds shall be distributed as provided in Section�3.6(a). Any surplus of such cash proceeds held and remaining after payment in full of all Secured Obligations shall be paid over to the Issuer or whomsoever may be lawfully entitled to receive such surplus as provided in Section�3.6. Any amount received for any sale or sales conducted in accordance with the terms of Section�4.3 shall to the extent permitted by Applicable Law be deemed conclusive and binding on the Issuer and the Noteholders.

Section 4.15 Waivers of Rights Inhibiting Enforcement. The Issuer waives (a)�any claim that, as to any part of the Collateral, a private or public sale, should the Senior Trustee elect so to proceed, is, in and of itself, not a commercially reasonable method of sale for such part of the Collateral, (b)�except as otherwise provided in any of the Transaction Documents, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE OR JUDICIAL HEARING IN CONNECTION WITH THE TRUSTEE�S TAKING POSSESSION OR DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE ISSUER WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE U.S. OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF THE TRUSTEE�S RIGHTS HEREUNDER, (c)�all rights of redemption, appraisement, valuation, stay and extension or moratorium and (d)�except as otherwise provided in any of the Transaction

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Documents (including Section�11.1 of the Pledge and Security Agreement), all other rights the exercise of which would, directly or indirectly, prevent, delay or inhibit the enforcement of any of the rights or remedies under this Indenture or the absolute sale of the Collateral, now or hereafter in force under any Applicable Law, and the Issuer, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such Applicable Laws and rights.

Section 4.16 Security Interest Absolute. All rights of the Trustee and security interests hereunder, and all obligations of the Issuer hereunder, shall be absolute and unconditional irrespective of, and the Issuer hereby irrevocably waives any defenses it may now have or may hereafter acquire in any way relating to, any or all of the following:

(a) any lack of validity or enforceability of any of the Transaction Documents or any other agreement or instrument relating thereto (other than against the Trustee);

(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Transaction Documents or any other agreement or instrument relating thereto;

(c) any taking, exchange, surrender, release or non-perfection of any Collateral or any other collateral, or any release or amendment or waiver of or consent to any departure from any guaranty, for all or any of the Secured Obligations;

(d) any manner of application of any Collateral or any other collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Secured Obligations or any other obligations of the Issuer under or in respect of the Transaction Documents or any other assets of the Issuer;

(e) any change, restructuring or termination of the limited liability company structure or existence of the Issuer;

(f) the failure of any other Person to execute this Indenture or any other agreement or the release or reduction of liability of the Issuer or other grantor or surety with respect to the Secured Obligations; or

(g) any other circumstance (including any statute of limitations) or any existence of or reliance on any representation by the Trustee that might otherwise constitute a defense available to, or a discharge of, the Issuer.

Section 4.17 Observer.

(a) If an Event of Default with respect to the Notes has occurred and is continuing and the Trustee has received written notice of (or otherwise has actual knowledge of) such Event of Default, the Trustee shall, subject to the proviso in Section�4.2(c), within 30 days following receipt of such notice, give to the Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement written notice (the �Initial

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Notice�) of such Event of Default advising that each Noteholder and Beneficial Holder has the right to nominate a Person (the �Nominee�) to be appointed as an observer of all meetings of the governing body (and committees thereof) of the Issuer (the �Observer�). Each Noteholder and Beneficial Holder may, but is not required to, nominate one Nominee by written notice received by the Trustee within ten Business Days of the date of the Initial Notice (the �Nomination Period�). Each such notice shall contain at least the following information: (i)�the identity of such Nominee and reasonable detail about the Person nominated; (ii)�the identity of the nominating Noteholder or Beneficial Holder with respect to such Nominee, together with the Outstanding Principal Balance of Notes held by such Noteholder or the amount of Beneficial Interests held by such Beneficial Holder; and (iii)�a statement confirming that such Nominee is willing to serve as Observer if appointed.

(b) If no Nominee is nominated within the Nomination Period, the Trustee shall promptly notify the Issuer, with a copy to the Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement, that no Nominee has been nominated.

(c) If any Nominee is nominated within the Nomination Period, the Trustee shall, within three Business Days following the end of the Nomination Period, give to the Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement written notice (the �Solicitation Notice�) setting forth (i)�the identity of each Nominee and the details relating to each such Nominee provided to the Trustee, (ii)�the identity of the nominating Noteholder or Beneficial Holder with respect to each Nominee, together with the Outstanding Principal Balance of Notes held by such Noteholder or the amount of Beneficial Interests held by such Beneficial Holder, (iii)�a statement confirming that each Nominee is willing to serve as Observer if appointed and (iv)�that each Noteholder shall have ten Business Days after the date of the Solicitation Notice (the �Solicitation Period�) to indicate by written notice to the Trustee the Nominee (and no more than one Nominee) from the list of Nominees specified in the Solicitation Notice that it wishes to have appointed as Observer. Immediately following the end of the Solicitation Period, the Trustee shall calculate, based upon the written notices it received during the Solicitation Period, for each Nominee, the Outstanding Principal Balance of the Notes selecting such Nominee. The Nominee that is selected by the largest Outstanding Principal Balance of the Notes shall be designated as Observer (and, in the event that two or more Nominees are selected by the largest Outstanding Principal Balance of the Notes, then the Trustee shall furnish a new Solicitation Notice within three Business Days thereof setting forth only such Nominees selected by such largest Outstanding Principal Balance of the Notes, and the process set forth above shall be repeated therefrom to select an Observer). The Trustee shall give written notice to the Issuer, the Servicer and the Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement of the results of the solicitation, and the Issuer shall (A)�provide the Observer with notice of any meeting of the governing body (or any committee thereof) of the Issuer in accordance with the Issuer Organizational Documents (as if the Observer were a member of the governing body or committee thereof, as the case may be), (B)�furnish to the Observer any materials distributed to any other participant in any such meeting at the same time as such materials are distributed to such other participant(s), (C)�permit the Observer to attend and observe any such meeting and (D)�cause the Issuer�s officers or other representatives to promptly, accurately and in good faith respond to any inquiries of the Observer.

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(d) At any time, the Noteholders holding a majority of the Outstanding Principal Balance of the Notes may remove the Observer by written notice to the Trustee, the Issuer and the Noteholders. Upon removal of the Observer, the Trustee shall request the nomination and selection of a replacement Observer using the procedures described in this Section�4.17.

(e) The Observer (i)�must, prior to exercising any right or discharging any duty under this Section�4.17, execute and deliver to the Registrar a Confidentiality Agreement and (ii)�shall provide to the Trustee, for inclusion with the next Distribution Reports, a report summarizing its observations from each meeting of the governing body (or any committee thereof) of the Issuer that it shall have attended.

ARTICLE V

REPRESENTATIONS AND WARRANTIES AND COVENANTS

Section 5.1 Representations and Warranties. The Issuer represents and warrants to the Trustee, as of the date of this Indenture, as follows:

(a) The Issuer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all limited liability company powers and authority to execute and deliver, and perform its obligations under, this Indenture.

(b) Each Transaction Document to which the Issuer is a party has been duly authorized, executed and delivered by the Issuer and constitutes the legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or similar Applicable Laws affecting creditors� rights generally, general equitable principles and principles of public policy.

(c) The Issuer has good and marketable title to the Purchased Assets and the other assets and property constituting the Collateral, free and clear of any Liens other than Permitted Liens.

(d) The execution and delivery of any Transaction Document to which the Issuer is a party, and the performance of obligations under any Transaction Document to which the Issuer is a party, by the Issuer do not require any consent or approval of, registration or filing with or any other action by any Governmental Authority, except for the filing of UCC financing statements, those previously obtained and those the failure of which to be obtained or made would not be a Material Adverse Change.

(e) This Indenture creates in favor of the Trustee, for the benefit of the Noteholders, a valid and enforceable security interest in the Collateral, and, when financing statements in appropriate form are filed in the applicable filing offices, the security interest created under this Indenture will constitute a fully perfected security interest in all right, title and interest of the Issuer in the Collateral to the extent perfection can be obtained by filing UCC financing statements.

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Section 5.2 Covenants. The Issuer covenants with the Trustee that, so long as any Notes are Outstanding, it will perform and comply with each of the following covenants and not engage in any activity prohibited by this Indenture without the prior written consent of the Trustee pursuant to Section�9.1 or Section�9.2, as applicable, authorizing the Issuer not to perform any such covenants or to engage in any such activity prohibited by this Indenture, in each case on such terms and conditions, if any, as shall be specified in such prior written consent:

(a) Except as described under Article IX or Article XI, the Issuer shall not take any action, whether orally or in writing, that would amend, waive, modify, supplement, restate, cancel or terminate, or discharge or prejudice the validity or effectiveness of, this Indenture, the Notes, the Servicing Agreement or the Pledge and Security Agreement, or permit any party to any such document to be released from its obligations thereunder (unless, in each case, expressly permitted thereunder).

(b) The Issuer shall not, directly or indirectly, (i)�declare or make any distribution on its Capital Securities, whether in cash, property, securities or a combination thereof, to the Equityholder or otherwise with respect to any ownership of the Issuer�s Capital Securities, except that the Issuer may distribute to the Equityholder (x)�all or any portion of any amounts transferred to the Issuer under Section�3.6(a)(vii) or Section�3.6(b), (y)�any proceeds from an issuance of Notes or Capital Securities in accordance with this Indenture or (z)�any funds remaining in the Capital Account in the event that six withdrawals have been made from the Capital Account pursuant to Section�3.7, (ii)�purchase, redeem, retire or otherwise acquire for value any issued Capital Securities of the Issuer, except that the Issuer may purchase, redeem, retire or otherwise acquire for value any issued Capital Securities of the Issuer with all or any portion of any amounts transferred to the Issuer under Section�3.6(a)(vii) or Section�3.6(b), (iii)�make any payment of principal, interest or Premium, if any, on the Notes or make any voluntary or optional redemption, repurchase, defeasance or other acquisition or retirement for value of, or make any deposit with respect to, indebtedness for borrowed money or similar obligations of the Issuer other than as permitted by the Notes and this Indenture (including as permitted in connection with any issuance or sale of any Additional Class�A Notes, any Subordinated Notes, Refinancing Notes or Capital Securities expressly permitted by the Notes and this Indenture) or (iv)�make any loan or advance to any Person, any purchase or other acquisition of any beneficial interest, Capital Securities, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person (other than Eligible Investments, any Purchased Assets and any such items received by the Issuer in connection with the Issuer�s ownership and management of Eligible Investments or the Purchased Assets). The foregoing shall not restrict the Equityholder or its Affiliates (other than the Issuer) from making open market purchases or otherwise acquiring or purchasing Notes.

(c) The Issuer shall not incur or suffer to exist any Lien over or with respect to any of the Issuer�s assets, including the Collateral, other than any Permitted Lien.

(d) The Issuer shall not incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment or performance of, contingently or otherwise, whether present or future (in any such case, to �Incur�), indebtedness for borrowed money; provided, however, that the Issuer may Incur indebtedness in respect of the Original Class�A Notes, any Additional Class�A Notes, any Subordinated Notes and any Refinancing Notes issued in accordance with this Indenture.

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(e) Except as expressly permitted by the Transaction Documents, the Issuer shall not liquidate or dissolve and shall not consolidate with, merge with or into, sell, transfer, convey, lease or otherwise dispose of the Purchased Assets or any material portion of its other property and assets to, or purchase or otherwise acquire all or substantially all of the assets of, any other Person, or permit any other Person to merge with or into, or consolidate or otherwise combine with, the Issuer; provided, however, that the foregoing shall not restrict the Issuer from disposing of Eligible Investments in accordance with this Indenture.

(f) The Issuer shall not, directly or indirectly, transfer, issue, deliver or sell, or consent to transfer, issue, deliver or sell, any Capital Securities of the Issuer unless (i)�such Capital Securities are pledged to the Trustee pursuant to the Pledge and Security Agreement, (ii)�after giving effect to such transfer, issuance, delivery and sale, the Equityholder is not subject to U.S. federal withholding tax in respect of the Payments and (iii)�other than any issuance of Capital Securities to an existing Equityholder, prior to such issuance, delivery or sale, the Trustee shall have been provided with an Opinion of Counsel from a law firm with a nationally recognized tax practice that such issuance, delivery or sale should not cause a �significant modification� of the Notes for U.S. federal income tax purposes; provided, however, that, notwithstanding anything in this Section�5.2(f)(iii), the Trustee shall not be required to be provided with such an Opinion of Counsel if there has been a Change in Law and counsel to the Equityholder determines in good faith that it is unable to render such an Opinion of Counsel (whereas it would have been able to render such an Opinion of Counsel had the Change in Law not occurred). Notwithstanding the foregoing, the Issuer is permitted to accept capital contributions from any Equityholder after the Closing Date provided such amount is deposited into the Capital Account and used only as permitted by this Indenture. For the avoidance of doubt, the Capital Securities of the Issuer discussed in this Section�5.2(f) do not include any non-equity Capital Securities issued to the Independent Member.

(g) The Issuer shall not engage in any business or activity other than entering into the Transaction Documents, purchasing or otherwise acquiring, owning, holding, managing, servicing, pledging and otherwise dealing with the Eligible Investments and the Purchased Assets, collecting the Payments and any other payments in respect of the Purchased Assets or the Eligible Investments, issuing Notes, issuing Capital Securities (subject to the provisions of Section�5.2(f)), undertaking any action contemplated by the Transaction Documents or necessary or reasonably appropriate to maintain, enforce or enjoy the full benefit of any current or residual rights granted by or arising out of the Purchased Assets and the Transaction Documents and entering into, remaining a party to, and otherwise performing any of the obligations contemplated by, and exercising any right or remedy granted to the Issuer pursuant to or arising out of, the Transaction Documents, the Purchased Assets and the Counterparty License Agreement and other matters reasonably related thereto.

(h) The Issuer shall not, directly or indirectly, enter into, renew or extend any transaction (including the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any Affiliate of the Issuer, except for (i)�entering into the Transaction Documents and the Issuer Organizational Documents and (ii)�engaging in transactions contemplated by the Transaction Documents and the Issuer Organizational Documents (including distributions to, and issuance of Capital Securities to, the Equityholder and the acceptance of capital contributions from the Equityholder, in each case to the extent not prohibited by this Indenture).

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(i) The Issuer shall not, without the written consent of the Independent Member, take any action that would constitute a Voluntary Bankruptcy. The Issuer shall promptly provide the Trustee with written notice of the institution of any proceeding by or against the Issuer seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of its debts under any Applicable Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property.

(j) The Issuer shall comply with the Issuer Organizational Documents. The Issuer shall not take any action to waive, repeal, amend, vary, supplement or otherwise modify the Issuer Organizational Documents in a manner that would adversely affect (x)�the rights, remedies, privileges or preferences of the Noteholders or (y)�the validity, perfection or priority of the Lien on any Collateral (including the Purchased Assets) or any Issuer Pledged Collateral, except to the extent expressly permitted by the Issuer Organizational Documents.

(k) The Issuer shall duly and punctually pay principal with respect to the Outstanding Principal Balance, Premium, if any, and Interest Amount on the Notes in Dollars in accordance with the terms of this Indenture and such Notes; provided, that the Issuer shall be in compliance with this covenant with respect to any Payment Date (other than the Final Legal Maturity Date or any Redemption Date) if any such interest in excess of the portion of the Available Collections Amount available to pay such interest on the relevant Payment Date and funds in the Interest Reserve Account and the Capital Account (subject to Section�3.7) are paid in full not later than the succeeding Payment Date (together with Additional Interest thereon).

(l) The Issuer shall not employ any employees other than as required by any Applicable Law; provided, that the Equityholder, the Manager and the Service Providers shall not be deemed to be employees for purposes of this Section�5.2(l).

(m) The Issuer (i)�shall perform and comply in all material respects with its duties and obligations (if any) under the Counterparty License Agreement related to the Purchased Assets and under the Purchase and Sale Agreement, (ii)�shall not forgive, release or compromise any amount owed to or becoming owing to it under the Counterparty License Agreement or the Purchase and Sale Agreement, except (x)�as would not be a Material Adverse Change and (y)�to the extent the Issuer concluded in good faith that such action would be in the best interest of the Noteholders, (iii)�shall not assign, amend, modify, supplement, restate, waive, cancel or terminate (or consent to any cancellation or termination of), in whole or in part, any rights constituting or involving the right to receive the Payments, the Counterparty License Agreement or the Purchase and Sale Agreement, except as would not be a Material Adverse Change, (iv)�shall use commercially reasonable efforts to not breach the provisions of the Counterparty License Agreement or the Purchase and Sale Agreement, (v)�shall not enter into any new agreement in respect of the Purchased Assets or the Product (in respect of the Territory in the Field) (other than any New Arrangement), (vi)�shall not waive any obligation of, or grant any consent to, Counterparty under or in respect of the Product (in respect of the Territory in the

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Field), the Counterparty License Agreement, the other Purchased Assets or the Purchase and Sale Agreement, except as would not be a Material Adverse Change, (vii)�shall not consent to an assignment of the Purchase and Sale Agreement by the Seller or the Counterparty License Agreement by Counterparty, except as would not be a Material Adverse Change, and (viii)�shall not agree to do any of the foregoing.

(n) The Issuer shall at all times use its commercially reasonable efforts to exercise and enforce its rights and remedies under the Purchase and Sale Agreement, the Servicing Agreement, the Purchased Assets and the Counterparty License Agreement, in each case, in a timely and commercially reasonable manner; provided, that, following the occurrence and continuation of an Event of Default, the Issuer shall give notice to the Trustee on behalf of the Noteholders of any contemplated enforcement of such rights and remedies and will follow any Direction regarding enforcement of such rights and remedies provided by Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes (or the Senior Trustee on their behalf) that it has received.

(o) The Issuer shall maintain its existence separate and distinct from any other Person in all material respects, including using its commercially reasonable efforts to comply with the separateness covenants set forth in the Issuer Organizational Documents.

(p) The Issuer will not enter into any agreement prohibiting the right of the Trustee or any Noteholder to amend or otherwise modify any Transaction Document; provided, that the foregoing prohibition shall not apply to restrictions contained in any Transaction Document.

(q) The Issuer will not change, amend or alter its exact legal name at any time except following 30 days� notice given by the Issuer to the Trustee.

(r) The Issuer will not assign or pledge, so long as the assignment hereunder shall remain in effect and has not been terminated pursuant to Section�11.1, any of its right, title or interest in the Collateral hereby assigned to anyone other than the Trustee; provided, that the sale or other disposition of the Capital Securities of the Issuer by the Equityholder (or any interest therein) in compliance with the Pledge and Security Agreement or any issuance of Capital Securities by the Issuer (subject to the provisions of Section�5.2(f)) shall not be considered a violation of this Section�5.2(r).

(s) The Issuer agrees that, at any time and from time to time, at the Issuer�s expense, the Issuer will promptly and duly execute and deliver or cause to be duly executed and delivered any and all such further instruments and documents, and take all further action, that may be necessary and within the control of the Issuer, in order to perfect the security interest in the Collateral, or as may be reasonably requested by the Trustee (acting at the Direction of Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes), and to carry out the provisions of this Indenture or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Collateral. The Issuer also agrees that, at any time and from time to time, at the Issuer�s expense, the Issuer will file (or cause to be filed) such UCC continuation statements and such other instruments or notices as may be necessary, including UCC financing statements or amendments thereto, in order to perfect and

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preserve the security interests and other rights granted or purported to be granted to the Trustee hereby. With respect to the foregoing and the grant of the security interest hereunder, the Issuer hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto that the Trustee may reasonably request, relative to all or any part of the Collateral. The Issuer hereby authorizes the Trustee to file financing statements describing as the collateral covered thereby �all of the debtor�s personal property or assets� or words to that effect, notwithstanding that such wording may be broader in scope than the Collateral described in this Indenture.

(t) The Issuer will maintain in the Borough of Manhattan, The City of New York, an office or agency of the Trustee, Registrar and Paying Agent where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer, exchange or purchase and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. Each of the Corporate Trust Office and each office or agency of the Trustee in the Borough of Manhattan, The City of New York shall initially be one such office or agency for all of the aforesaid purposes. The Issuer shall give prompt written notice to the Trustee of the location, and of any change in the location, of any such office or agency (other than a change in the location of the office of the Trustee). If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section�12.5. The Issuer may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Issuer of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes.

(u) The Issuer shall use commercially reasonable efforts to file any form or comply with any other administrative formalities required for an exemption from or a reduction of any withholding tax in respect of payments to the Issuer for which the Issuer is eligible. The Issuer shall maintain its status as an entity that is not classified as a corporation or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. The Issuer shall maintain its status as either (i)�an entity that is disregarded as separate from the Equityholder if there is one Equityholder for U.S. federal income tax purposes or (ii)�a partnership if there is more than one Equityholder for U.S. federal income tax purposes, in each case for U.S. federal income tax purposes and, to the extent permitted by Applicable Law, state and local tax purposes. The Issuer shall not file any tax return or report under any name other than its exact legal name at the time of the applicable filing. The Issuer shall treat the Notes as debt for U.S. federal income tax purposes. Neither the Issuer nor the Trustee shall treat any Noteholder or Beneficial Holder as a �partner� of the Issuer for U.S. federal income tax purposes with respect to the ownership of the Notes. The Issuer and the Trustee will treat all interest paid or otherwise accruing on the Notes as interest for U.S. federal income tax purposes. The Issuer will prepare and file all tax returns of the Issuer consistent with the covenants set forth in this Section�5.2(u) and will not take any inconsistent position in any communication or agreement with any taxing authority unless required by a final �determination� of a court of law within the meaning of Section�1313(a)(1) of the Code. The Issuer shall not enter into or incur any express or implied obligation to indemnify any other Person with respect to Taxes. The Issuer shall file (or cause to be filed) all tax returns and reports required by Applicable Law to be filed by it and pay all Taxes required to be paid by it.

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(v) The Issuer shall comply with all Applicable Laws with respect to the Transaction Documents, the Counterparty License Agreement, the Purchased Assets and all ancillary agreements related thereto, the violation of which would be a Material Adverse Change.

(w) The Issuer shall (i)�preserve and maintain its existence, (ii)�preserve and maintain its rights, franchises, permits, licenses, approvals and privileges and (iii)�qualify and remain qualified in good standing in each jurisdiction, in each case where the failure to preserve and maintain such existence, rights, franchises, permits, licenses, approvals, privileges and qualifications would be a Material Adverse Change.

(x) If any Person makes any payment in respect of the Purchased Assets to an account of the Issuer other than the Collection Account, then the Issuer promptly, and in any event no later than two Business Days following the receipt by the Issuer of such portion of such payment, shall remit such portion of such payment to the Collection Account in the exact form received with all necessary endorsements.

(y) During any period in which the Issuer is not subject to Section�13 or 15(d) of the Exchange Act, the Issuer shall make available to any Noteholder or Beneficial Holder in connection with any sale of any or all of its Notes and any prospective purchaser of such Notes from such Noteholder or Beneficial Holder the information required by Rule 144A(d)(4) under the Securities Act.

(z) The Issuer shall not, and shall not permit any of its Affiliates to, directly or indirectly, pay or cause to be paid any consideration of any type or form (whether in cash, property, by way of interest or fee or otherwise) to or for the benefit of any Noteholder or Beneficial Holder for or as an inducement to any forbearance, consent, waiver or amendment of any of the terms or provisions hereof or of the Notes, or any agreement in respect thereof, unless such consideration is, on the same terms and conditions, offered to all Noteholders and Beneficial Holders and paid to all Noteholders and Beneficial Holders that agree to such forbearance, consent, waiver or amendment, or agreement in respect thereof.

(aa) The Issuer shall provide written notice to the Trustee of any capital contributions received by the Issuer from the Equityholder and will immediately forward any such amounts to the Trustee for deposit in the Capital Account.

(bb) In the event that the Counterparty License Agreement terminates, the Issuer shall use its commercially reasonable efforts to identify and negotiate a New Arrangement that is commercially reasonable with respect to the Issuer, the Issuer�s rights under the Purchase and Sale Agreement and the Counterparty License Agreement and the rights of the Trustee and the Noteholders under the Transaction Documents.

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Section 5.3 Reports and Other Deliverables by the Issuer.

(a) The Issuer shall furnish to the Trustee, within 120 days after the end of each fiscal year commencing with the fiscal year ending December�31, 2014, a certificate from a Responsible Officer of the Issuer as to his or her knowledge of the Issuer�s compliance with all of its obligations under this Indenture (it being understood that, for purposes of this Section�5.3, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture except for the payment of any Interest Amount on the Class�A Notes (other than on the Final Legal Maturity Date) by the Payment Date immediately following the Payment Date on which such Interest Amount was first payable).

(b) The Issuer shall deliver written notice to the Trustee of the occurrence of any Default or Event of Default under this Indenture promptly and in any event within five Business Days of a Responsible Officer of the Issuer (including the Manager) becoming aware of such Default or Event of Default, which shall be labeled �Notice of Default� or �Notice of Event of Default�.

(c) The Issuer shall promptly (and in any event within five Business Days of receipt thereof) provide to the Trustee and the Servicer copies of written materials that the Issuer receives from the Seller pursuant to the Purchase and Sale Agreement or otherwise in respect of the Counterparty License Agreement.

(d) Within 120 days after the beginning of each fiscal year commencing with the fiscal year beginning January�1, 2015, the Issuer shall furnish to the Trustee an opinion of its legal counsel, which opinion shall state either that (i)�in the opinion of such counsel, all action (except as otherwise stated in such opinion) has been taken with respect to any filing, re-filing, recording or re-recording with respect to the Collateral as is necessary to maintain the perfection of the security interest on the Collateral in favor of the Trustee for the benefit of the Noteholders, or (ii)�in the opinion of such counsel, no such action is necessary to maintain such security interest.

ARTICLE VI

THE TRUSTEE

Section 6.1 Acceptance of Trusts and Duties. Except during the continuance of an Event of Default, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; provided, that, to the extent those duties are qualified, limited or otherwise affected by the provisions of any other Transaction Document, the Trustee shall be required to perform those duties only as so qualified, limited or otherwise affected. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture) and as set forth herein. The Trustee accepts the trusts hereby created and applicable to it and agrees to perform the same but only upon the terms of this Indenture and the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture) and agrees to receive and disburse all moneys received by it in accordance with the terms hereof. The Trustee in its individual capacity shall not be answerable or accountable under any circumstances except for its own willful misconduct or negligence or breach of any of its

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representations or warranties set forth herein made expressly in its individual capacity, and the Trustee shall not be liable for any action or inaction of the Issuer or any other parties to any of the Transaction Documents. Any amounts received by or due to the Trustee under this Indenture, including the fees, out-of-pocket expenses and indemnities of the Trustee, shall be Expenses of the Issuer. The Trustee shall not be liable to any Person for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including lost profits), even if the Trustee has been advised of the likelihood of such loss or damage.

The Issuer does hereby constitute and appoint the Trustee the true and lawful attorney of the Issuer, irrevocably, granted for good and valuable consideration and coupled with an interest and with full power of substitution, and with full power (in the name of the Issuer or otherwise), to ask, require, demand, receive, compound and give acquittance for any and all monies and claims for monies (in each case including insurance and requisition proceeds) due and to become due under or arising out of any Transaction Document and all other property that now or hereafter constitutes part of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings that the Trustee may deem to be necessary or advisable in the premises; provided, that the Trustee shall not exercise any such rights except upon the occurrence and during the continuance of an Event of Default hereunder in accordance with Section�4.3.

Section 6.2 Copies of Documents and Other Notices.

(a) The Trustee, upon written request, shall furnish to each requesting Noteholder or Beneficial Holder that has executed and delivered to the Registrar a Confidentiality Agreement and the Servicer, promptly upon receipt thereof, duplicates or copies of all reports, Notices, requests, demands, certificates, financial statements and other instruments furnished to the Trustee under or in connection with this Indenture; provided, that any such Beneficial Holder shall have submitted a certification to the Trustee certifying as to its Beneficial Interests.

(b) The Trustee shall furnish to Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement and the Servicer promptly after receipt thereof any reports or notices received from any of the Issuer, the Equityholder, the Seller or Counterparty. The Trustee may conclusively rely on the validity of any Confidentiality Agreement delivered to it, and may assume that each Beneficial Holder that has delivered a Confidentiality Agreement continues to beneficially own the Notes and is entitled to receive the information requested in accordance with this Section�6.2 absent receipt by the Trustee of written notice to the contrary.

(c) Each party hereto acknowledges and agrees that the Trustee may effect delivery of any Distribution Report (including the materials accompanying such Distribution Report) or any other of the information in this Section�6.2 by posting such on an IntraLinks site or a substantially similar electronic transmission system established by the Issuer for this purpose; provided, however, that only Noteholders or Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement shall be entitled to have access to such material; provided, that, upon written notice to the Trustee, any Noteholder or Beneficial Holder may decline to receive such information via IntraLinks or a substantially similar electronic transmission system.

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Section 6.3 Representations and Warranties. The Trustee does not make and shall not be deemed to have made any representation or warranty as to the validity, legality or enforceability of this Indenture, the Notes or any other document or instrument or as to the correctness of any statement contained in any thereof, except that the Trustee in its individual capacity hereby represents and warrants as follows:

(a) The Trustee is a duly authorized national banking association and is validly existing and in good standing under the laws of the United States of America.

(b) The Trustee has all requisite right, power and authority to execute and deliver this Indenture and its related documents and to perform all of its duties as Trustee hereunder and thereunder.

(c) The execution and delivery by the Trustee of this Indenture and the other Transaction Documents to which it is a party, and the performance by the Trustee of its duties hereunder and thereunder, have been duly authorized by all necessary corporate proceedings, and no further approvals or filings, including any governmental approvals, are required for the valid execution and delivery by the Trustee, or the performance by the Trustee, of this Indenture and such other Transaction Documents to which it is a party.

(d) The execution, delivery and performance by the Trustee of this Indenture and the other Transaction Documents to which it is a party (i)�to the best of the Trustee�s knowledge and without independent inquiry or investigation into the facts thereto, do not violate any provision of any Applicable Law and (ii)�do not violate any provision of its articles of association or by-laws.

(e) The execution, delivery and performance by the Trustee of this Indenture and the other Transaction Documents to which it is a party, to the best of the Trustee�s knowledge and without independent inquiry or investigation into the facts thereto, do not require the authorization, consent or approval of, the giving of notice to, the filing or registration with, or the taking of any action in respect of, any Governmental Authority.

(f) The Trustee has duly executed and delivered this Indenture and each other Transaction Document to which it is a party, and each of this Indenture and each such other Transaction Document constitutes the legal, valid and binding obligation of the Trustee in accordance with its terms, except as (i)�such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar Applicable Laws relating to or affecting the enforcement of creditors� rights generally and (ii)�the availability of equitable remedies may be limited by equitable principles of general applicability.

(g) The Trustee meets the requirements of Section�6.8 and is an Eligible Institution.

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Section 6.4 Reliance; Agents; Advice of Counsel. The Trustee shall incur no liability to anyone acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties. The Trustee may accept a copy of a resolution of the governing body of any party to any Transaction Document (including the Issuer), certified in an accompanying Officer�s Certificate as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically described herein, the Trustee shall be entitled to receive and may for all purposes hereof conclusively rely on a certificate, signed by an officer of any duly authorized Person, as to such fact or matter, and such certificate shall constitute full protection to the Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. To the extent not otherwise specifically provided herein, the Trustee shall assume, and shall be fully protected in assuming, that the Issuer is authorized by its constitutional documents to enter into this Indenture and to take all action permitted to be taken by it pursuant to the provisions hereof and shall not be required to inquire into the authorization of the Issuer with respect thereto. To the extent not otherwise specifically provided herein, the Trustee shall furnish to the Issuer or the Servicer upon written request such information and copies of such documents as the Trustee may have and as are necessary for the Issuer or any such Servicer to perform its duties under Article II and Article III or otherwise.

The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the Direction of the Noteholders in accordance with Section�4.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust, right or power conferred upon the Trustee, under any Transaction Document.

The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder or under any other Transaction Document either directly or by or through agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder.

The Trustee may consult with counsel as to any matter relating to this Indenture or any other Transaction Document and any opinion of counsel or any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel.

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or any other Transaction Document, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or Direction of any of the Noteholders, pursuant to the provisions of this Indenture or any other Transaction Document, unless such Noteholders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that may be incurred therein or thereby.

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The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under any other Transaction Document, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it, and none of the provisions contained in this Indenture or any other Transaction Document shall in any event require the Trustee to perform, or be responsible or liable for the manner of performance of, any obligations of the Issuer or the Servicer under this Indenture or any of the other Transaction Documents.

The Trustee shall not be liable for any Losses or Taxes (except for Taxes relating to any compensation, fees or commissions of any entity acting in its capacity as Trustee hereunder) or in connection with the selection of Eligible Investments or for any investment losses resulting from Eligible Investments.

When the Trustee incurs expenses or renders services in connection with an Acceleration Default, such expenses (including the fees and expenses of its counsel) and the compensation for such services are intended to constitute expenses of administration under any Applicable Law relating to bankruptcy matters or Applicable Law relating to creditors� rights generally.

The Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Trustee obtains actual knowledge of such event or has received written notice of such event at its Corporate Trust Office from the Issuer, the Servicer or Noteholders holding not less than 10% of the Outstanding Principal Balance of the Notes, which shall be labeled �Notice of Default� or �Notice of Event of Default�.

The Trustee shall have no duty to monitor the performance of the Issuer, the Servicer or any other party to the Transaction Documents, or to confirm the accuracy of any information or calculation required to be provided by such parties to the Trustee under the Transaction Documents. Nor shall the Trustee have any liability in connection with the malfeasance or nonfeasance by any other party to the Transaction Documents.

Whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder or under any other Transaction Document, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or willful misconduct on the part of the Trustee, be deemed to be conclusively proved and established by a certificate signed by a Responsible Officer of the Issuer and delivered to the Trustee, and such certificate, in the absence of gross negligence or willful misconduct on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture or any other Transaction Document upon the faith thereof.

Except as provided expressly hereunder, the Trustee shall have no obligation to invest and reinvest any cash held in the Accounts in the absence of timely and specific written investment direction by or on behalf of the Issuer. In no event shall the Trustee be liable for the selection of investments or for investment losses incurred thereon. The Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Issuer to provide timely written investment direction.

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When the Trustee incurs expenses after the occurrence of a Default specified in Section�4.1 with respect to the Issuer, if the surviving entity has failed to honor such obligation, the expenses are intended to constitute expenses of administration under any Applicable Law relating to insolvency matters or under the Bankruptcy Code.

Section 6.5 Not Acting in Individual Capacity. The Trustee acts hereunder solely as trustee unless otherwise expressly provided, and all Persons, other than the Noteholders to the extent expressly provided in this Indenture, having any claim against the Trustee by reason of the transactions contemplated hereby shall look, subject to the lien and priorities of payment as provided herein or in any other Transaction Document, only to the property of the Issuer for payment or satisfaction thereof.

Section 6.6 Compensation of Trustee. The Trustee agrees that it shall have no right against the Noteholders or, except as provided in Section�3.6(a) and Section�4.14, the property of the Issuer, for any fee as compensation for its services hereunder. The Issuer shall pay to the Trustee from time to time such compensation as is agreed in writing between the two parties. The priority of such compensation shall be subject to Section�3.6(a) and Section�4.14.

Section 6.7�May Hold Notes. The Trustee, any Paying Agent, the Registrar or any of their Affiliates or any other agent in their respective individual or any other capacity may become the owner or pledgee of the Notes and, subject to Sections 310(b) and 311 of the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture), may otherwise deal with the Issuer with the same rights it would have if it were not the Trustee, Paying Agent, Registrar or such other agent.

Section 6.8 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee that shall (a)�be eligible to act as a trustee under Section�310(a) of the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture), (b)�meet the requirements of Rule 3a-7(a)(4)(i) under the Investment Company Act and (c)�meet the Eligibility Requirements. If such corporation publishes reports of conditions at least annually, pursuant to Applicable Law or to the requirements of any federal, state, foreign, territorial or District of Columbia supervising or examining authority, then, for the purposes of this Section�6.8, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of conditions so published.

In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section�6.8 to act as Trustee, the Trustee shall resign immediately as Trustee in the manner and with the effect specified in Section�7.1.

Section 6.9 Reports by the Trustee. Within 60 days after May�15 of each year commencing with the first full calendar year following the issuance of any class of Notes, the Trustee shall, if required by Section�313(a) of the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture), transmit to the Noteholders of each class, as provided in Section�313(c) of the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture), a brief report describing, among other things, any changes in eligibility and qualifications of the Trustee and any Subordinated Note Issuance.

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Section 6.10 Pledge and Security Agreement and Other Transaction Documents. The Trustee shall enter into the Pledge and Security Agreement with the Equityholder on the Closing Date and shall hold the collateral pledged thereunder as part of the Collateral for purposes of this Indenture. The provisions of this Article VI shall apply to the Trustee�s exercise of rights and remedies under the Pledge and Security Agreement, mutatis mutandis. In addition, the Trustee shall enter into such other Transaction Documents on the Closing Date to which it is party.

Section 6.11 Collateral.

(a) The Trustee shall hold such of the Collateral as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit and advices of credit in the State of New York. The Trustee shall hold such of the Collateral as constitutes investment property through a securities intermediary, which securities intermediary shall agree with the Trustee (which agreement shall be governed by the laws of the State of New York) that (a)�such investment property shall at all times be credited to a securities account of the Trustee, (b)�such securities intermediary shall treat the Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c)�all property credited to such securities account shall be treated as a financial asset, (d)�such securities intermediary shall comply with entitlement orders originated by the Trustee without the further consent of any other Person, (e)�such securities intermediary will not agree with any Person other than the Trustee to comply with entitlement orders originated by such other Person and (f)�such securities account and the property credited thereto shall not be subject to any lien, security interest or right of set-off in favor of such securities intermediary or anyone claiming through it (other than the Trustee). Except as permitted by this Section�6.11 or as otherwise permitted by any Transaction Document, the Trustee shall not hold any part of the Collateral through an agent or a nominee.

(b) The Trustee shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the liens in any of the Collateral, for the validity or sufficiency of the Collateral, for the validity of the title of the Issuer or the Equityholder to the Collateral, for insuring the Collateral or for the payment of Taxes, charges, assessments or liens upon the Collateral. Notwithstanding anything to the contrary in the Transaction Documents, the Trustee shall have no responsibility for recording, filing, re-recording or re-filing any financing statement, continuation statement, document, instrument or other notice in any public office at any time or times or to otherwise take any action to perfect or maintain the perfection of any security interest granted to it under the Transaction Documents.

Section 6.12 Preservation and Disclosure of Noteholder Lists. The Registrar shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the Noteholders received by it. At any time when a Default or an Event of Default has occurred and is continuing, in case either (a)�three or more Noteholders that have executed and delivered to the Registrar a Confidentiality Agreement or (b)�one or more Noteholders holding at least 25% of the Outstanding Principal Balance of the Senior Class of Notes that have executed and delivered to the Registrar a Confidentiality Agreement (in each case, �Applicants�) apply in writing to the Registrar and furnish to the Registrar reasonable proof that each such Applicant has owned a Note for a period of at least three months preceding the date of such application, and such application states that the Applicants desire to communicate with other

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Noteholders with respect to their rights under this Indenture or under the Notes and such application is accompanied by a copy of the form of proxy or other communication that such Applicants propose to transmit, then the Registrar shall, within five Business Days after the receipt of such application, inform such Applicants as to the approximate number of Noteholders whose names and addresses appear in such information and as to the approximate cost of mailing to such Noteholders the form of proxy or other communication, if any, specified in such application. The Registrar shall, upon the written request of such Applicants, mail to each Noteholder whose name and address appears in such information a copy of the form of proxy or other communication that is specified in such request, with reasonable promptness after a tender to the Registrar of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing. Each and every Noteholder, by receiving and holding the same, agrees with the Issuer and the Registrar that neither the Registrar nor any agent of the Issuer or the Registrar shall be held accountable by reason of mailing any material pursuant to a request made under this Section�6.12.

Section 6.13 Audit Rights.

(a) At the Direction of Noteholders holding at least 25% of the Outstanding Principal Balance of the Senior Class of Notes, the Senior Trustee shall instruct the Servicer on behalf of the Issuer to exercise the Issuer�s rights pursuant to Section�8.12 of the Counterparty License Agreement, with respect to periods commencing on or after January�1, 2014, to audit the books and records of Counterparty (which audit or inspection may only be made at the times and in the manner provided by and otherwise in conformity with the requirements of the audit rights of the Seller provided for by Section�8.12 of the Counterparty License Agreement, including that such audit rights may be exercised only once per calendar year), and the Issuer shall cause the Trustee to include for distribution to Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement any written audit report that the Issuer or the Servicer receives with respect to such inspection or audit in the next Distribution Report (after receipt of such written audit report) to be distributed pursuant to Section�2.13. Any such written audit report shall be treated confidentially pursuant to the terms of the Confidentiality Agreement; provided, however, that nothing in this Section�6.13(a) shall prohibit or restrict the Issuer�s ability to unilaterally exercise its rights pursuant to Section�4.7 of the Purchase and Sale Agreement in the absence of any such Direction of the Noteholders.

(b) At the Direction of Noteholders holding at least 25% of the Outstanding Principal Balance of the Senior Class of Notes, the Issuer shall, upon not less than ten Business Days� prior written notice to the Issuer, permit an independent public accounting firm of nationally recognized standing selected by such Noteholders to make such inspection and audit of the books and records of the Issuer as may reasonably be necessary to determine the correctness of any Distribution Report, including the calculations made by the Calculation Agent in respect of any Calculation Date, as set forth in Section�3.4, and the payments made pursuant to Section�3.6 with respect thereto. Such inspection and audit (x)�may not be conducted more than once during any calendar year, (y)�shall be conducted by such accounting firm during normal business hours at such place or places where such books and records are held and (z)�may not be conducted more than once in respect of any given Calculation Date. Subject to this Section�6.13(b), the Issuer shall make available to such accounting firm such books and records of the Issuer reasonably pertinent to such inspection and audit and shall reasonably cooperate with such

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accounting firm in connection therewith. Such accounting firm shall prepare a report disclosing its conclusions with respect to the accuracy or inaccuracy of the amounts inspected and audited and shall furnish such report to the Trustee for distribution to Noteholders and Beneficial Holders that have executed and delivered to the Registrar a Confidentiality Agreement. In the event of any inaccuracy reported by such accounting firm, the Issuer shall cause the amounts to be paid to the Collection Account for distribution on the succeeding Payment Date pursuant to Section�3.6(a) to be adjusted in accordance with Section�3.6(d).

Section 6.14 Compliance with Applicable Anti-Terrorism and Anti-Money Laundering Regulations. In order to comply with Applicable Laws in effect from time to time applicable to banking institutions, including those relating to the funding of terrorist activities and money laundering, the Trustee is required to obtain, verify and record certain information relating to Persons that maintain a business relationship with the Trustee. Accordingly, the Issuer agrees to provide to the Trustee upon its request from time to time such identifying information and documentation as may be available for the Issuer in order to enable the Trustee to comply with such Applicable Laws.

Section 6.15 Jurisdiction of Trustee. Each of the Issuer and the Trustee agrees that the State of New York shall be the Trustee�s jurisdiction for purposes of Sections 8-110, 9-304 and 9-305 of the UCC.

Section 6.16 Notice of Event of Default to the Equityholder. If an Event of Default of which the Trustee has been provided written notice or has actual knowledge shall have occurred and be continuing, the Trustee shall deliver written notice to the Equityholder, in accordance with the notice information provided in the Pledge and Security Agreement to which the Equityholder is party, of the occurrence and continuance of such Event of Default promptly and in any event within five Business Days of a Responsible Officer of the Trustee so becoming aware of such Event of Default; provided, that the Trustee shall not be deemed to have any fiduciary duty to the Equityholder by reason of this Section�6.16, and the Trustee shall not be liable to the Equityholder for any failure to comply with this Section�6.16.

ARTICLE VII

SUCCESSOR TRUSTEES, REGISTRARS, PAYING AGENTS AND CALCULATION AGENTS

Section 7.1 Resignation and Removal of Trustee, Registrar, Paying Agent or Calculation Agent. Any of the Trustee, the Registrar, the Paying Agent and the Calculation Agent may resign as to all or any of the classes of Notes at any time without cause by giving at least 30 days� prior written notice to the Issuer, the Servicer and the Noteholders. Noteholders holding a majority of the Outstanding Principal Balance of any class of Notes may at any time remove one or more of the Trustee, the Registrar, the Paying Agent and the Calculation Agent as to such class without cause, with the consent of the Issuer (such consent not to be unreasonably withheld) if no Event of Default shall have occurred and be continuing, by an instrument in writing delivered to the Issuer, the Servicer and the Trustee, Registrar, Paying Agent or Calculation Agent being removed. In addition, the Issuer may remove the Trustee if (a)�the Trustee fails to comply with Section�310 of the Trust Indenture Act (as if the Trust Indenture Act applied to this Indenture) after written request therefor by the Issuer or the Noteholders of the

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related class who have been bona fide Noteholders for at least six months, (b)�the Trustee fails to comply with Section�7.2(d) or any other provision hereof, (c)�the Trustee is adjudged a bankrupt or an insolvent, (d)�a receiver or public officer takes charge of the Trustee or its property or (e)�the Trustee becomes incapable of acting. The Issuer may, and at the request of the Trustee shall, at any time terminate the agency of any Authorized Agent by giving written notice of termination to such Authorized Agent and to the Trustee. References to the Trustee, Registrar, Paying Agent and Calculation Agent in this Indenture include any successor Trustee, Registrar, Paying Agent or Calculation Agent, as the case may be, as to all or any of the classes of Notes appointed in accordance with this Article VII. Any resignation or removal of the Trustee, Registrar, Paying Agent or Calculation Agent pursuant to this Section�7.1 shall not be effective until a successor Trustee, Registrar, Paying Agent or Calculation Agent, as the case may be, shall have been duly appointed and vested as Trustee, Registrar, Paying Agent or Calculation Agent, as the case may be, pursuant to Section�7.2.

Section 7.2 Appointment of Successor.

(a) In the case of the resignation or removal of the Trustee or any Authorized Agent as to any class of Notes under Section�7.1 or if at any time an Authorized Agent shall cease to comply with the Eligibility Requirements (when, in the case of the resignation or removal of, or failure to comply by, an Authorized Agent, no other Authorized Agent performing the functions of such Authorized Agent as to such class shall have been appointed by the Trustee), the Issuer shall promptly appoint a successor Trustee as to such class or Authorized Agent as to such class to perform the functions of the Trustee or the Authorized Agent that has resigned or been removed or whose agency has been terminated or who shall have ceased to comply with the Eligibility Requirements. If a successor Trustee or Authorized Agent as to any class of Notes shall not have been appointed and accepted its appointment hereunder within 60 days after the Trustee or such Authorized Agent (other than in the case of an Authorized Agent where another Authorized Agent as to such class is performing the functions of such Authorized Agent), as the case may be, gives notice of resignation as to such class, the retiring Trustee or Authorized Agent, as the case may be, the Issuer, the Servicer or a majority of the Outstanding Principal Balance of such class of Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee, Registrar, Paying Agent or Calculation Agent as to such class. The Issuer shall give written notice of any such appointment made by it to the Trustee, and in each case the Trustee shall mail notice of such appointment to all Noteholders of the related class of Notes as their names and addresses appear on the Register for such class of Notes.

(b) Any successor Trustee or Authorized Agent as to any class of Notes, however appointed, shall execute and deliver to the Issuer, the Servicer and the predecessor Trustee or Authorized Agent as to such class an instrument accepting such appointment, and thereupon such successor Trustee or Authorized Agent, without further act, shall become vested with all the estates, properties, rights, powers, duties and trusts of such predecessor Trustee or Authorized Agent hereunder in the trusts hereunder applicable to it with like effect as if originally named the Trustee or applicable Authorized Agent as to such class herein; provided, that, upon the written request of such successor Trustee or Authorized Agent, such predecessor Trustee or Authorized Agent shall, upon payment of all amounts due and owing to it, execute and deliver an instrument transferring to such successor Trustee or Authorized Agent, upon the

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trusts herein expressed applicable to it, all the estates, properties, rights, powers and trusts of such predecessor Trustee or Authorized Agent, and such predecessor Trustee or Authorized Agent shall duly assign, transfer, deliver and pay over to such successor Trustee or Authorized Agent all moneys or other property then held by such predecessor Trustee or Authorized Agent hereunder solely for the benefit of such class of Notes.

(c) If a successor Trustee or Authorized Agent is appointed with respect to one or more (but not all) classes of the Notes, the Issuer, the predecessor Trustee or Authorized Agent and each successor Trustee or Authorized Agent with respect to each class of Notes shall execute and deliver an indenture supplemental hereto that shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee or Authorized Agent with respect to the classes of Notes as to which the predecessor Trustee or Authorized Agent is not retiring shall continue to be vested in the predecessor Trustee or Authorized Agent, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the Notes hereunder by more than one Trustee or Authorized Agent.

(d) The Trustee shall be an Eligible Institution and shall meet the Eligibility Requirements and the requirements of Section�6.8, if there be such an institution willing, able and legally qualified to perform the duties of a Trustee hereunder.

(e) Any Person into which the Trustee or Authorized Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee or Authorized Agent shall be a party, or any Person to which all or substantially all of the corporate trust business of the Trustee or Authorized Agent (including the administration of the trust created by this Indenture) may be transferred, shall, subject to the terms of Section�7.2(c) and Section�7.2(d), be the Trustee or Authorized Agent, as the case may be, under this Indenture without the execution or filing of any paper with any party hereto or any further act on the part of any party hereto, except where an instrument of transfer or assignment is required by Applicable Law to effect such succession, anything herein to the contrary notwithstanding.

ARTICLE VIII

INDEMNITY

Section 8.1 Indemnity. The Issuer shall indemnify and defend the Trustee (and its officers, directors, managers, employees and agents) for, and hold it harmless from and against, and reimburse the Trustee for, any loss, liability or expense incurred by it without bad faith, gross negligence or willful misconduct on its part in connection with the acceptance or administration of this Indenture and its performance of its duties under this Indenture and the Notes or any other Transaction Document, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties, and hold it harmless against any loss, liability or reasonable expense incurred without bad faith, gross negligence or willful misconduct on its part, arising out of or in connection with actions taken or omitted to be taken in reliance on any Officer�s Certificate furnished hereunder, or the failure to furnish any such Officer�s Certificate required to be furnished hereunder. The Trustee shall

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notify the Issuer promptly of any claim asserted against the Trustee for which it may seek indemnity; provided, however, that failure to provide such notice shall not invalidate any right to indemnity hereunder unless, and only to the extent that, the Issuer is actually prejudiced by such omission. The Issuer shall defend any such claim and the Trustee shall cooperate in the defense thereof. The Trustee may have separate counsel and the Issuer shall pay the reasonable fees and expenses of one separate outside counsel for the Trustee. The Issuer need not pay for any settlements made without its consent. The Issuer need not reimburse any expense or provide any indemnity against any loss, liability or expense incurred by the Trustee through bad faith, gross negligence or willful misconduct. To secure the Issuer�s payment obligations under this Section�8.1, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee to pay amounts due on the Notes or in accordance with the terms of this Indenture.

Section 8.2 Noteholders� Indemnity. The Trustee shall be entitled, subject to such Trustee�s duty during a Default to act with the standard of care required under this Indenture, to be indemnified by the Noteholders of any class of Notes to its satisfaction before proceeding to exercise any right or power under this Indenture or any other Transaction Document at the request or Direction of such Noteholders.

Section 8.3 Survival. The provisions of Section�8.1 and Section�8.2 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee.

ARTICLE IX

MODIFICATION

Section 9.1 Modification with Consent of Noteholders. Subject to Section�3.6(b), with the consent of Noteholders holding a majority of the Outstanding Principal Balance of the Notes (voting or acting as a single class or series), the Trustee may agree to amend, modify or waive any provision of (or consent to the amendment, modification or waiver of) this Indenture, the Notes, the Pledge and Security Agreement or the Servicing Agreement; provided, however, that if there shall be Notes of more than one class or series Outstanding and if a proposed amendment, modification, consent or waiver shall directly affect the rights of Noteholders of one or more, but less than all, of such classes or series, then the consent only of the Noteholders holding a majority of the Outstanding Principal Balance of each affected class or series of Notes, each voting or acting as a single class or series, as the case may be, shall be required; provided, further, however, that no such amendment, modification, consent or waiver may, without the consent of Noteholders holding 100% of the Outstanding Principal Balance of the class or series of Notes affected thereby:

(a) reduce the percentage of any such series or class of Notes required to take or approve any action hereunder or thereunder;

(b) reduce the amount or change the time of payment of any amount owing or payable with respect to any such class or series of Notes (including pursuant to any Redemption) or change the rate of interest or change the manner of calculation of interest payable with respect to any such class or series of Notes;

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(c) except as provided in Section�9.2(a), alter or modify in any adverse respect the provisions of this Indenture with respect to the Collateral for the Notes, the provisions of the Pledge and Security Agreement with respect to the related Issuer Pledged Collateral for the Notes or the manner of payment or the order of priority in which payments or distributions hereunder will be made as between the Noteholders of such Notes and the Issuer or as among the Noteholders (including pursuant to Section�3.6);

(d) consent to any assignment of the Issuer�s rights to a party other than the Trustee for the benefit of the Noteholders; or

(e) alter the provisions relating to the Interest Reserve Account in a manner adverse to any Noteholder;

provided, that the Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes, by written notice to the Trustee, may waive any Default or Event of Default to the extent provided in Section�4.5.

It shall not be necessary for the consent of the Noteholders under this Section�9.1 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. Any such modification approved by the required Noteholders of any class of Notes will be binding on the Noteholders of the relevant class of Notes and each party to this Indenture.

After an amendment under this Section�9.1 becomes effective, the Issuer or, at the direction of the Issuer, the Trustee shall mail to the Noteholders a notice briefly describing such amendment. Any failure of the Issuer or the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment.

After an amendment under this Section�9.1 becomes effective, it shall bind every Noteholder, whether or not notation thereof is made on any Note held by such Noteholder.

Section 9.2 Modification Without Consent of Noteholders. Subject to Section�3.6(b), the Trustee may, without the consent of any Noteholder, agree to amend, modify or waive any provision of (or consent to the amendment, modification or waiver of) this Indenture, the Notes, the Pledge and Security Agreement or the Servicing Agreement to:

(a) establish the terms of any Refinancing Notes or Subordinated Notes pursuant to Section�2.15 and Section�2.16, respectively (including, with respect to Subordinated Notes or as among classes or series of Subordinated Notes, modifications to Section�3.6(a)(v));

(b) evidence the succession of a successor to the Trustee or any Authorized Agent, the removal of the Trustee or any Authorized Agent or the appointment of any separate or additional trustee or trustees or co-trustees or Authorized Agent and to define the rights, powers, duties and obligations conferred upon any such separate trustee or trustees or co-trustees or such Authorized Agent;

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(c) correct, confirm or amplify the description of any property at any time subject to the lien of this Indenture or to assign, transfer, convey, mortgage or pledge any property to or with the Trustee;

(d) cure any ambiguity or correct or supplement any defective or inconsistent provision of this Indenture, the Notes, the Pledge and Security Agreement or the Servicing Agreement;

(e) grant or confer upon the Trustee for the benefit of the Noteholders any additional rights, remedies, powers, authority or security that may be lawfully granted or conferred and that are not contrary to this Indenture;

(f) add to the covenants or agreements to be observed by the Issuer for the benefit of the Noteholders, to add Events of Default for the benefit of the Noteholders or surrender any right or power conferred upon the Issuer in this Indenture;

(g) comply with the requirements of the SEC or any other regulatory body or any Applicable Law;

(h) conform the text of this Indenture, the Notes issued hereunder, the Pledge and Security Agreement or the Servicing Agreement to any provision described under the portions of the Memorandum captioned �Description of the Notes� or �The Servicing Agreement� to the extent that such provision was intended to be a verbatim recitation of a provision of the Indenture, the Notes issued hereunder, the Pledge and Security Agreement or the Servicing Agreement (as confirmed by an Officer�s Certificate);

(i) effect any indenture supplemental hereto or any other amendment, modification, supplement, waiver or consent with respect to this Indenture, the Notes, the Pledge and Security Agreement or the Servicing Agreement; provided, that such indenture supplemental hereto, amendment, modification, supplement, waiver or consent will not adversely affect the interests of the Noteholders in any material respect as confirmed in an Officer�s Certificate of the Issuer; or

(h) provide for the issuance of any Additional Class�A Notes in accordance with Section�2.1(g).

After an amendment under this Section�9.2 becomes effective, the Issuer or, at the direction of the Issuer, the Trustee shall mail to the Noteholders a notice briefly describing such amendment. Any failure of the Issuer or the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment.

After an amendment under this Section�9.2 becomes effective, it shall bind every Noteholder, whether or not notation thereof is made on any Note held by such Noteholder.

Section 9.3 Subordination; Priority of Payments. The subordination provisions contained in Article X may not be amended or modified without the consent of Noteholders holding 100% of the Outstanding Principal Balance of the class of Notes affected thereby. In no event shall the provisions set forth in Section�3.6 relating to the priority of payment of Expenses be amended or modified.

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Section 9.4 Execution of Amendments by Trustee. In executing, or accepting the additional trusts created by, any amendment or modification to this Indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer�s Certificate and an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such amendment that affects the Trustee�s own rights, duties or immunities under this Indenture or otherwise.

ARTICLE X

SUBORDINATION

Section 10.1 Subordination of the Notes.

(a) Each of the Issuer and the Trustee (on behalf of the Noteholders) covenants and agrees, and each Noteholder, by its acceptance of a Note, covenants and agrees, that the Notes of each class will be issued subject to the provisions of this Article X. Each Noteholder, by its acceptance of a Note, further agrees that all amounts payable on any Note will, to the extent provided in Section�3.6 and in the manner set forth in this Article X, be subordinated in right of payment to the prior payment in full of all Taxes owed by the Issuer (if any) and all Expenses payable to the Service Providers pursuant to this Indenture and the other Transaction Documents. Each Noteholder of a Subordinated Note, by its acceptance of a Subordinated Note, further agrees that all amounts payable on any Subordinated Note will, to the extent provided in Section�3.6 and in the manner set forth in this Article X, be subordinated in right of payment to the payment in full of the Class�A Notes. Any claim to payment so stated to be subordinated is referred to as a �Subordinated Claim�; each claim to payment to which another claim to payment is a Subordinated Claim is referred to as a �Senior Claim� with respect to such Subordinated Claim.

(b) If, prior to the payment in full of all Senior Claims then due and payable, the Trustee or any Noteholder of a Subordinated Claim shall have received any payment or distribution in respect of such Subordinated Claim in excess of the amount to which such Noteholder was then entitled under Section�3.6, then such payment or distribution shall be received and held in trust by such Person and paid over or delivered to the Trustee for application as provided in Section�3.6.

(c) If any Service Provider, the Equityholder, the Trustee or any Noteholder of any Senior Claim receives any payment in respect of any Senior Claim that is subsequently invalidated, declared preferential, set aside and/or required to be repaid to a trustee, receiver or other party, then, to the extent such payment is so invalidated, declared preferential, set aside and/or required to be repaid, such Senior Claim shall be revived and continue in full force and effect and shall be entitled to the benefits of this Article X, all as if such payment had not been received.

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(d) The Trustee (on its own behalf and on behalf of the Noteholders) and the Issuer each confirm that the payment priorities specified in Section�3.6, Section�4.14 and Section�8.1 shall apply in all circumstances.

(e) Each Noteholder, by its acceptance of a Note, authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article X, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Issuer (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise), any actions tending towards liquidation of the property and assets of the Issuer or the filing of a claim for the unpaid balance of its Notes in the form required in those proceedings.

(f) If payment on the Notes is accelerated as a result of an Event of Default, the Issuer shall promptly notify the holders of the Senior Claims of such acceleration.

(g) After all Senior Claims are paid in full and until the Subordinated Claims are paid in full, and to the extent that such Senior Claims shall have been paid with funds that would, but for the subordination pursuant to this Article X, have been paid to and retained by such holders of Subordinated Claims, the holders of Subordinated Claims shall be subrogated to the rights of holders of Senior Claims to receive payments applicable to Senior Claims. A payment made under this Article X to holders of Senior Claims that otherwise would have been made to the holders of Subordinated Claims is not, as between the Issuer and the holders of Subordinated Claims, a payment by the Issuer.

(h) No right of any holder of any Senior Claim to enforce the subordination of any Subordinated Claim shall be impaired by an act or failure to act by the Issuer or the Trustee or by any failure by either the Issuer or the Trustee to comply with this Indenture.

(i) Each Noteholder by accepting a Note acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Claim, whether such Senior Claim was created or acquired before or after the issuance of such Noteholder�s claim, to acquire and continue to hold such Senior Claim, and such holder of any Senior Claim shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold such Senior Claim. Each holder of a Subordinated Claim agrees to comply with the provisions of Article IV.

ARTICLE XI

DISCHARGE OF INDENTURE; SURVIVAL

Section 11.1 Discharge of Indenture; Survival.

(a) When (i)�all outstanding Secured Obligations (other than contingent indemnity and expense reimbursement obligations for which no claim has been made) have been satisfied, (ii)�the Issuer delivers to the Trustee all Outstanding Notes (other than Notes that have been replaced pursuant to Section�2.8) for cancellation and the Issuer irrevocably deposits, or there shall have otherwise been deposited in the Redemption Account, Collection Account or

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other applicable Account, funds sufficient to pay all remaining Expenses accrued and payable through such date, or (iii)�all Outstanding Notes have become due and payable, whether at maturity or as a result of the mailing of a notice of Redemption and the Issuer irrevocably deposits or there shall have otherwise been deposited in the Redemption Account, Collection Account or other Account funds sufficient to pay all remaining Expenses accrued and payable through such date and to pay all principal of and interest and Premium (if any) on Outstanding Notes at maturity or upon redemption all Outstanding Notes, including interest and any Premium thereon to maturity or the Redemption Date (other than Notes replaced pursuant to Section�2.8), and if in each case the Issuer pays all other sums then due and payable hereunder by the Issuer, then this Indenture shall, subject to Section�11.1(b), cease to be of further effect and the Security Interest granted to the Trustee hereunder in the Collateral shall terminate. The Trustee shall acknowledge satisfaction and discharge of this Indenture, file all UCC termination statements and similar documents prepared by the Issuer and take other actions in order to terminate the Security Interest, on demand of the Issuer accompanied by an Officer�s Certificate and an Opinion of Counsel, at the cost and expense of the Issuer, to the effect that any conditions precedent to a discharge of this Indenture have been met.

(b) Notwithstanding Section�11.1(a), the Issuer�s obligations in Section�3.6(b) and Section�8.1, the Noteholders� obligations in Section�8.2 and the Trustee�s obligations in Section�12.13 and Section�12.14 shall survive the satisfaction and discharge of this Indenture.

Section 11.2 Release of Security Interest in Certain Collateral. Upon distribution or transfer of (a)�cash amounts permitted to be distributed or transferred by Article III and (b)�cash proceeds from the Notes issued in accordance with this Indenture, the Security Interest in such cash amounts or such cash proceeds, as the case may be, shall terminate, and such item(s) of Collateral shall be released therefrom, immediately upon such distribution or transfer, without any further action by the Trustee; provided, however, that such release shall not apply to any other Collateral. The Trustee shall, at the expense of the Issuer, acknowledge the termination of any such Security Interest and the release of any such item(s) of Collateral therefrom and take other actions in order to evidence and confirm such termination and release, on demand of the Issuer accompanied by an Officer�s Certificate to the effect that any conditions precedent to such termination and release have been met.

ARTICLE XII

MISCELLANEOUS

Section 12.1 Right of Trustee to Perform. If the Issuer for any reason fails to observe or punctually to perform any of its obligations to the Trustee, whether under this Indenture, under any of the other Transaction Documents or otherwise, the Trustee shall have the power (but shall have no obligation), on behalf of or in the name of the Issuer or otherwise, to perform such obligations or cause performance of such obligations and to take any steps that the Trustee may, but shall not be required to, in its absolute discretion, consider appropriate with a view to remedying, or mitigating the consequences of, such failure by the Issuer, in which case the reasonable expenses of the Trustee, including the reasonable fees and expenses of its counsel, incurred in connection therewith shall be payable by the Issuer under Section�8.1; provided, that no exercise or failure to exercise this power by the Trustee shall in any way prejudice the Trustee�s other rights under this Indenture or any of the other Transaction Documents.

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Section 12.2 Waiver. Any waiver by any party of any provision of this Indenture or any right, remedy or option hereunder shall only prevent and estop such party from thereafter enforcing such provision, right, remedy or option if such waiver is given in writing and only as to the specific instance and for the specific purpose for which such waiver was given. The failure or refusal of any party hereto to insist in any one or more instances, or in a course of dealing, upon the strict performance of any of the terms or provisions of this Indenture by any party hereto or the partial exercise of any right, remedy or option hereunder shall not be construed as a waiver or relinquishment of any such term or provision, but the same shall continue in full force and effect. No failure on the part of the Trustee to exercise, and no delay on its part in exercising, any right or remedy under this Indenture will operate as a waiver thereof, nor will any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Indenture are cumulative and not exclusive of any rights or remedies provided by Applicable Law.

Section 12.3 Severability. In the event that any provision of this Indenture or the application thereof to any party hereto or to any circumstance or in any jurisdiction governing this Indenture shall, to any extent, be invalid or unenforceable under any Applicable Law, then such provision shall be deemed inoperative to the extent that it is invalid or unenforceable, and the remainder of this Indenture, and the application of any such invalid or unenforceable provision to the parties, jurisdictions or circumstances other than to whom or to which it is held invalid or unenforceable, shall not be affected thereby nor shall the same affect the validity or enforceability of this Indenture. The parties hereto further agree that the holding by any court of competent jurisdiction that any remedy pursued by the Trustee hereunder is unavailable or unenforceable shall not affect in any way the ability of the Trustee to pursue any other remedy available to it.

Section 12.4 Restrictions on Exercise of Certain Rights. The Trustee and, during the continuance of a payment Default with respect to the Senior Class of Notes, the Senior Trustee, except as otherwise provided in Section�4.4, Section�4.9 and Section�4.11, may sue for recovery or take any other steps for the purpose of recovering any of the obligations hereunder or any other debts or liabilities whatsoever owing to it by the Issuer. Each of the Noteholders shall at all times be deemed to have agreed by virtue of the acceptance of the Notes that only the Trustee and, during the continuance of a payment Default with respect to the Senior Class of Notes, the Senior Trustee, except as provided in Section�4.4, Section�4.9 and Section�4.11, may take any steps for the purpose of procuring the appointment of an administrative receiver, examiner, receiver or similar officer or the making of an administration order or for instituting any bankruptcy, reorganization, arrangement, insolvency, winding-up, liquidation, composition, examination or any like proceedings under Applicable Law.

Section 12.5 Notices. All Notices shall be in writing and shall be effective (a)�upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, (b)�upon receipt when sent by an overnight courier, (c)�on the date personally delivered to an authorized officer of the party to which sent, (d)�on the date transmitted by facsimile or other electronic transmission with a confirmation of receipt or (e)�in the case of reports under Article III and any other report that is of a routine nature, on the date sent by first class mail or overnight

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courier or transmitted by facsimile or other electronic transmission, in all cases, with a copy emailed to the recipient at the applicable address, addressed to the recipient as follows:

if to the Issuer, to:

Atlas U.S. Royalty, LLC

c/o Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, California 94043

Attention: Chief Financial Officer

Telephone: 650-944-7666 / 650-944-7000

Facsimile: 650-944-7988

Email: [email protected]

if to the Trustee, the Registrar, the Paying Agent or the Calculation Agent, to:

U.S. Bank National Association

One Federal Street, 3rd Floor

Boston, Massachusetts 02110

Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC)

Telephone: 617-603-6553

Facsimile: 617-603-6683

A copy of each notice given hereunder to any party hereto shall also be given to each of the other parties hereto. Each party hereto may, by notice given in accordance herewith to each of the other parties hereto, designate any further or different address to which subsequent Notices shall be sent.

Section 12.6 Assignments. This Indenture shall be a continuing obligation of the Issuer and shall (a)�be binding upon the Issuer and its successors and assigns and (b)�inure to the benefit of and be enforceable by the Trustee and by its successors, transferees and assigns and, as and to the extent provided in Section�3.6(b), the Equityholder. The Issuer may not assign any of its obligations under this Indenture or delegate any of its duties hereunder.

Section 12.7 Application to Court. The Trustee may at any time after the service of an Acceleration Notice apply to any court of competent jurisdiction for an order that the terms of this Indenture be carried into execution under the direction of such court and for the appointment of a Receiver of the Collateral or any part thereof and for any other order in relation to the administration of this Indenture as the Trustee shall deem fit, and it may assent to or approve any application to any court of competent jurisdiction made at the instigation of any of the Noteholders and shall be indemnified by the Issuer against all costs, charges and expenses incurred by it in relation to any such application or proceedings.

Section 12.8 GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

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Section 12.9 Jurisdiction.

(a) Each of the parties hereto agrees that the U.S. federal and State of New York courts located in the Borough of Manhattan, The City of New York shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Indenture and, for such purposes, submits to the jurisdiction of such courts. Each of the parties hereto waives any objection that it might now or hereafter have to the U.S. federal or State of New York courts located in the Borough of Manhattan, The City of New York being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Indenture and agrees not to claim that any such court is not a convenient or appropriate forum. Each of the parties hereto has irrevocably designated, appointed and empowered the respective Persons named in Exhibit C as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf, and its properties, assets and revenues, service of any and all legal process, summons, notices and documents that may be served in any suit, action or proceeding brought against such party in any United States or state court arising out of or relating to this Indenture or the Notes. If for any reason any such designee, appointee and agent hereunder shall cease to be available to act as such, such party agrees to designate a new designee, appointee and agent in the Borough of Manhattan, The City of New York on the terms and for the purposes of this Section�12.9 satisfactory to such other party. Each party further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any suit, action or proceeding against such party by serving a copy thereof upon the relevant agent for service of process referred to in this Section�12.9 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by mailing copies thereof by registered or certified mail, postage prepaid, to such party at its address specified in or designated pursuant to this Indenture. Each party agrees that the failure of any such designee, appointee and agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall in any way be deemed to limit the ability of the Issuer or the Trustee and the Noteholders, as the case may be, to serve any such legal process, summons, notices and documents in any other manner permitted by Applicable Law or to obtain jurisdiction over such party or bring suits, actions or proceedings against such party in such other jurisdictions, and in such manner, as may be permitted by Applicable Law.

(b) The submission to the jurisdiction of the courts referred to in Section�12.9(a) shall not (and shall not be construed so as to) limit the right of the Trustee to take proceedings against the Issuer in any other court of competent jurisdiction, nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not.

(c) Each of the parties hereto hereby consents generally in respect of any legal action or proceeding arising out of or in connection with this Indenture to the giving of any relief or the issue of any process in connection with such action or proceeding, including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment that may be made or given in such action or proceeding.

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(d) If, for the purpose of obtaining a judgment or order in any court, it is necessary to convert a sum due hereunder to any Noteholder from Dollars into another currency, the Issuer has agreed, and each Noteholder by holding a Note will be deemed to have agreed, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, such Noteholder could purchase Dollars with such other currency in the Borough of Manhattan, The City of New York on the Business Day preceding the day on which final judgment is given.

(e) The obligation of the Issuer in respect of any sum payable by it to a Noteholder shall, notwithstanding any judgment or order in a currency other than Dollars (the �Judgment Currency�), be discharged only to the extent that, on the Business Day following receipt by such Noteholder of such security of any sum adjudged to be so due in the Judgment Currency, such Noteholder may in accordance with normal banking procedures purchase Dollars with the Judgment Currency. If the amount of Dollars so purchased is less than the sum originally due to such Noteholder in the Judgment Currency (determined in the manner set forth in Section�12.9(d)), the Issuer agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Noteholder against such loss, and, if the amount of the Dollars so purchased exceeds the sum originally due to such Noteholder, such Noteholder agrees to remit to the Issuer such excess, provided that such Noteholder shall have no obligation to remit any such excess as long as the Issuer shall have failed to pay such Noteholder any obligations due and payable under the Notes of such Noteholder, in which case such excess may be applied to such obligations of the Issuer under such Notes in accordance with the terms thereof. The foregoing indemnity shall constitute a separate and independent obligation of the Issuer and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid.

(f) EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS INDENTURE OR ANY MATTER ARISING HEREUNDER.

Section 12.10 Counterparts. This Indenture may be executed in one or more counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument. Any counterpart may be executed by facsimile or other electronic transmission, and such facsimile or other electronic transmission shall be deemed an original.

Section 12.11 Table of Contents and Headings. The Table of Contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 12.12 Trust Indenture Act. This Indenture shall not be qualified under the Trust Indenture Act and shall not be subject to the provisions of the Trust Indenture Act.

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Section 12.13 Confidential Information. The Trustee, in its individual capacity and as Trustee, agrees and acknowledges that all information (including Confidential Information) provided to the Trustee by the Equityholder, the Seller or the Issuer, including any information developed by the Trustee from such provided information, may be considered to be proprietary and confidential information of each of Counterparty, the Equityholder, the Seller and the Issuer. The Trustee agrees to keep such information confidential and to use precautions that shall be no less stringent than those that the Trustee employs to protect its own confidential information, provided, that with respect to any such information that is provided to the Trustee pursuant to any agreement between the Seller and Counterparty, the Trustee shall also be bound by terms of confidentiality and non-use substantially similar to and at least as stringent as those set forth in such agreement. The Trustee shall not disclose to any third party other than as set forth herein, and shall not use for any purpose other than the exercise of the Trustee�s rights and the performance of its obligations under this Indenture, any such information without the prior written consent of the disclosing party. The Trustee shall limit access to such information: (a)�to its directors, officers, managers and employees and its legal advisors; provided, that the Trustee shall cause such directors, officers, managers, employees and legal advisors to keep such information confidential to the same extent as required of the Trustee hereunder and the Trustee shall be wholly responsible for any breach by any such person or entity of the confidentiality provisions hereof applicable to the Trustee; or (b)�to the extent required by Applicable Law; provided, that the Trustee shall promptly give notice to the Equityholder, the Seller and the Issuer of any such required disclosure (if such notice is permitted by Applicable Law), unless such required disclosure is required by a competent regulatory or administrative authority, not related to the Equityholder, the Seller or the Issuer, in connection with a routine audit or review of the Trustee not targeting the Equityholder, the Seller, the Issuer or any of the transactions contemplated by the Transaction Documents; and, in the case of each of clause (a)�and clause (b)�of this sentence, to each of whom disclosure of such information is necessary for the purposes described above, and in each case subject to the terms of that certain undertaking of the Trustee for the benefit of the Placement Agent, the Seller and the Issuer. At any time after the discharge of this Indenture pursuant to Section�11.1, upon the request of the Seller (or the Seller�s successor in interest), the Trustee shall, at the Trustee�s option, return to the Seller or destroy all of such information; provided, that the Trustee may keep such copies of such information as required to comply with Applicable Law or the Trustee�s internal record retention policies.

Each Authorized Agent agrees to be bound by this Section�12.13 to the same extent as the Trustee. Counterparty shall be a third-party beneficiary of, and shall have the right to enforce, the provisions of this Section�12.13.

Section 12.14 Limited Recourse. Each of the parties hereto accepts that the enforceability against the Issuer of the obligations of the Issuer hereunder and under the Notes shall be limited to the assets of the Issuer, whether tangible or intangible, real or personal (including the Collateral) and the proceeds thereof. Once all such assets have been realized upon and such assets (and proceeds thereof) have been applied in accordance with Article III, any outstanding obligations of the Issuer shall be extinguished. For the avoidance of doubt, this Section�12.14 does not affect the obligations of the Equityholder under the Pledge and Security Agreement or the ability of the Trustee or any Noteholder to exercise any rights or remedies it may have under the Pledge and Security Agreement. Each of the parties hereto further agrees that it shall take no action against any employee, director, officer or administrator of the Issuer,

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the Equityholder or the Trustee in relation to this Indenture; provided, that nothing herein shall limit the Issuer (or its permitted successors or assigns, including any party hereto that becomes such a successor or assign) from pursuing claims, if any, against any such Person. The provisions of this Section�12.14 shall survive termination of this Indenture; provided, further, that the foregoing shall not in any way limit, impair or otherwise affect any rights of the Trustee or the Noteholders to proceed against any such Person (a)�for intentional and willful fraud or intentional and willful misrepresentations on the part of or by such Person or (b)�for the receipt of any distributions or payments to which the Issuer or any successor in interest is entitled, other than distributions expressly permitted pursuant to this Indenture and the other Transaction Documents.

Section 12.15 Tax Matters.

(a) The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for all Tax purposes, the Notes will qualify as indebtedness. The Issuer, by entering into this Indenture, and each Noteholder and Beneficial Holder, agree to treat the Notes as indebtedness for all Tax purposes.

(b) The Issuer shall not be obligated to pay any additional amounts to the Noteholders or Beneficial Holders as a result of any withholding or deduction for, or on account of, any present or future Taxes imposed on payments in respect of the Notes. If a Global Note is issued, in accordance with the procedures of DTC, the Issuer shall (or shall direct the Trustee in writing to) request the Notes to be coded as eligible for the �portfolio interest exemption�. Unless otherwise required by Applicable Law, if Definitive Notes are issued, so long as a Person shall have delivered to the Issuer a properly completed IRS Form W-9, IRS Form W-8BEN, IRS Form W-8ECI or other applicable IRS form or, in the case of a Person claiming the exemption from U.S. federal withholding tax under Section�871(h) of the Code or Section�881(c) of the Code with respect to payments of �portfolio interest�, the appropriate properly completed IRS form together with a certificate substantially in the form of Exhibit K, neither the Issuer nor the Trustee shall withhold Taxes on payments of interest made to any such Person. Any such IRS Form W-8BEN shall specify whether the Noteholder or Beneficial Holder to whom the form relates is entitled to the benefits of any applicable income tax treaty.

(c) Provided that the Issuer complies with Section�5.2(u), Section�12.15(a) and Section�12.15(b), if Definitive Notes are issued, (i)�if any withholding Tax is imposed on the Issuer�s payment under the Notes to any Noteholder or Beneficial Holder, such Tax shall reduce the amount otherwise distributable to such Noteholder or Beneficial Holder, as the case may be, (ii)�the Trustee is hereby authorized and directed to retain from amounts otherwise distributable to any Noteholder or Beneficial Holder sufficient funds for the payment of any withholding Tax that is legally owed by the Issuer (but such authorization shall not prevent the Trustee from contesting any such withholding Tax in appropriate proceedings and withholding payment of such Tax, if permitted by Applicable Law, pending the outcome of such proceedings) and (iii)�the amount of any withholding Tax imposed with respect to any Noteholder or Beneficial Holder shall be treated as cash distributed to such Noteholder or Beneficial Holder, as the case may be, at the time it is withheld by the Trustee and remitted to the appropriate taxing authority. Provided that the Issuer complies with Section�5.2(u), Section�12.15(a) and Section�12.15(b), if there is a possibility that withholding Tax is payable with respect to a payment under the Notes, the Trustee may (but shall have no obligation to) withhold such amounts in accordance with this Section�12.15. Nothing herein shall impose an obligation on the part of the Trustee to determine the amount of any Tax or withholding obligation on the part of the Issuer or in respect of the Notes.

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Section 12.16 Waiver. The Issuer waives any right to contest or otherwise assert that the Purchase and Sale Agreement is other than a true, absolute and irrevocable sale and assignment by the Seller to the Issuer of the Purchased Assets under Applicable Law.

Section 12.17 Distribution Reports. Each party hereto acknowledges and agrees that the Trustee may effect delivery of any Distribution Report (including the materials accompanying such Distribution Report) by making such Distribution Report and accompanying materials available by posting such Distribution Report and accompanying materials on IntraLinks or a substantially similar electronic transmission system; provided, however, that, upon written notice to the Trustee, any Noteholder may decline to receive such Distribution Report and accompanying materials via IntraLinks or a substantially similar electronic transmission system, in which case such Distribution Report and accompanying materials shall be provided as otherwise set forth in the Transaction Documents. Subject to the conditions set forth in the proviso in the preceding sentence, nothing in this Section�12.17 shall prejudice the right of the Trustee to make such Distribution Report and accompanying materials available in any other manner specified in the Transaction Documents.

Section 12.18 U.S.A. Patriot Act. The parties hereto acknowledge that, in accordance with Section�326 of the U.S.A. Patriot Act, the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the U.S.A. Patriot Act.

{SIGNATURE PAGE FOLLOWS}

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IN WITNESS WHEREOF, the parties hereto have executed this Indenture to be duly executed, all as of the date first written above.

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ATLAS U.S. ROYALTY, LLC,
��as Issuer

By:	�	Alexza Pharmaceuticals, Inc., its Manager

By:	�	/s/ Mark K. Oki
	�	Name: Mark K. Oki
	�	Title:�� Senior Vice President, Finance and ��Chief Financial Officer

U.S. BANK NATIONAL ASSOCIATION, ��as Trustee and Operating Bank

By:	�	/s/ Alison D.B. N�deau
	�	Name: Alison D.B. N�deau
	�	Title: ��Vice President

SCHEDULE A

CUMULATIVE NET SALES REQUIREMENT, BY QUARTER, FOR ISSUANCE OF

ADDITIONAL CLASS A NOTES

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Calendar Quarter Ending	��	Cumulative Net Sales		�
March�31, 2014	��	$	3,427,097.28	��
June�30, 2014	��	$	10,327,666.74	��
September�30, 2014	��	$	20,748,549.53	��
December�31, 2014	��	$	34,737,057.17	��
March�31, 2015	��	$	50,715,998.60	��
June�30, 2015	��	$	68,960,519.95	��
September�30, 2015	��	$	89,500,531.08	��
December�31, 2015	��	$	112,366,239.98	��
March�31, 2016	��	$	137,482,983.93	��
June�30, 2016	��	$	164,762,152.97	��
September�30, 2016	��	$	194,231,832.63	��
December�31, 2016	��	$	225,920,386.69	��
March�31, 2017	��	$	259,702,681.89	��
June�30, 2017	��	$	295,597,929.47	��
September�30, 2017	��	$	333,633,139.23	��
December�31, 2017	��	$	373,835,586.97	��
March�31, 2018	��	$	416,042,274.46	��
June�30, 2018	��	$	460,267,274.19	��
September�30, 2018	��	$	506,535,921.48	��
December�31, 2018	��	$	554,873,799.42	��
March�31, 2019	��	$	605,094,100.25	��
June�30, 2019	��	$	657,206,199.35	��
September�30, 2019	��	$	711,233,346.67	��
December�31, 2019	��	$	767,199,017.72	��
March�31, 2020	��	$	824,906,998.42	��
June�30, 2020	��	$	884,362,809.35	��
September�30, 2020	��	$	945,587,404.72	��
December�31, 2020	��	$	1,008,601,940.05	��
March�31, 2021	��	$	1,073,137,298.73	��
June�30, 2021	��	$	1,139,195,151.62	��
September�30, 2021	��	$	1,206,793,089.94	��
December�31, 2021	��	$	1,275,948,871.33	��
March�31, 2022	��	$	1,345,663,934.80	��
June�30, 2022	��	$	1,415,921,556.60	��
September�30, 2022	��	$	1,486,725,853.35	��
December�31, 2022	��	$	1,558,080,972.15	��
March�31, 2023	��	$	1,629,991,090.81	��
June�30, 2023	��	$	1,702,386,609.22	��
September�30, 2023	��	$	1,775,270,770.89	��

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December�31, 2023	��	$	1,848,646,840.71	��
March�31, 2024	��	$	1,922,518,105.08	��
June�30, 2024	��	$	1,996,887,872.05	��
September�30, 2024	��	$	2,071,759,471.51	��
December�31, 2024	��	$	2,147,136,255.25	��
March�31, 2025	��	$	2,223,021,597.16	��
June�30, 2025	��	$	2,299,418,893.36	��
September�30, 2025	��	$	2,376,331,562.35	��
December�31, 2025	��	$	2,453,763,045.12	��
March�31, 2026	��	$	2,531,716,805.33	��
June�30, 2026	��	$	2,610,196,329.45	��
September�30, 2026	��	$	2,689,205,126.91	��

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ANNEX A

RULES OF CONSTRUCTION AND DEFINED TERMS

Unless the context otherwise requires, in this Annex A and each Transaction Document (or other document) to which this Annex A is attached:

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(a)	A term has the meaning assigned to it and an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP.

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(b)	Unless otherwise defined, all terms that are defined in the UCC shall have the meanings stated in the UCC.

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(c)	Words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders.

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(d)	The definitions of terms shall apply equally to the singular and plural forms of the terms defined.

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(e)	The terms �include�, �including� and similar terms shall be construed as if followed by the phrase �without limitation�.

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(f)

Unless otherwise specified, references to an agreement or other document include references to such agreement or document as from time to time amended, restated, reformed, supplemented or otherwise modified in accordance with the terms thereof (subject to any restrictions on such amendments, restatements, reformations, supplements or modifications set forth in this Annex A or any Transaction Document (or other document)) and include any Annexes, Exhibits and Schedules attached thereto.

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(g)	References to any Applicable Law shall include such Applicable Law as from time to time in effect, including any amendment, modification, codification, replacement or reenactment thereof or any substitution therefor.

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(h)

References to any Person shall be construed to include such Person�s successors and permitted assigns (subject to any restrictions on assignment, transfer or delegation set forth in this Annex A or any Transaction Document (or other document)), and any reference to a Person in a particular capacity excludes such Person in other capacities.

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(i)	The word �will� shall be construed to have the same meaning and effect as the word �shall�.

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(j)

The words �hereof�, �herein�, �hereunder� and similar terms when used in this Annex A or any Transaction Document (or other document) shall refer to this Annex A or such Transaction Document (or other document) as a whole and not to any particular provision hereof or thereof, and Article, Section, Annex, Schedule and Exhibit references herein and therein are references to Articles and Sections of, and Annexes, Schedules and Exhibits to, the relevant Transaction Document (or other document) unless otherwise specified.

(k)	In the computation of a period of time from a specified date to a later specified date, the word �from� means �from and including� and each of the words �to� and �until� means �to but excluding�.

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(l)	References to a class of Notes shall be to the Original Class�A Notes and the Additional Class�A Notes considered together, to a class of Subordinated Notes or to a class of Refinancing Notes, as applicable.

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(m)

References to any action, remedy or method of judicial proceeding for the enforcement of the rights of creditors or of security shall be deemed to include, in respect of any jurisdiction other than the State of New York, references to such action, remedy or method of judicial proceeding for the enforcement of the rights of creditors or of security available or appropriate in such jurisdiction as shall most nearly approximate such action, remedy or method of judicial proceeding described or referred to in the relevant Transaction Document (or other document).

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(n)

Where any payment is to be made, any funds are to be applied or any calculation is to be made under any Transaction Document (or other document) on a day that is not a Business Day, unless any Transaction Document (or other document) otherwise provides, such payment shall be made, such funds shall be applied and such calculation shall be made on the succeeding Business Day, and payments shall be adjusted accordingly, including interest unless otherwise specified; provided, however, that no interest shall accrue in respect of any payments made on Fixed Rate Notes on that succeeding Business Day.

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(o)	References to any Calculation Date or Relevant Calculation Date, in each case that would be prior to the first Calculation Date that follows the Closing Date, shall be deemed to refer to the Closing Date.

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(p)

Any reference herein to a term that is defined by reference to its meaning in the Counterparty License Agreement shall refer to such term�s meaning in the Counterparty License Agreement as in existence on the date of the relevant Transaction Document (or other document) to which this Annex A is attached (and not to any new, substituted or amended version thereof).

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�144A Global Note� has the meaning set forth in Section�2.1(b) of the Indenture.

�Acceleration Default� means any Event of Default of the type described in Section�4.1(f) of the Indenture.

�Acceleration Notice� means a written notice given after the occurrence and during the continuation of an Event of Default to the Issuer by the Senior Trustee pursuant to Section�4.2 of the Indenture declaring all Outstanding principal of and accrued and unpaid interest on the Notes to be immediately due and payable.

�Accounts� means the Collection Account, the Redemption Account, the Capital Account, the Interest Reserve Account and any other account established pursuant to Section�3.1 of the Indenture.

�Act� has the meaning set forth in Section�1.3(a) of the Indenture.

�Additional Class�A Notes� means the Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 of the Issuer, if any, substantially in the form of Exhibit A to the Indenture, issued pursuant to Section�2.1(g) of the Indenture.

�Additional Interest� means, with respect to the Notes, interest accrued on the amount of any interest and Premium, if any, in respect of such Notes that is not paid when due at the Stated Rate of Interest of such Notes for each Interest Accrual Period until any such unpaid interest or Premium is paid in full, compounded quarterly on each Payment Date, to the fullest extent permitted by Applicable Law.

�Affiliate� means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, �control� of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Securities, by contract or otherwise, and the terms �controlled� and �controlling� have meanings correlative to the foregoing.

�Agent Members� has the meaning set forth in Section�2.10(a) of the Indenture.

�Alexza Technology� has the meaning set forth in Section�1.6 of the Counterparty License Agreement.

�Applicable Law� means, with respect to any Person, all laws, rules, regulations and orders of Governmental Authorities applicable to such Person or any of its properties or assets.

�Applicants� has the meaning set forth in Section�6.12 of the Indenture.

�Authorized Agent� means, with respect to the Notes, any authorized Calculation Agent, Paying Agent or Registrar acting as such for the Notes.

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�Available Collections Amount� means, for any Payment Date, the sum of (a)�the amount of Dollars on deposit in the Collection Account as of the Calculation Date preceding such Payment Date and (b)�the amount of any investment income on amounts on deposit in the Accounts (other than the Capital Account) as of such Calculation Date.

�Bankruptcy Code� means Title 11 of the United States Code, as amended.

�Beneficial Holder� means any Person that holds a Beneficial Interest in any Global Note through an Agent Member.

�Beneficial Interest� means any beneficial interest in any Global Note, whether held directly by an Agent Member or held indirectly through an Agent Member�s beneficial interest in such Global Note.

�Bill of Sale� means that certain bill of sale dated as of the Closing Date executed by the Seller and the Issuer.

�Business Day� means (a)�any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by Applicable Law to remain closed or a day on which the Corporate Trust Office is closed for business and (b)�for purposes of the definition of Reference Date for any series or class of Floating Rate Notes whose interest rate is based on the London interbank offered rate, any day described in clause (a)�on which dealings in Dollars are carried on in the London interbank market.

�Calculation Agent� means U.S. Bank National Association, a national banking association, as Calculation Agent under the Indenture, and any successor appointed pursuant to Section�7.2 of the Indenture.

�Calculation Date� means, for any Payment Date, the fifth Business Day preceding such Payment Date.

�Calculation Date Information� means, with respect to any Calculation Date, the information provided by the Servicer under Sections 3.1(c)(i), 3.1(c)(ii) and 3.1(c)(vi) of the Servicing Agreement with respect to such Calculation Date.

�Calculation Report� has the meaning set forth in Section�3.4(b) of the Indenture.

�Capital Account� has the meaning set forth in Section�3.1(a) of the Indenture.

�Capital Securities� means, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person�s capital, whether now outstanding or issued after the Closing Date, including common shares, ordinary shares, preferred shares, membership interests or share capital in a limited liability company or other Person, limited or general partnership interests in a partnership, beneficial interests in trusts or any other equivalent of such ownership interest or any options, warrants and other rights to acquire such shares or interests, including rights to allocations and distributions, dividends, redemption payments and liquidation payments, but in any event excluding any membership interest in the Issuer held by the Independent Member.

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�Change in Law� means the occurrence, after the Closing Date, of any of the following: (a)�the adoption or taking effect of any Applicable Law or treaty; (b)�any change in any Applicable Law or treaty or in the administration, interpretation or application thereof by any Governmental Authority whether or not such change can be relied on as precedent; or (c)�the making or issuance of any guideline, directive, private ruling or administrative guidance (whether or not having the force of law) by any Governmental Authority (including any IRS private letter ruling or field service advisory).

�Change of Control� means, with respect to the Equityholder (or any parent entity of the Equityholder), any merger, consolidation or amalgamation (or any transaction substantially similar to any of the foregoing) with, or, in the case of clause (a)�below, a sale of all or substantially all of the assets of such Equityholder (or such parent entity) to, any other Person if such Equityholder (or such parent entity) (a)�is not the continuing or surviving entity but the continuing or surviving entity shall have assumed, either expressly or by operation of law, all of the obligations of such Equityholder under the Transaction Documents to which such Equityholder is a party immediately prior to such transaction or (b)�is the continuing or surviving entity.

�Class A Notes� means the Original Class�A Notes, any Additional Class�A Notes and any Refinancing Notes issued to refinance the foregoing.

�Clearstream� means Clearstream Banking, a French soci�t� anonyme.

�Closing Date� means March�18, 2014.

�Closing Day Accounts� has the meaning set forth in Section�3.1(b) of the Indenture.

�Code� means the U.S. Internal Revenue Code of 1986, as amended, and the regulations thereunder.

�Collateral� has the meaning set forth in the Granting Clause of the Indenture.

�Collection Account� has the meaning set forth in Section�3.1(a) of the Indenture.

�Collections� means, without duplication, (a)�the Payments, (b)�any net investment income on amounts on deposit in the Accounts (other than the Capital Account) and (c)�any other amounts received by the Issuer (other than the proceeds of any Notes and capital contributions from the Equityholder), including any amounts payable to the Issuer pursuant to Article VI of the Purchase and Sale Agreement in respect of the Purchased Assets.

�Confidential Information� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

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�Confidentiality Agreement� means, with respect to Noteholders or Beneficial Holders at the Closing Date with respect to the Original Class�A Notes (or, with respect to Noteholders or Beneficial Holders with respect to any Additional Class�A Notes, any Subordinated Notes or any Refinancing Notes), a confidentiality agreement for the benefit of the Issuer provided to the Registrar on or prior to the Closing Date (or on or prior to the date of issuance of any such Additional Class�A Notes, Subordinated Notes or Refinancing Notes), and otherwise means a confidentiality agreement for the benefit of the Issuer substantially in the form of Exhibit�B to the Indenture or substantially in the form of any confidentiality agreement referenced in Schedule 1 to an applicable Purchase Agreement.

�Corporate Trust Office� means the office of the Trustee in the city at which at any particular time the Trustee�s duties under the Transaction Documents shall be principally administered and, on the Closing Date, shall be U.S. Bank National Association, One Federal Street, 3rd Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC).

�Counterparty� means Teva Pharmaceuticals USA, Inc., a Delaware corporation.

�Counterparty Instruction� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

�Counterparty License Agreement� means that certain License and Supply Agreement dated as of May�7, 2013 between the Seller and Counterparty.

�Default� means a condition, event or act that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

�Definitive Notes� has the meaning set forth in Section�2.1(b) of the Indenture.

�Direction� means any direction, consent, request, demand, authorization, notice, waiver or other Act.

�Distribution Report� has the meaning set forth in Section�2.13(a) of the Indenture.

�Dollar� or the sign �$� means United States dollars.

�DTC� means The Depository Trust Company, its nominees and their respective successors.

�Eligibility Requirements� has the meaning set forth in Section�2.3(c) of the Indenture.

�Eligible Account� means a trust account maintained on the books and records of an Eligible Institution in the name of the Issuer.

�Eligible Institution� means any bank organized under the laws of the U.S. or any state thereof or the District of Columbia (or any domestic branch of a foreign bank), which at all times has either (a)�a long-term unsecured debt rating of at least A2 by Moody�s and A by S&P or (b)�a certificate of deposit rating of at least P-1 by Moody�s and A-1 by S&P.

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�Eligible Investments� means, in each case, book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form that evidence:

(a) direct obligations of, and obligations fully Guaranteed as to timely payment of principal and interest by, the U.S. or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the U.S. (having original maturities of no more than 365 days or such lesser time as is required for the distribution of funds);

(b) demand deposits, time deposits or certificates of deposit of the Operating Bank or of depositary institutions or trust companies organized under the laws of the U.S. or any state thereof or the District of Columbia (or any domestic branch of a foreign bank) with capital and surplus of not less than $500,000,000 (i)�having original maturities of no more than 365 days or such lesser time as is required for the distribution of funds; provided, that, at the time of investment or contractual commitment to invest therein, the short-term debt rating of such depositary institution or trust company shall be at least P-1 by Moody�s and A-1 by S&P or (ii)�having maturities of more than 365 days (to the extent a lesser time is not required for the distribution of funds) and, at the time of the investment or contractual commitment to invest therein, a rating of at least A2 by Moody�s and A by S&P;

(c) corporate or municipal debt obligations (i)�having remaining maturities of no more than 365 days or such lesser time as is required for the distribution of funds and having, at the time of the investment or contractual commitment to invest therein, a rating of at least P-1 or A2 by Moody�s and A-1 or A by S&P or (ii)�having remaining maturities of more than 365 days (to the extent a lesser time is not required for the distribution of funds) and, at the time of the investment or contractual commitment to invest therein, a rating of at least A2 by Moody�s and A by S&P; or

(d) investments in money market funds (including funds in respect of which the Trustee or any of its Affiliates is an investment manager or otherwise) having a rating of at least A2 by Moody�s and Am by S&P;

provided, however, that no investment shall be made in any obligations of any depositary institution or trust company that is identified in a written notice to the Trustee from the Issuer or the Servicer as having a contractual right to set off and apply any deposits held, or other indebtedness owing, by the Issuer to or for the credit or the account of such depositary institution or trust company, unless such contractual right by its terms expressly excludes all Eligible Investments.

�Equityholder� means one or more holders of Capital Securities of the Issuer. The only Equityholder as of the Closing Date is the Seller.

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�ERISA� means the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

�ERISA Affiliate� means any trade or business that is treated as a single employer with the Issuer or the Seller under Section�414 of the Code.

�Euroclear� means Euroclear Bank S.A./N.V., as operator of the Euroclear system.

�Event of Default� has the meaning set forth in Section�4.1 of the Indenture.

�Exchange Act� means the U.S. Securities Exchange Act of 1934, as amended, and the regulations thereunder.

�Expenses� means any and all reasonable out-of-pocket fees, costs and expenses of the Issuer, including the reasonable fees, costs, expenses and indemnities of the Service Providers (provided, that, with respect to the Servicer, such expenses shall be limited to the Servicing Fee and reasonable out-of-pocket costs and expenses), reasonable and customary directors and officers liability insurance for any directors and officers of the Issuer, the fees and out-of-pocket expenses of the Independent Member and of counsel to the Independent Member, the Trustee and the Issuer incurred after the Closing Date in connection with the transactions contemplated by the Transaction Documents, the fees and expenses of any nationally recognized independent public accounting firm engaged as auditors of the Issuer, any expenses incurred in connection with the exercise of audit rights at the direction of the Noteholders pursuant to Section�6.13(a) of the Indenture or otherwise by the Issuer (including any fees and expenses incurred by any accounting firm in connection with auditing the records of Counterparty), any payments by the Issuer to third parties in respect of obligations for which indemnification payments have been received from the Seller or Counterparty and the fees and expenses of any consultants engaged by, or on behalf of, the Issuer; provided, however, that, except as expressly provided in the Indenture, Expenses shall not include any Transaction Expenses, any Servicing Fee to the extent greater than $25,000 per quarter, any amounts payable on the Notes pursuant to Section�3.6(a)(i), 3.6(a)(iii) and 3.6(a)(iv) of the Indenture or any principal, Premium or interest relating to the Subordinated Notes.

�FDA� means the U.S. Food and Drug Administration and any successor agency thereto.

�Field� has the meaning set forth in Section�1.42 of the Counterparty License Agreement.

�Final Legal Maturity Date� means, with respect to (a)�the Original Class�A Notes and any Additional Class�A Notes, March�15, 2027, and (b)�with respect to any class or series of Subordinated Notes or Refinancing Notes, the date specified in the indenture supplemental to the Indenture providing for their issuance; provided, that the Final Legal Maturity Date with respect to any Subordinated Notes where the proceeds thereof are not used to redeem or refinance all of the Outstanding Class�A Notes and any Additional Class�A Notes shall be no earlier than March�15, 2027.

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�Fixed Rate Notes� means (a)�the Original Class�A Notes and any Additional Class�A Notes and (b)�any Subordinated Notes or Refinancing Notes issued with a fixed rate of interest.

�Floating Rate Notes� means any Subordinated Notes or Refinancing Notes issued with a floating or variable rate of interest.

�GAAP� means generally accepted accounting principles in effect in the United States from time to time.

�Global Notes� means any 144A Global Notes and Regulation S Global Notes.

�Governmental Authority� means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority (including supranational authority), commission, instrumentality, regulatory body, court, central bank or other Person exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including each Patent Office, the FDA and any other government authority in any jurisdiction.

�Guarantee� means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a)�to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness or other obligation of such other Person or (b)�entered into for purposes of assuring in any other manner the obligee of such indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, that the term �Guarantee� shall not include endorsements for collection or deposit in the ordinary course of business. The term �Guarantee� when used as a verb has a corresponding meaning.

�Incur� has the meaning set forth in Section�5.2(d) of the Indenture.

�Indemnitee� has the meaning set forth in Section�19.1 of the Pledge and Security Agreement.

�Indemnitees� has the meaning set forth in Section�19.1 of the Pledge and Security Agreement.

�Indenture� means that certain indenture, dated as of the Closing Date, by and between the Issuer and the Trustee.

�Independent Member� means a member of the Issuer (i)�who is not at the time of such Person�s admission to the Issuer, (ii)�who is not and (iii)�who has not been at any time during the preceding five years: (a)�a director, manager, officer or employee of the Issuer or an Equityholder (other than in the capacity of Independent Member) or any Affiliate of the Issuer or an Equityholder (other than in the capacity of Independent Member); (b)�a Person related to any officer, director, manager or employee of the Issuer or an Equityholder (other than in the capacity of Independent Member) or any Affiliate of the Issuer or an Equityholder (other than in the

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capacity of Independent Member); (c)�a holder (directly or indirectly) of any Voting Securities of the Issuer or an Equityholder or any Affiliate of the Issuer or an Equityholder (other than in the capacity of Independent Member); (d)�a Person related to a holder (directly or indirectly) of any Voting Securities of the Issuer or an Equityholder or any Affiliate of the Issuer or an Equityholder (other than in the capacity of Independent Member); (e)�a creditor, supplier, contractor, purchaser, customer or any other Person who derives any of his, her or its revenues from interactions with the Issuer (other than fees payable to the Independent Member for its services as the Independent Member) or an Equityholder or any Affiliate of the Issuer or an Equityholder or a family member of such creditor, supplier, contractor, purchaser, customer or other Person; (f)�a trustee in bankruptcy or other insolvency proceeding for, or a reorganization of, an Equityholder or any Affiliate of an Equityholder; or (g)�a Person who controls (directly or indirectly) the Issuer or an Equityholder or any Affiliate of the Issuer or an Equityholder or any creditor, supplier, employee, officer, director, manager or contractor of the Issuer or an Equityholder or any Affiliate of the Issuer or an Equityholder.

�Initial Interest Reserve Amount� means $6,890,625.00.

�Initial Notice� has the meaning set forth in Section�4.17(a) of the Indenture.

�Institutional Accredited Investor� means a Person that is an accredited investor as that term is defined in Rule 501(a)(1), (2), (3)�or (7)�under the Securities Act.

�Interest Accrual Period� means the period beginning on (and including) the Closing Date (or, with respect to Additional Class�A Notes, the date of issuance of such Additional Class�A Notes or the Payment Date immediately preceding such date of issuance and, with respect to any Subordinated Notes or any Refinancing Notes, the date of issuance of such Subordinated Notes or Refinancing Notes) and ending on (but excluding) the first Payment Date thereafter and each successive period beginning on (and including) a Payment Date and ending on (but excluding) the succeeding Payment Date (or, if earlier, with respect to any class of Notes repaid in full, the date such class of Notes is repaid in full).

�Interest Amount� means, with respect to the Outstanding Principal Balance of any class of Notes, on any Payment Date, the amount of accrued and unpaid interest at the Stated Rate of Interest with respect to the Outstanding Principal Balance of such class of Notes on such Payment Date (including any Additional Interest, if any), determined in accordance with the terms thereof (including interest accruing after the commencement of a proceeding in bankruptcy, insolvency or similar Applicable Law, whether or not permitted as a claim under such Applicable Law).

�Interest Reserve Account� has the meaning set forth in Section�3.1(a) of the Indenture.

�Interest Shortfall� has the meaning set forth in Section�3.4(a)(ix) of the Indenture.

�Investment Company Act� means the U.S. Investment Company Act of 1940, as amended, and the regulations thereunder.

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�Involuntary Bankruptcy� means, without the consent or acquiescence of the Issuer, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar Applicable Law, or the filing of any such petition against the Issuer, or, without the consent or acquiescence of the Issuer, the entering of an order appointing a trustee, custodian, receiver or liquidator of the Issuer or of all or any substantial part of the property of the Issuer, in each case where such petition or order shall remain unstayed or shall not have been stayed or dismissed within 90 days from entry thereof.

�IRS� means the U.S. Internal Revenue Service.

�Issuer� means Atlas U.S. Royalty, LLC, a Delaware limited liability company, as issuer of the Notes pursuant to the Indenture.

�Issuer Organizational Documents� means the certificate of formation of the Issuer dated as of December�17, 2013 and the limited liability company agreement of the Issuer dated as of the Closing Date.

�Issuer Pledged Collateral� has the meaning set forth in Section�2.1 of the Pledge and Security Agreement.

�Issuer Pledged Equity� has the meaning set forth in Section�2.1(a) of the Pledge and Security Agreement.

�Judgment Currency� has the meaning set forth in Section�12.9(e) of the Indenture.

�Legend� has the meaning set forth in Section�2.2 of the Indenture.

�Lien� means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property or other priority or preferential arrangement of any kind or nature whatsoever, in each case to secure payment of a debt or performance of an obligation, including any conditional sale or any sale with recourse.

�Loss� means any loss, assessment, award, cause of action, claim, charge, cost, expense (including reasonable out-of-pocket expenses of investigation and reasonable attorneys� fees), fine, judgment, liability, obligation, penalty, set-off, off-set, rescission, counterclaim, reduction, deduction or defense, other than Taxes.

�Manager� means the manager of the Issuer.

�Material Adverse Change� means any event, circumstance or change that would reasonably be expected to result, individually or in the aggregate, in a material adverse effect, in any respect, on (a)�the legality, validity or enforceability of any of the Transaction Documents, the Counterparty License Agreement or the back-up security interest granted pursuant to Section�2.1(d)

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of the Purchase and Sale Agreement, (b)�the right or ability of the Seller (or any permitted assignee), the Issuer or the Servicer to perform any of its obligations under any of the Transaction Documents or the Counterparty License Agreement, in each case to which it is a party, or to consummate the transactions contemplated under any of the Transaction Documents, (c)�the rights or remedies of the Issuer under any of the Transaction Documents or the Counterparty License Agreement, (d)�the value of the Purchased Assets or (e)�the ability of the Trustee to realize the practical benefit of the Pledge and Security Agreement (including any failure to have a perfected Lien on any of the Issuer Pledged Collateral as required by the Indenture).

�Memorandum� means the private placement memorandum of the Issuer for the Original Class�A Notes dated March�3, 2014.

�Milestone Payments� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

�Moody�s� means Moody�s Investors Service, Inc. and any successor to its rating agency business or, if such corporation or its successor shall for any reason no longer perform the functions of a rating agency, �Moody�s� shall be deemed to refer to any other nationally recognized statistical rating organization (within the meaning ascribed thereto by the Exchange Act) designated by the Issuer.

�Net Sales� has the meaning set forth in Section�1.68 of the Counterparty License Agreement.

�New Arrangement� has the meaning set forth in Section�4.6(a) of the Purchase and Sale Agreement.

�Nomination Period� has the meaning set forth in Section�4.17(a) of the Indenture.

�Nominee� has the meaning set forth in Section�4.17(a) of the Indenture.

�Non-U.S. Person� means a person who is not a U.S. person within the meaning of Regulation S.

�Noteholder� means any Person in whose name a Note is registered from time to time in the Register for such Note.

�Note Purchase Price� has the meaning set forth in Section�3.1 of the Purchase Agreements.

�Note Purchasers� has the meaning set forth in Section�1.1 of the Purchase Agreements.

�Notes� means the Original Class�A Notes, any Additional Class�A Notes, any Subordinated Notes and any Refinancing Notes.

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�Notices� means notices, demands, certificates, requests, directions, instructions and communications.

�Observer� has the meaning set forth in Section�4.17(a) of the Indenture.

�Officer�s Certificate� means a certificate signed by, with respect to the Issuer, a Responsible Officer of the Issuer and, with respect to any other Person, any officer, director, manager, partner, trustee or equivalent representative of such Person.

�Operating Bank� means U.S. Bank National Association, a national banking association, or any other Eligible Institution at which the Accounts are held; provided, that (a)�in the event the Trustee is the Operating Bank, upon the resignation or removal and the replacement of the Trustee pursuant to the terms of the Indenture, the successor trustee appointed thereunder shall be the Operating Bank, and (b)�if at any time the Operating Bank ceases to be an Eligible Institution, a successor shall be appointed by the Issuer (or the Servicer) on behalf of the Trustee and, in the case of both clauses (a)�and (b), all Accounts shall thereafter be transferred to and be maintained at such successor in the name of the Issuer and such successor shall thereafter be the �Operating Bank�.

�Opinion of Counsel� means a written opinion signed by legal counsel, who may be an employee of or counsel to the Issuer or the Seller, that meets the requirements of Section�1.2 of the Indenture.

�Optional Redemption� has the meaning set forth in Section�3.8(b) of the Indenture.

�Original Class�A Notes� means the Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 of the Issuer in the initial Outstanding Principal Balance of $45,000,000, substantially in the form of Exhibit A to the Indenture.

�Other Agreements� has the meaning set forth in Section�3.1 of the Purchase Agreements.

�Other Note Purchasers� has the meaning set forth in Section�3.1 of the Purchase Agreements.

�Other Prices� has the meaning set forth in Section�3.1 of the Purchase Agreements.

�Outstanding� means (a)�with respect to the Notes of any class at any time, all Notes of such class theretofore authenticated and delivered by the Trustee except (i)�any such Notes cancelled by, or delivered for cancellation to, the Trustee, (ii)�any such Notes, or portions thereof, for the payment of principal of and accrued and unpaid interest on which moneys have been distributed to Noteholders by the Trustee and any such Notes, or portions thereof, for the payment or redemption of which moneys in the necessary amount have been deposited in the Redemption Account for such Notes; provided, that, if such Notes are to be redeemed prior to the maturity thereof in accordance with the requirements of Section�3.8 of the Indenture, written notice of such Redemption shall have been given and not rescinded as provided in Section�3.9 of

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the Indenture, or provision satisfactory to the Trustee shall have been made for giving such written notice, and, if Redemption does not occur, then this clause (ii)�ceases to apply as of the intended Redemption Date, and (iii)�any such Notes in exchange or substitution for which other Notes, as the case may be, have been authenticated and delivered, or which have been paid pursuant to the terms of the Indenture (unless proof satisfactory to the Trustee is presented that any of such Notes is held by a Person in whose hands such Note is a legal, valid and binding obligation of the Issuer), and (b)�when used with respect to any other evidence of indebtedness, at any time, any principal amount thereof then unpaid and outstanding (whether or not due or payable).

�Outstanding Principal Balance� means, with respect to any Note or other evidence of indebtedness Outstanding, at any time of determination, the total principal amount of such Note or other evidence of indebtedness unpaid and Outstanding at such time, as determined in the case of the Notes in the Calculation Report to be provided to the Issuer (or the Servicer) and the Trustee by the Calculation Agent pursuant to Section�3.4 of the Indenture.

�Patent� means any pending or issued patent or continuation, continuation in part, division, extension or reissue thereof.

�Patent Office� means the applicable patent office, including the United States Patent and Trademark Office and any comparable foreign office, for any of the Alexza Technology that is a Patent.

�Paying Agent� has the meaning set forth in Section�2.3(a) of the Indenture.

�Payment Date� means each March�15,�June�15,�September�15 and December�15, commencing June�15, 2014 and including the Final Legal Maturity Date; provided, that, if any such date would otherwise fall on a day that is not a Business Day, the Payment Date falling on such date shall be the first following day that is a Business Day.

�Payments� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

�Permanent Regulation S Global Note� has the meaning set forth in Section�2.1(b) of the Indenture.

�Permitted Holder� means (a)�the Seller, (b)�the Issuer and (c)�any Person that has executed a Confidentiality Agreement and delivered such Confidentiality Agreement to the Registrar in accordance with the terms of the Indenture.

�Permitted Lien� means (a)�any lien for Taxes, assessments and governmental charges or levies not yet due and payable or that are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of the relevant Person, (b)�any Lien created in favor of the Trustee and (c)�any other Lien created under or expressly permitted under the Transaction Documents (including any security interest created or required to be created under the Indenture, including in connection with the issuance of any Additional Class�A Notes, any Subordinated Notes and any Refinancing Notes).

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�Person� means any natural person, firm, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other legal entity, including public bodies, whether acting in an individual, fiduciary or other capacity.

�Placement Agent� means Morgan Stanley�& Co. LLC.

�Plan� means an employee benefit plan subject to Title I of ERISA, an individual retirement account or annuity subject to Section�4975 of the Code or any other employee benefit plan (within the meaning of Section�3(3) of ERISA), whether or not subject to ERISA.

�Plan Assets� has the meaning given to such term by Section�3(42) of ERISA and regulations issued by the U.S. Department of Labor, but also includes assets of an employee benefit plan (within the meaning of Section�3(3) of ERISA) subject to Similar Laws.

�Pledge and Security Agreement� means that certain pledge and security agreement dated as of the Closing Date made by the Equityholder to the Trustee.

�Premium� means, with respect to any Note on any Redemption Date, any Redemption Premium, if applicable, or, with respect to any Redemption Date, the portion of the Redemption Price of the Notes being redeemed in excess of the Outstanding Principal Balance of the Notes being redeemed.

�Price� has the meaning set forth in Section�3.1 of the Purchase Agreements.

�Product� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

�Purchase Agreement� means that certain note purchase agreement dated the Closing Date among the Issuer, the Seller and the Purchaser party thereto.

�Purchase Agreements� means, collectively, each Purchase Agreement and the Other Agreements.

�Purchase and Sale Agreement� means that certain purchase and sale agreement dated as of the Closing Date between the Seller and the Issuer.

�Purchased Assets� has the meaning set forth in Section�1.1 of the Purchase and Sale Agreement.

�Purchase Price� has the meaning set forth in Section�2.2 of the Purchase and Sale Agreement.

�Purchaser� has the meaning set forth in Section�1.1 of the Purchase Agreements.

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�Purchaser Indemnified Party� has the meaning set forth in Section�6.1 of the Purchase and Sale Agreement.

�QIB� means a qualified institutional buyer within the meaning of Rule 144A.

�Receiver� means any Person or Persons appointed as (and any additional Person or Persons appointed or substituted as) administrative receiver, receiver, manager or receiver and manager.

�Record Date� means, with respect to each Payment Date, the close of business on the fifteenth day preceding such Payment Date and, with respect to the date on which any Direction is to be given by the Noteholders, the close of business on the last Business Day prior to the solicitation of such Direction.

�Redemption� means any Optional Redemption and any other redemption of Notes described in Section�3.8(c) of the Indenture.

�Redemption Account� has the meaning set forth in Section�3.1(a) of the Indenture.

�Redemption Date� means the date, which may be any Business Day, on which Notes are redeemed pursuant to a Redemption; provided, however, that such Business Day in respect of the Original Class�A Notes and any Additional Class�A Notes may not be earlier than the later of (a)�March�19, 2016 and (b)�the Payment Date following the Payment Date on which the Milestone Payment of $15,000,000 related to the successful completion of FDA mandated studies for the Product has been applied to the payment of interest on and principal of the Notes pursuant to Section�3.6(a) of the Indenture.

�Redemption Premium� means, in the case of any Subordinated Notes or Refinancing Notes, the amount, if any, specified in the Resolution and set forth in any indenture supplemental to the Indenture to be paid in the event of a Redemption of such Subordinated Notes or Refinancing Notes separately from the Redemption Price.

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�Redemption Price� means (a)�in respect of an Optional Redemption of the Original Class�A Notes and any Additional Class�A Notes on any Redemption Date, an amount equal to the product of (x)�the applicable Class�A Redemption Percentage as set forth below and (y)�the Outstanding Principal Balance of the Original Class�A Notes and any Additional Class�A Notes that are being redeemed on such Redemption Date, plus the accrued and unpaid interest to the Redemption Date on the Original Class�A Notes and any Additional Class�A Notes that are being redeemed:

�


Redemption Date	��	Class�A�Redemption�Percentage		�
From and including March�19, 2016 to and including March�18, 2017	��	�	110.0000	%�
From and including March�19, 2017 to and including March�18, 2018	��	�	106.1250	%�
From and including March�19, 2018 to and including March�18, 2019	��	�	103.0625	%�
From and including March�19, 2019 and thereafter	��	�	100.0000	%�

and (b)�in respect of any Subordinated Notes or Refinancing Notes, the redemption price, if any, plus the accrued and unpaid interest to the Redemption Date on the Subordinated Notes or Refinancing Notes, as the case may be, established by or pursuant to one or more Resolutions and set forth in any indenture supplemental to the Indenture providing for the issuance of such Notes or designated as such in the form of such Notes (any such Redemption Price in respect of any Subordinated Notes or Refinancing Notes may include a Redemption Premium, and any such Resolution and indenture supplemental to the Indenture may specify a separate Redemption Premium).

�Reference Date� means, with respect to each Interest Accrual Period for any Floating Rate Notes, the day that is two Business Days prior to the Payment Date on which such Interest Accrual Period commences; provided, however, that the Reference Date with respect to the initial Interest Accrual Period means the date that is two Business Days prior to the date of issuance of such Subordinated Notes or Refinancing Notes.

�Refinancing� has the meaning set forth in Section�2.15(a) of the Indenture.

�Refinancing Expenses� means all Transaction Expenses incurred in connection with an offering and issuance of Refinancing Notes.

�Refinancing Notes� means any series or class (or sub-class) of Notes issued by the Issuer under the Indenture at any time and from time to time after the Closing Date pursuant to Section�2.15 of the Indenture, the proceeds of which are used to refinance all, but not part, of the Outstanding Principal Balance of a class of Notes.

�Register� has the meaning set forth in Section�2.3(a) of the Indenture.

�Registrar� has the meaning set forth in Section�2.3(a) of the Indenture.

�Regulation S� means Regulation S under the Securities Act.

�Regulation S Global Note Exchange Date� means the date of exchange of any Temporary Regulation S Global Note for any Permanent Regulation S Global Note, which date shall be 40 days after the Closing Date (or, with respect to any Additional Class�A Notes, any Subordinated Notes or any Refinancing Notes, 40 days after the date of issuance of such Additional Class�A Notes, Subordinated Notes or Refinancing Notes).

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�Regulation S Global Notes� has the meaning set forth in Section�2.1(b) of the Indenture.

�Relevant Calculation Date� has the meaning set forth in Section�3.4(a) of the Indenture.

�Relevant Information� means any information provided to the Trustee, the Calculation Agent or the Paying Agent in writing by any Service Provider retained from time to time by the Issuer pursuant to the Transaction Documents.

�Representatives� has the meaning set forth in Section�17.3 of the Purchase Agreements.

�Resolution� means a copy of a resolution certified by a Responsible Officer of the Issuer as having been duly adopted by the Issuer and being in full force and effect on the date of such certification.

�Responsible Officer� means (a)�with respect to the Trustee, any officer within the Corporate Trust Office, including any principal, vice president, managing director, director, manager, associate or other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer�s knowledge and familiarity with the particular subject, (b)�with respect to the Seller, any officer of the Seller, and (c)�with respect to the Issuer, any officer of the Manager or person designated by the governing body of the Manager as a Responsible Officer for purposes of the Transaction Documents.

�Rule 144A� means Rule 144A under the Securities Act.

�S&P� means Standard�& Poor�s Ratings Services, a Standard�& Poor�s Financial Services LLC business, and any successor thereto or, if such division or its successor shall for any reason no longer perform the functions of a rating agency, �S&P� shall be deemed to refer to any other nationally recognized statistical rating organization (within the meaning ascribed thereto by the Exchange Act) designated by the Issuer.

�SEC� means the U.S. Securities and Exchange Commission.

�Secured Obligations� has the meaning set forth in the Granting Clause of the Indenture.

�Securities Act� means the U.S. Securities Act of 1933, as amended, and the regulations thereunder.

�Security Interest� means the security interest granted or expressed to be granted in the Collateral pursuant to the Granting Clause of the Indenture and in the Issuer Pledged Collateral pursuant to the Pledge and Security Agreement.

�Seller� means Alexza Pharmaceuticals, Inc., a Delaware corporation.

�Senior Claim� has the meaning set forth in Section�10.1(a) of the Indenture.

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�Senior Class of Notes� means (a)�so long as any Class�A Notes are Outstanding, the Class�A Notes, or (b)�if no Class�A Notes are Outstanding, the class or classes (or sub-class or sub-classes) of Subordinated Notes defined as such pursuant to the Resolution(s) and/or indenture(s) supplemental to the Indenture providing for the issuance of such Subordinated Notes.

�Senior Trustee� means the Trustee, acting in its capacity as the trustee of the Senior Class of Notes.

�Service Providers� means the Servicer, the Trustee, the Independent Member, the Calculation Agent, the Paying Agent, the Registrar, the Operating Bank and any outside law firm, accounting firm or other consultant providing services to the Issuer.

�Servicer� means the Seller, acting in its capacity as servicer pursuant to the Servicing Agreement (or any other Person appointed to succeed the Seller as such or any successor thereto pursuant to the Servicing Agreement).

�Servicer Termination Event� means any of the following events:

(a) the Seller shall resign as Servicer in accordance with the terms of the Servicing Agreement;

(b) the Servicer shall fail to pay any amount when due under the Servicing Agreement and such failure shall continue unremedied for five Business Days;

(c) the Servicer shall fail to deliver the Distribution Report and the other required accompanying materials with respect to any Payment Date in accordance with the provisions of the Servicing Agreement within five Business Days of the date such Distribution Report and the other required accompanying materials are required to be delivered under the Servicing Agreement; provided, however, that the Servicer shall have received in a timely manner any Calculation Report (unless the failure to receive such Calculation Report was due to the breach by the Servicer of Section�3.1(c)(vi) of the Servicing Agreement);

(d) the Servicer shall fail to carry out its obligations under Section�3.1(c)(ii) of the Servicing Agreement that shall have or reasonably be expected to have a material adverse effect on the Noteholders;

(e) the Servicer shall fail to carry out its obligations under Section�3.1(c)(v) or Section�3.1(c)(viii) of the Servicing Agreement;

(f) the Servicer shall fail to observe or perform in any material respect any of the covenants or agreements on the part of the Servicer contained in the Servicing Agreement (other than for which provision is made in clauses (a)�through (e)�above) and such failure shall continue unremedied for a period of 30 days after the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Trustee, and such failure continues to materially adversely affect the Noteholders for such period;

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(g) (i) an admission in writing by the Servicer of its inability to pay its debts generally or a general assignment by the Servicer for the benefit of creditors, (ii)�the filing of any petition or answer by the Servicer seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of the Servicer or its debts under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar Applicable Law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of an order for relief in any case under any such Applicable Law, or the appointment of or taking possession by a receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for the Servicer or for any substantial part of its property, or (iii)�corporate or other action taken by the Servicer to authorize any of the actions set forth in clause (i)�or clause (ii)�above;

(h) without the consent or acquiescence of the Servicer, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar Applicable Law, or the filing of any such petition against the Servicer, or, without the consent or acquiescence of the Servicer, the entering of an order appointing a trustee, custodian, receiver or liquidator of the Servicer or of all or any substantial part of the property of the Servicer, in each case where such petition or order shall remain unstayed or shall not have been stayed or dismissed within 90 days from entry thereof;

(i) the Servicer�s business activities are terminated by any Governmental Authority;

(j) a material adverse change occurs in the financial condition or operations of the Servicer that is a Material Adverse Change with respect to the ability of the Servicer to perform its obligations under the Servicing Agreement;

(k) an Event of Default shall have occurred, other than an Event of Default solely caused by the Trustee, the Calculation Agent, the Paying Agent or the Registrar failing to perform any of its respective obligations under any Transaction Document; or

(l) so long as the Seller is the Servicer, the Seller sells, contributes, assigns, transfers or conveys a majority of the Capital Securities of the Issuer to another Person or Persons that are not Affiliates of the Seller.

�Servicing Agreement� means that certain servicing agreement dated as of the Closing Date between the Issuer and the Seller.

�Servicing Fee� has the meaning set forth in Section�2.1 of the Servicing Agreement.

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�Similar Laws� means Applicable Laws that are substantially similar to Title I of ERISA or Section�4975 of the Code that govern governmental, church or foreign plans.

�Solicitation Notice� has the meaning set forth in Section�4.17(c) of the Indenture.

�Solicitation Period� has the meaning set forth in Section�4.17(c) of the Indenture.

�Stated Rate of Interest� means, with respect to any class of the Notes for any Interest Accrual Period, the interest rate set forth in such class of Notes for such Interest Accrual Period.

�Subordinated Claim� has the meaning set forth in Section�10.1(a) of the Indenture.

�Subordinated Note Issuance� has the meaning set forth in Section�2.16(a) of the Indenture.

�Subordinated Notes� means any class (or sub-class) of Notes issued under the Indenture in such form as shall be authorized by a Resolution and set forth in any indenture supplemental to the Indenture in respect thereof pursuant to Section�2.16 of the Indenture and any Refinancing Notes issued to refinance the foregoing.

�Subsidiary� means, with respect to any Person, any other Person of which more than 50% of the outstanding Voting Securities of such other Person (irrespective of whether at the time Capital Securities of any other class or classes of such other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person or by one or more other Subsidiaries of such Person.

�Taxes� means (a)�any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind (together with any and all interest, penalties, loss, damage, liability, expense, additions to tax and additional amounts or costs incurred or imposed with respect thereto) now or hereafter imposed, levied, collected, withheld or otherwise assessed by the U.S. or by any state, local, foreign or other Governmental Authority (or any subdivision or agency thereof) or other taxing authority, including taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers� compensation, unemployment compensation or net worth and similar charges and taxes or other charges in the nature of excise, deduction, withholding, ad valorem, stamp, transfer, value added, taxes on goods and services, escheat, gains taxes, license, registration and documentation fees, customs duties, tariffs and similar charges, and (b)�liability for such a tax that is imposed by reason of United States Treasury Regulation Section�1.1502-6 or similar provision of Applicable Law.

�Temporary Regulation S Global Note� has the meaning set forth in Section�2.1(b) of the Indenture.

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�Territory� means the United States of America and its territories, districts, commonwealths and possessions, including the Commonwealth of Puerto Rico and the District of Columbia.

�Transaction Documents� means the Indenture, the Notes, the Purchase and Sale Agreement, the Bill of Sale, the Counterparty Instruction, the Servicing Agreement, the Pledge and Security Agreement and the Purchase Agreements, and each other agreement pursuant to which the Trustee (or its agent) is granted a Lien to secure the obligations under the Indenture or the Notes.

�Transaction Expenses� means the out-of-pocket expenses payable by the Issuer in connection with (a)�the issuance of the Original Class�A Notes, including placement fees, any initial fees payable to Service Providers and the reasonable, documented fees and expenses (not to exceed any amount agreed upon between the Placement Agent and the Seller) of Pillsbury Winthrop Shaw Pittman LLP, special counsel to the Noteholders in connection with the offering and issuance of the Original Class�A Notes, and (b)�the offering and issuance of any Additional Class�A Notes, any Subordinated Notes or any Refinancing Notes.

�Trustee� means U.S. Bank National Association, a national banking association, as initial trustee of the Notes under the Indenture, and any successor appointed in accordance with the terms of the Indenture; provided, that, for purposes of Section�3.1(b) of the Indenture, �Trustee� means U.S. Bank National Association, a national banking association, as the Operating Bank and/or initial trustee of the Notes under the Indenture, as the context may require.

�Trustee Closing Account� means the account of the Issuer maintained with the Trustee at U.S. Bank National Association, ABA No.�091 000 022, Account No.�1731 0332 1092, Ref. Atlas PhaRMA Sr. Sec. Notes, Attention: Josh Tripi.

�Trust Indenture Act� means the U.S. Trust Indenture Act of 1939, as amended, and the regulations thereunder.

�UCC� means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, that, if, with respect to any financing statement or by reason of any provisions of Applicable Law, the perfection or the effect of perfection or non-perfection of the Liens granted to the Trustee pursuant to the applicable Transaction Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than the State of New York, then �UCC� means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Transaction Document and any financing statement relating to such perfection or effect of perfection or non-perfection.

�United States Treasury� means the U.S. Department of the Treasury.

�U.S.� or �United States� means the United States of America, its 50 states, each territory thereof and the District of Columbia.

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�U.S. Person� means a U.S. person within the meaning of Regulation S.

�Voluntary Bankruptcy� means (a)�an admission in writing by the Issuer of its inability to pay its debts generally or a general assignment by the Issuer for the benefit of creditors, (b)�the filing of any petition or answer by the Issuer seeking to adjudicate itself as bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of the Issuer or its debts under any Applicable Law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or other similar Applicable Law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of an order for relief in any case under any such Applicable Law, or the appointment of or taking possession by a receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for the Issuer or for any substantial part of its property, or (c)�limited liability company action taken by the Issuer to authorize any of the actions set forth in clause (a)�or clause (b)�above.

�Voting Securities� means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person.

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EXHIBIT A

FORM OF CLASS A NOTE

{INSERT THE APPLICABLE LEGEND(S) SET FORTH IN SECTION 2.2}

ATLAS U.S. ROYALTY, LLC

Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027

Class�A

�


No. ��	��	CUSIP: ��

U.S.$ ��	��

ATLAS U.S. ROYALTY, LLC, a limited liability company organized under the laws of the State of Delaware (herein referred to as the �Issuer�), for value received, hereby promises to pay to CEDE�& CO., or registered assigns, the principal amount set forth on Schedule I hereto on or before March�15, 2027 (the �Final Legal Maturity Date�) and to pay interest quarterly on the Outstanding Principal Balance hereof at a rate per annum equal to 12.25% (the �Stated Rate of Interest�), from the date hereof until the Outstanding Principal Balance hereof is paid or duly provided for, which interest shall be due and payable on each Payment Date; provided, that, with respect to any Payment Date (other than the Final Legal Maturity Date), any such interest in excess of the portion of the Available Collections Amount available to pay such interest on such Payment Date and funds in the Interest Reserve Account and the Capital Account (and available for interest payments pursuant to Section�3.7 of the Indenture (as defined below)) shall be payable in full not later than the succeeding Payment Date (together with Additional Interest thereon). Interest on this Note in each Interest Accrual Period shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. If this Note is issued in the form of a Global Note, in accordance with the requirements of DTC, the Issuer will cause the Trustee to authenticate an additional Note or additional Notes in the appropriate principal amount such that neither this Note nor any other such Note may exceed an aggregate principal amount of U.S. $500,000,000 at any time.

This Note is a duly authorized issue of Notes of the Issuer, designated as its �Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027�, issued under the Indenture dated as of March�18, 2014 (as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the �Indenture�), by and between the Issuer and U.S. Bank National Association, a national banking association, as trustee (including any successor appointed in accordance with the terms of the Indenture, the �Trustee�). The Indenture also provides for the issuance of Additional Class�A Notes, Refinancing Notes and Subordinated Notes. All capitalized terms used in this Note and not defined herein shall have the respective meanings assigned to such terms in the Indenture. Reference is made to the Indenture and all indentures supplemental thereto for a statement of the respective rights and obligations thereunder of the Issuer, the Trustee and the Noteholders. This Note is subject to all terms of the Indenture.

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The Issuer will pay the Outstanding Principal Balance of this Note on or prior to the Final Legal Maturity Date on the Payment Date specified in the Indenture, subject to the availability of the Available Collections Amount therefor after making payments entitled to priority under Section�3.6 of the Indenture.

The indebtedness evidenced by the Original Class�A Notes and any Additional Class�A Notes is, to the extent and in the manner provided in the Indenture, senior in right of payment to the right of payment of the Subordinated Notes, and this Note is issued subject to such provisions. The maturity of this Note is subject to acceleration upon the occurrence and during the continuance of the Events of Default specified in the Indenture.

The Issuer may redeem all or part of the Outstanding Principal Balance of this Note prior to the Final Legal Maturity Date on any Redemption Date, in the amounts and under the circumstances specified in the Indenture.

Any amount of Premium or interest on this Note that is not paid when due shall, to the fullest extent permitted by Applicable Law, bear interest (�Additional Interest�) at an interest rate per annum equal to the Stated Rate of Interest from the date when due until such amount is paid or duly provided for, compounded quarterly and payable on the succeeding Payment Date, subject to the availability of the Available Collections Amount therefor (and, to the extent provided in Section�3.7, the Interest Reserve Account and the Capital Account) after making payments entitled to priority under Section�3.6 of the Indenture.

This Note is and will be secured by the Collateral and the Issuer Pledged Equity pledged as security therefor as provided in the Indenture and the Pledge and Security Agreement, respectively.

Subject to and in accordance with the terms of the Indenture, there will be distributed quarterly from the Collection Account on each Payment Date, to the Person in whose name this Note is registered at the close of business on the Record Date with respect to such Payment Date, in the manner specified in Section�3.6 of the Indenture, such Person�s pro rata share (based on the aggregate percentage of the Outstanding Principal Balance of the Original Class�A Notes or any Additional Class�A Notes, as the case may be, held by such Person) of the aggregate amount distributable to all Noteholders of Original Class�A Notes or Additional Class�A Notes, as the case may be, on such Payment Date.

All amounts payable in respect of this Note shall be payable in Dollars in the manner provided in the Indenture to the Noteholder hereof on the Record Date relating to such payment. The final payment with respect to this Note, however, shall be made only upon presentation and surrender of this Note by the Noteholder or its agent at an office or agency of the Trustee or Paying Agent in New York City. At such time, if any, as this Note is issued in the form of one or more Definitive Notes, payments on a Payment Date shall be made by check mailed to each Noteholder of such a Definitive Note on the applicable Record Date at its address appearing on the Register maintained with respect to the Original Class�A Notes or any Additional Class�A Notes, as the case may be. Alternatively, upon application in writing to the Trustee or other Paying Agent, not later than the applicable Record Date, by a Noteholder, any such payments shall be made by wire transfer to an account designated by such Noteholder at a financial

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institution in New York City; provided, that, in each case, the final payment with respect to any such Definitive Note shall be made only upon presentation and surrender of such Definitive Note by the Noteholder or its agent at an office or agency of the Trustee or Paying Agent in New York City. Notwithstanding the foregoing, payments in respect of this Note issued in the form of a Global Note (including principal, Premium, if any, and interest) shall be made by wire transfer of immediately available funds to the account specified by DTC. Any reduction in the Outstanding Principal Balance of this Note (or any one or more predecessor Class�A Notes) effected by any payments made on any Payment Date shall be binding upon all future Noteholders of this Note and of any Class�A Note issued upon the registration of transfer of, in exchange or in lieu of or upon the refinancing of this Note, whether or not noted hereon.

The Noteholder of this Note agrees, by acceptance hereof, to pay over to the Trustee any money (including principal, Premium, if any, and interest) paid to it in respect of this Note in the event that the Trustee, acting in good faith, determines subsequently that such monies were not paid in accordance with the priority of payment provisions of the Indenture or as a result of any other mistake of fact or law on the part of the Trustee in making such payment.

This Note is issuable only in registered form. A Noteholder or Beneficial Holder may transfer this Note or a Beneficial Interest herein only by delivery of a written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of the Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Noteholder only upon, final acceptance and registration of the transfer by the Registrar in the Register. When this Note is presented to the Registrar with a request to register the transfer or to exchange it for an equal principal amount of Original Class�A Notes or Additional Class�A Notes, as the case may be, of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including, in the case of a transfer, that such Note is duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Trustee and Registrar duly executed by the Noteholder thereof or by an attorney who is authorized in writing to act on behalf of the Noteholder). No service charge shall be made for any registration of transfer or exchange of this Note, but the party requesting such new Original Class�A Note or Original Class�A Notes or Additional Class�A Note or Additional Class�A Notes, as the case may be, may be required to pay a sum sufficient to cover any transfer Tax or similar governmental charge payable in connection therewith.

Prior to the registration of transfer of this Note, the Issuer and the Trustee may deem and treat the Person in whose name this Note (as of the day of determination or as of such other date as may be specified in the Indenture) is registered as the absolute owner and Noteholder hereof for the purpose of receiving payment of all amounts payable with respect to this Note and for all other purposes, and neither the Issuer nor the Trustee shall be affected by notice to the contrary.

Subject to Section�3.6(b) of the Indenture, the Indenture permits the amendment or modification of the Indenture and the Original Class�A Notes and any Additional Class�A Notes by the Issuer with the consent of the Noteholders holding a majority of the Outstanding Principal Balance of the Notes (voting or acting as a single class); provided, however, that if there shall be Notes of more than one class Outstanding and if a proposed amendment, modification, consent or waiver shall directly affect the rights of Noteholders of one or more, but less than all, of such

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classes, then the consent only of the Noteholders holding a majority of the Outstanding Principal Balance of each affected class of Notes, each voting or acting as a single class, shall be required; provided, further, however, that no amendment or modification of the Indenture, the Original Class�A Notes or any Additional Class�A Notes may, without the consent of Noteholders holding 100% of the Outstanding Principal Balance of the class or series of Notes affected thereby, (i)�reduce the percentage of any such series or class of Notes required to take or approve any action under the Indenture, (ii)�reduce the amount or change the time of payment of any amount owing or payable with respect to any such class or series of Notes (including pursuant to any Redemption) or change the rate of interest or change the manner of calculation of interest payable with respect to any such class or series of Notes, (iii)�alter or modify in any adverse respect the provisions of the Indenture with respect to the Collateral for the Notes, the provisions of the Pledge and Security Agreement with respect to the related Issuer Pledged Collateral for the Notes or the manner of payment or the order of priority in which payments or distributions under the Indenture will be made as between the Noteholders of such Notes and the Issuer or as among the Noteholders (including pursuant to Section�3.6 of the Indenture), (iv)�consent to any assignment of the Issuer�s rights to a party other than the Trustee for the benefit of the Noteholders or (v)�alter the provisions relating to the Interest Reserve Account in a manner adverse to any Noteholder. Any such amendment or modification shall be binding on every Noteholder hereof, whether or not notation thereof is made upon this Note.

The subordination provisions contained in Article X of the Indenture may not be amended or modified without the consent of Noteholders holding 100% of the Outstanding Principal Balance of the class of Notes affected thereby.

The Indenture also contains provisions permitting the Noteholders holding a majority of the Outstanding Principal Balance of the Senior Class of Notes to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon all present and future Noteholders of this Note and of any Note issued upon the registration of transfer of, in exchange or in lieu of or upon the refinancing of this Note, whether or not notation of such consent or waiver is made upon this Note.

The Original Class�A Notes and any Additional Class�A Notes are issuable only in registered form in denominations as provided in the Indenture, subject to certain limitations therein set forth.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

The enforceability against the Issuer of the obligations of the Issuer under the Indenture and under the Notes shall be limited to the assets of the Issuer, whether tangible or intangible, real or personal (including the Collateral) and the proceeds thereof. Once all such assets have been realized upon and such assets (and proceeds thereof) have been applied in accordance with

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Article III of the Indenture, any outstanding obligations of the Issuer shall be extinguished. Each of the parties to the Indenture shall take no action against any employee, director, officer or administrator of the Issuer, the Equityholder or the Trustee in relation to the Indenture; provided, that nothing therein shall limit the Issuer (or its permitted successors or assigns, including any party thereto that becomes such a successor or assign) from pursuing claims, if any, against any such Person. The provisions of Section�12.14 of the Indenture shall survive termination of the Indenture; provided, further, that the foregoing shall not in any way limit, impair or otherwise affect any rights of the Trustee or the Noteholders to proceed against any such Person (a)�for intentional and willful fraud or intentional and willful misrepresentations on the part of or by such Person or (b)�for the receipt of any distributions or payments to which the Issuer or any successor in interest is entitled, other than distributions expressly permitted pursuant to the Indenture and the other Transaction Documents.

Unless the certificate of authentication hereon has been executed by the Trustee whose name appears below by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose.

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IN WITNESS WHEREOF, the Issuer has caused this Note to be signed manually or by facsimile by its duly authorized Manager.

�


Date: {��}, 20{��}	�	�	ATLAS U.S. ROYALTY, LLC

	�	�	By:	�	Alexza Pharmaceuticals, Inc., its Manager

	�	�	By:	�	�
	�	�		�	Name:
	�	�		�	Title:

TRUSTEE�S CERTIFICATE OF AUTHENTICATION

This Note is one of the Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 designated above and referred to in the within-mentioned indenture.

�


Date: {��}, 20{��}	�	�	U.S. BANK NATIONAL ASSOCIATION, ��as Trustee

	�	�	By:	�	�
	�	�		�	Authorized Signatory
	�	�		�

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FORM OF TRANSFER NOTICE

FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No. ��

�

(Please print or typewrite name and address including zip code of assignee)

the within Note and all rights thereunder, hereby irrevocably constituting and appointing �� attorney to transfer said Note on the books of the Issuer with full power of substitution in the premises.

�

Date��

��

�

Signature of Transferor

NOTE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

{THE FOLLOWING PROVISIONS TO BE INCLUDED ON ALL NOTES}

In connection with any transfer of the within-mentioned Note, the undersigned confirms that:

{Check One}

� (a) the within-mentioned Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder

� (b) the within-mentioned Note is being transferred other than in accordance with clause (a)�above and documents are being furnished that comply with the conditions of transfer set forth in the within-mentioned Note and the Indenture

If neither of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register the within-mentioned Note in the name of any Person other than the Noteholder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section�2.11 of the Indenture shall have been satisfied.

�

Date��

��

�

NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

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TO BE COMPLETED BY PURCHASER IF CLAUSE (a)�ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing the within-mentioned Note for its own account or an account with respect to which it exercises sole investment discretion and that each of it and any such account is a �qualified institutional buyer� (within the meaning of Rule 144A) and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned�s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

Dated: ��

�

Executive Officer

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SCHEDULE I

ATLAS U.S. ROYALTY, LLC

Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027

No. ��

�


Date	��	Principal�Amount	��	Notation�Explaining Principal Amount Recorded	��	Authorized�Signature of Trustee or Custodian

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EXHIBIT B

FORM OF CONFIDENTIALITY AGREEMENT

Atlas U.S. Royalty, LLC

c/o Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, California 94043

CONFIDENTIALITY AGREEMENT

In connection with our possible interest in the purchase of the Atlas PhaRMA^SM Senior Secured Notes (the �Notes�) of Atlas U.S. Royalty, LLC, a Delaware limited liability company (the �Company�) (the �Transaction�), we have requested a copy of the Private Placement Memorandum relating to the Notes (the �Memorandum�). In addition to receiving the Memorandum, we may also request that you or your directors, officers, managers, members, partners, employees, affiliates, assigns, representatives (including, without limitation, financial advisors, attorneys and accountants), investors, agents or similar persons or entities (collectively, �your Representatives�) furnish us or our directors, officers, managers, members, partners, employees, affiliates, assigns, representatives (including, without limitation, financial advisors, attorneys and accountants), investors, agents or similar persons or entities (collectively, �our Representatives�) with certain information relating to the Company and its affiliates, the Transaction and the assets being acquired by the Company from Alexza Pharmaceuticals, Inc., a Delaware corporation (the �Seller�). All such information (whether written, visual or oral, and whether tangible or electronic) furnished on or after the date hereof by you or your Representatives (including any such information provided in a dataroom via IntraLinks or otherwise) to us or our Representatives, including, without limitation, the Memorandum, any agreements between the Seller and Teva Pharmaceuticals USA, Inc. (�Counterparty�), any reports or other information required to be delivered thereunder, and any materials containing, based on or derived from any such information (including, without limitation, any financial models or other analyses, compilations, forecasts, studies or other documents based thereon) prepared by us or our Representatives in connection with our or our Representatives� review of, or our interest in, the Transaction is hereinafter referred to as the �Information�. The term Information will not, however, include information that (i)�is already known by us at the time that such information is disclosed (unless such information was disclosed to us under a confidentiality agreement), (ii)�is or thereafter becomes available in the public domain, other than by breach by us or our Representatives of our obligations hereunder, (iii)�is obtainable by us from another source without, to our knowledge, breach of such source�s obligations of confidentiality to you or (iv)�is independently developed by our Representatives who have not had access to such information, as can be demonstrated by written evidence.

As a condition to receiving the Information, we hereby agree as follows:

1. We hereby agree, and agree to cause our Representatives, (i)�to keep the Information confidential, (ii)�to use the Information solely for the purpose of evaluating, entering into, monitoring or enforcing the Transaction and (iii)�not to, without your prior written consent, disclose any Information in any manner whatsoever; provided, however, that we may reveal the

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Information to (a)�our Representatives who need to know the Information for the purpose of evaluating, entering into, monitoring or enforcing the Transaction or (b)�third parties in order to comply with any applicable law, rule, regulation or legal process or pursuant to requests of governmental authorities or regulatory agencies having oversight over us or our Representatives, and only after compliance with paragraph 3 below, provided, that all of such persons and entities listed in clause (a)�above shall agree to keep such Information confidential, and only to use such Information, on terms that are substantially the same as the terms we are subject to herein, and, provided, further, that we shall be wholly responsible for the full compliance of such confidentiality agreement by any of the persons or entities listed in clause (a)�above to which we disclosed Information. Notwithstanding and without limitation of the foregoing, we and our Representatives agree not to reveal Information to advisors who are principally engaged in the business of investment banking, capital markets or securitization of financial assets without the prior written consent of your Representative, Morgan Stanley�& Co. LLC (�Morgan Stanley�).

2. We hereby agree, and agree to cause our Representatives, whether or not the Transaction is consummated, not to (except as required by applicable law, rule, regulation or legal process or pursuant to requests of governmental authorities or regulatory agencies having oversight over us or our Representatives, and only after compliance with paragraph 3 below), without your prior written consent, disclose to any person or entity the fact that the Information or the Transaction exists or has been made available, that we are considering the Transaction, that (if prior to consummation of the Transaction) you are considering the Transaction, or that discussions or negotiations are taking or have taken place concerning the Transaction or any term, condition or other fact relating to the Transaction or such discussions or negotiations, including, without limitation, the status thereof.

3. In the event that we or any of our Representatives are required by applicable law, rule, regulation or legal process or pursuant to requests of governmental authorities or regulatory agencies having oversight over us or our Representatives to disclose any of the Information, we agree to notify you promptly (unless such notice is not permitted by applicable law, rule or regulation) so that you may seek, at your own expense, a protective order or other appropriate remedy or, in your sole discretion, waive compliance with the terms of this Confidentiality Agreement. In the event that no such protective order or other remedy is obtained, or that you do not waive compliance with the terms of this Confidentiality Agreement, we agree to furnish only that portion of the Information that we are advised by counsel (which may be internal counsel) is legally required and will exercise all commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Information.

4. If we determine not to proceed with the Transaction or we cease to have an interest arising from the Transaction, we will promptly inform you of that decision or event and, in that case, and at any time upon your request or the request of any of your Representatives, we and our Representatives agree to (i)�promptly deliver to you all copies of the Information in our possession (except as described in the following proviso), (ii)�promptly destroy all copies of any written Information (whether in tangible or electronic form, or otherwise) that we and our Representatives have created, including, without limitation, any notes we have taken on any discussions with you or your Representatives, and upon your request such destruction shall be certified in writing (including, without limitation, via email) to you by an authorized officer

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B-2

supervising such destruction (provided in each case that an appropriate person within our organization may retain one copy of the Information, subject to the provisions of this Confidentiality Agreement, if required to comply with internal record retention policies or regulatory considerations, in which case, regardless of paragraph 16 below, the confidentiality provisions of this Confidentiality Agreement will continue to apply to such Information for so long as it is retained by such person or any other of our Representatives) and (iii)�certify that clauses (i)�and (ii)�above have been complied with. Any visual, oral or other Information not returned to you or destroyed in accordance with the preceding sentence will continue to be subject to the terms of this Confidentiality Agreement, regardless of paragraph 16 below.

5. We acknowledge that you have not updated, and have no obligation to update, the Memorandum in any respect for events, developments or circumstances. We further acknowledge that neither you nor any of your Representatives, nor any of your or their respective officers, directors, managers, members, partners, employees, agents or controlling persons within the meaning of Section�20 of the U.S. Securities Exchange Act of 1934, as amended, makes any express or implied representation or warranty as to the accuracy or completeness of the Information, and we agree that no such person or entity will have any liability relating to the Information or for any errors therein or omissions therefrom. We further agree that we are not entitled to rely on the accuracy or completeness of the Information.

6. We acknowledge that we are aware of the restrictions imposed by the United States securities laws on the purchase or sale of securities of an issuer or an affiliate or controlling person of the issuer while in possession of material, non-public information and on the communication of such information to any other person or entity. We represent that we maintain effective internal procedures with respect to maintaining the confidentiality and use of the Information and that we will not use the Information for any purpose in violation of United States securities laws or any other applicable laws. We further represent that we are a qualified institutional buyer (as defined in Rule 144A under the U.S. Securities Act of 1933, as amended (the �Securities Act�)) or a non-U.S. person within the meaning of Regulation S under the Securities Act that is also an institutional accredited investor (as defined in subparagraph (a)�(1), (2), (3)�or (7)�of Rule 501 under the Securities Act of 1933, as amended) and acknowledge and agree that, by our purchase of any Notes, we will be deemed to have made the representations, agreements and acknowledgments set forth in the Memorandum under �Transfer Restrictions�.

7. We represent and warrant that (i)�we are not, and will not become, a partnership, Subchapter S corporation or grantor trust for U.S. federal income tax purposes or (ii)�we are or may become a partnership, Subchapter S corporation or grantor trust for U.S. federal income tax purposes but (A)�none of the direct or indirect beneficial owners of any of our interests have allowed or caused, or will allow or cause, 50% or more of the value of such interests to be attributable to the ownership of Notes plus the ownership, if any, of equity of the Company or (B)�such partnership, Subchapter S corporation or grantor trust was not formed with a principal purpose of permitting the Company to satisfy the 100-partner limitation in Treasury Regulation Section�1.7704-1(h)(1)(ii).

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8. We agree that, at any time prior to your consummation of the Transaction, (i)�you reserve the right, in your sole discretion, to change the terms of the Transaction at any time without prior notice to us or any other person or entity, to reject any and all proposals or offers made by us or any of our Representatives with regard to the Transaction, and to terminate discussions and negotiations with us at any time and for any reason, and (ii)�you will not have any liability to us with respect to the Transaction, whether by virtue of this Confidentiality Agreement, any other written or oral expression with respect to the Transaction or otherwise.

9. We acknowledge that remedies at law may be inadequate to protect you against any actual or threatened breach of this Confidentiality Agreement by us or our Representatives, and, without prejudice to any other rights and remedies otherwise available to you, we agree to permit you to seek the granting of injunctive relief in your favor without proof of actual damages.

10. We acknowledge and agree that each of the Seller, Counterparty and Morgan Stanley is a third party beneficiary of this Confidentiality Agreement and shall have the right to enforce any provision of this Confidentiality Agreement.

11. We acknowledge and agree that neither this Confidentiality Agreement nor any disclosure of Information made hereunder by you shall be construed, deemed or interpreted, by implication or otherwise, to vest in us or our Representatives any license or other ownership rights in, to or under any of such Information or other copyrights, intellectual property, know-how, moral rights, trade secrets, trademark rights or other proprietary rights whatsoever.

12. We agree that no failure or delay by you in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

13. This Confidentiality Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

14. This Confidentiality Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law thereof (other than the provisions of Section�5-1401 of the General Obligations Law of the State of New York).

15. This Confidentiality Agreement contains the entire agreement between you and us, and supersedes all prior agreements and understandings, whether written or oral, between you and us, concerning the confidentiality of the Information, and no modifications of this Confidentiality Agreement or waiver of the terms and conditions hereof will be binding upon you or us, unless approved in writing by each of you and us.

16. This Confidentiality Agreement will terminate (i)�if we do not proceed with the Transaction, 24 months after the date hereof, and (ii)�if we do proceed with the Transaction, 24 months from the date we cease to have an interest arising from the Transaction, whether through a sale of our interest, the maturity or repayment of our interest or otherwise; provided, however, that with respect to disclosure of any Information delivered pursuant to any agreements between the Seller and Counterparty, we agree to be bound by any similar terms of confidentiality and non-use at least as stringent as those set forth in such agreements.

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17. If we propose to purchase, transfer, sell or otherwise dispose of any of our interest at any time, we agree to (i)�abide by any transfer restrictions described in the Memorandum, (ii)�inform any proposed transferee of such interest of any such transfer restrictions, including, without limitation, any requirement that such proposed transferee execute a confidentiality agreement, and (iii)�not furnish any Information to such proposed transferee. We acknowledge that the servicer for the Transaction shall be responsible for the delivery of all Information to any such prospective transferee following execution by such prospective transferee of an appropriate confidentiality agreement.

18. This Confidentiality Agreement may be executed by facsimile signature and such facsimile signature shall be deemed an original. This Confidentiality Agreement may be executed in one or more counterparts by the parties hereto, and each such counterpart shall be considered an original and all such counterparts shall constitute one and the same instrument.

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Very truly yours, �

� {Please insert prospective purchaser�s name on line above}

By:	�	�
	�	Name:
	�	Title:
	�	Address:
	�	Date:

�


Accepted and agreed as of the date first written above:

ATLAS U.S. ROYALTY, LLC

By:	�	Alexza Pharmaceuticals, Inc., its Manager

By:	�	�
	�	Name:
	�	Title:

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EXHIBIT C

AGENTS FOR SERVICE OF PROCESS

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Party	�	Jurisdiction	�	Appointed�Agent
Atlas U.S. Royalty, LLC	�	Delaware	�	National�Corporate�Research,�Ltd.

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C-1

EXHIBIT D

COVERAGE OF DISTRIBUTION REPORT

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(a)	Analysis of activity in each Account from the Calculation Date preceding the prior Payment Date (or, with respect to the first Payment Date, from the Closing Date) (the �Preceding Calculation Date�) to the Calculation Date preceding the current Payment Date (the �Current Calculation Date�):

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(i)

Balance on deposit in each Account on the Preceding Calculation Date

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(ii)

Deposits into each Account from but excluding the Preceding Calculation Date to and including the Current Calculation Date

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(iii)

Withdrawals from each Account from but excluding the Preceding Calculation Date to and including the Current Calculation Date, including identification of any Note payments pursuant to Section�2.5(d) of the Indenture and payments of Expenses pursuant to Section�3.6(c) of the Indenture

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(iv)

Balance on deposit in each Account on the Current Calculation Date

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(b)	Amount, if any, to be transferred from the Interest Reserve Account to the Collection Account or to the Equityholder on the current Payment Date

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(c)	Payments on the current Payment Date:

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(i)

Taxes, if any

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(ii)

Expense payments (including normal and routine bank fees) payable on the Current Calculation Date

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(iii)

Interest Amount

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(iv)

Additional Interest, if any

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(v)

Principal payments, if any

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(d)	Outstanding Principal Balance:

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(i)

Opening Outstanding Principal Balance

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(ii)

Principal payments, if any, made on the current Payment Date

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(iii)

Closing Outstanding Principal Balance

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(e)	Amount distributed to the Issuer from the Collection Account, if any, with respect to the current Payment Date

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(f)	A withholding obligation may be included

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(g)	Appropriate modifications will be made to contemplate any Refinancing Notes and/or Subordinated Notes

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D-1

EXHIBIT E

UCC FINANCING STATEMENTS

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1.	A Form UCC-1 Financing Statement will be filed with the Secretary of State of the State of Delaware naming the Issuer as debtor and the Trustee as secured party.

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E-1

EXHIBIT F

FORM OF CERTIFICATE OF EUROCLEAR OR CLEARSTREAM FOR

PERMANENT REGULATION S GLOBAL NOTE

��, 20��

U.S. Bank National Association,

��as Trustee

One Federal Street, 3rd Floor

Boston, Massachusetts 02110

Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC)

Atlas U.S. Royalty, LLC

c/o Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, California 94043

Attention: Chief Financial Officer

�

Re:

Atlas U.S. Royalty, LLC (the �Issuer�)

Ladies and Gentlemen:

This letter relates to U.S.$�� principal amount of Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 of the Issuer (the �Notes�) represented by a Note that bears a legend (the �Legended Note�) outlining restrictions upon transfer of such Legended Note. Pursuant to Section�2.1 of the Indenture dated as of March�18, 2014 (the �Indenture�) relating to the Notes and certain other classes of notes of the Issuer, we hereby certify that we are (or we will hold such securities on behalf of) an Institutional Accredited Investor (as defined in the Indenture) outside the United States to whom the Notes may be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933, as amended (�Regulation S�). Accordingly, you are hereby requested to exchange the Legended Note for a Permanent Regulation S Global Note (as defined in the Indenture) representing an identical principal amount of Notes, all in the manner provided for in the Indenture.

Each of you is entitled to rely upon this letter and is irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Certain terms used in this certificate have the meanings set forth in Regulation S.

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Very truly yours, � {Euroclear Bank S.A./N.V.}{Clearstream Banking}

By:	�	�
	�	Authorized�Signatory

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EXHIBIT G

FORM OF CERTIFICATE OF BENEFICIAL OWNER OF TEMPORARY

REGULATION S GLOBAL NOTE

Euroclear Bank S.A./N.V.

{Address}

AND/OR

Clearstream Banking

{Address}

�

Re:

Atlas U.S. Royalty, LLC (the �Issuer�)

Reference is hereby made to the Indenture, dated as of March�18, 2014 (the �Indenture�), made by and between the Issuer and U.S. Bank National Association, a national banking association, as trustee (the �Trustee�). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

This letter relates to U.S.$�� principal amount of Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 that are held in the form of a Beneficial Interest in the Temporary Regulation S Global Note (CUSIP No. ��) through DTC by the undersigned (the �Holder�) in the name of ��. The Holder of such Temporary Regulation S Global Note hereby requests the receipt of payments due and payable on the applicable Payment Date pursuant to Section�2.5 of the Indenture.

The Holder hereby represents and warrants that it (i)�is an Institutional Accredited Investor, (ii)�is not a U.S. Person and (iii)�does not hold the above-referenced Temporary Regulation S Global Note for the account or benefit of a U.S. Person (other than a distributor). Certain terms in this certificate not otherwise defined in the Indenture have the meanings given to them in Regulation S.

This certificate and the statements contained herein are made for your benefit and the benefit of the Paying Agent.

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{Name of Holder}

By:	�	�
	�	Name:
	�	Title:

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EXHIBIT H

FORM OF CERTIFICATE OF EUROCLEAR OR CLEARSTREAM FOR PAYMENTS

U.S. Bank National Association,

��as Paying Agent

One Federal Street, 3rd Floor

Boston, Massachusetts 02110

Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC)

�

Re:

Atlas U.S. Royalty, LLC (the �Issuer�)

This letter relates to U.S.$�� principal amount of Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 that are held in the form of a Beneficial Interest in the Temporary Regulation S Global Note (CUSIP No. ��) through DTC by the undersigned (the �Holder�) in the name of ��. Certain Holders of the Beneficial Interests in such Temporary Regulation S Global Note have requested the receipt of payments due and payable on the applicable Payment Date pursuant to Section�2.5 of the Indenture.

We have received from such Holders certifications to the effect that they (i)�are Institutional Accredited Investors, (ii)�are not U.S. Persons and (iii)�do not hold the above-referenced Temporary Regulation S Global Note for the account or benefit of U.S. Persons (other than distributors). Certain terms in this certificate not otherwise defined in the Indenture have the meanings given to them in Regulation S.

Accordingly, the Holders of the Beneficial Interests in the Temporary Regulation S Global Note are entitled to receive interest, principal and Premium, if any, in accordance with the terms of the Indenture in the amount of U.S.$��.

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{Clearstream Banking}{Euroclear Bank S.A./N.V.}

By:	�	�
	�	Name:
	�	Title:

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H-1

EXHIBIT I

FORM OF CERTIFICATE OF PROPOSED TRANSFEROR

��, 20��

U.S. Bank National Association,

��as Registrar

One Federal Street, 3rd Floor

Boston, Massachusetts 02110

Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC)

Atlas U.S. Royalty, LLC

c/o Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, California 94043

Attention: Chief Financial Officer

�

Re:

Atlas U.S. Royalty, LLC (the �Issuer�)

Ladies and Gentlemen:

In connection with our proposed sale of U.S.$�� aggregate principal amount of Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 of the Issuer (the �Notes�), we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (�Regulation S�) and, accordingly, we represent that:

(1) the offer of the Notes was not made to a person in the U.S.;

(2) at the time the buy order was originated, the transferee was an institutional accredited investor (as defined in subparagraph (a)�(1), (2), (3)�or (7)�of Rule 501 under the U.S. Securities Act of 1933, as amended) outside the U.S. or we and any person acting on our behalf reasonably believed that the transferee was an institutional accredited investor outside the U.S.;

(3) no directed selling efforts have been made by us in the U.S. in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and

(4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933.

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Very truly yours, � {Name of Transferor}

By:	�	�
	�	Authorized�Signatory

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EXHIBIT J

FORM OF CERTIFICATE OF CERTAIN PROPOSED INSTITUTIONAL

ACCREDITED INVESTOR TRANSFEREES

��, 20��

U.S. Bank National Association,

��as Registrar

One Federal Street, 3rd Floor

Boston, Massachusetts 02110

Attention: Corporate Trust Services (Atlas U.S. Royalty, LLC)

Atlas U.S. Royalty, LLC

c/o Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, California 94043

Attention: Chief Financial Officer

Ladies and Gentlemen:

In connection with our proposed purchase of Notes (the �Notes�) of Atlas U.S. Royalty, LLC (the �Issuer�), we confirm that:

1. We have received a copy of the Private Placement Memorandum dated March�3, 2014 (the �Memorandum�) relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated in the section entitled �Transfer Restrictions� of such Memorandum and the restrictions on duplication and circulation of such Memorandum.

2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Memorandum under �Transfer Restrictions� and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the U.S. Securities Act of 1933, as amended (the �Securities Act�).

3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, that the Notes will only be in the form of definitive physical certificates and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that, if we should sell any Notes in the future, we will do so only (1)�(A)�to the Issuer or any subsidiary thereof, (B)�in accordance with Rule 144A under the Securities Act to a qualified institutional buyer (as defined therein) or (C)�to an institutional accredited investor (as defined in Rule 501(a)(1), (2), (3)�or (7)�of Regulation D under the Securities Act) (�Institutional Accredited Investor�) in an offshore transaction in compliance with Rule 904 of Regulation S under the Securities Act, and we further agree to provide to any entity purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein and (2)�in each case, in accordance with any applicable securities laws of any state in the U.S. or any other applicable jurisdiction and in accordance with the legend to be set forth in the Notes, which will reflect the substance of this paragraph.

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4. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Issuer and the Trustee such certifications, legal opinions and other information as the Issuer and the Trustee may reasonably require to confirm that the proposed sale complies with the foregoing restrictions.

5. We are an Institutional Accredited Investor and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are able to bear the economic risks of our or their investment.

6. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an Institutional Accredited Investor) as to each of which we exercise sole investment discretion.

7. We are not acquiring the Notes with a view to distribution thereof or with any present intention of offering or selling the Notes, except as permitted above, provided that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control.

You, the Issuer and the Trustee are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

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Very truly yours,

By:	�	�
	�	Name:
	�	Title

�

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EXHIBIT K

FORM OF PORTFOLIO INTEREST CERTIFICATE

�� hereby certifies that:

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1.	It is (one must be checked):

�

(1)

�� a natural individual person;

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(2)

�� treated as a corporation for U.S. federal income tax purposes;

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(3)

�� disregarded for U.S. federal income tax purposes (in which case a copy of this certificate is completed and signed by its sole beneficial owner); or

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(4)

�� treated as a partnership for U.S. federal income tax purposes (in which case each partner also has completed as to itself and signed a copy of this certificate and an appropriate IRS Form W-8, a copy of each of which is attached, or, if applicable, has completed as to itself and signed an IRS Form W-9, a copy of which is attached).

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2.	It is not a bank, as such term is used in Section�881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the �Code�).

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3.	It is not a 10-percent shareholder of Atlas U.S. Royalty, LLC (the �Issuer�) or Alexza Pharmaceuticals, Inc. (the �Equityholder�) within the meaning of Section�871(h)(3) of the Code or Section�881(c)(3)(B) of the Code.

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4.	It is not a controlled foreign corporation that is related to the Issuer or the Equityholder within the meaning of Section�881(c)(3)(C) of the Code.

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5.	Amounts received by it on the Atlas PhaRMA^SM Senior Secured 12.25% Notes due 2027 are not effectively connected with its conduct of a trade or business in the United States.

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� {Fill in name of holder}

By:	�	�
	�	Name:
	�	Title:
	�	Date:

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K-1

EXHIBIT 10.2

�

AMENDED AND RESTATED

PURCHASE OPTION AGREEMENT

by and among

ALEXZA PHARMACEUTICALS, INC.,

SYMPHONY ALLEGRO HOLDINGS LLC

and

SYMPHONY ALLEGRO, INC.

�

Dated as of June�15, 2009

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TABLE OF CONTENTS

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�	��	�	��	Page		�

Section�1.	��	Grant of Purchase Option	��	�	2	��

Section�2.	��	Exercise of Purchase Option	��	�	3	��

Section�3.	��	Alexza Representations, Warranties and Covenants	��	�	6	��

Section�4.	��	Holdings Representations, Warranties and Covenants	��	�	9	��

Section�5.	��	Symphony Allegro Representations, Warranties and Covenants	��	�	13	��

Section�6.	��	Notice of Material Event	��	�	21	��

Section�7.	��	Assignment; Transfers; Legend	��	�	21	��

Section�8.	��	Costs and Expenses; Payments	��	�	23	��

Section�9.	��	Expiration; Termination of Agreement	��	�	23	��

Section�10.	��	Survival; Indemnification	��	�	23	��

Section�11.	��	No Petition	��	�	26	��

Section�12.	��	Third-Party Beneficiary	��	�	26	��

Section�13.	��	Notices	��	�	26	��

Section�14.	��	Governing Law; Consent to Jurisdiction and Service of Process	��	�	28	��

Section�15.	��	WAIVER OF JURY TRIAL	��	�	29	��

Section�16.	��	Entire Agreement	��	�	29	��

Section�17.	��	Amendment; Successors; Counterparts	��	�	29	��

Section�18.	��	Specific Performance	��	�	30	��

Section�19.	��	Severability	��	�	30	��

Section�20.	��	Tax Reporting	��	�	30	��

Section�21.	��	Original Agreement	��	�	31	��

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Annex�A	��	��Certain Definitions	��
Exhibit�1	��	��Purchase Exercise Notice	��
Exhibit�2	��	��Form of Opinion of Cooley Godward Kronish LLP	��

�

AMENDED AND RESTATED PURCHASE OPTION AGREEMENT

This AMENDED AND RESTATED PURCHASE OPTION AGREEMENT (this �Agreement�) is entered into as of June�15, 2009, 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, Holdings and Symphony Allegro are parties to that certain Purchase Option Agreement dated as of December�1, 2006 (the �Original Agreement�), pursuant to which Holdings granted 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 thereafter acquired, by Holdings on the terms described therein;

WHEREAS, institutional investors have invested $50,000,000 in Holdings (the �Financing�) in exchange for membership interests in Holdings and for warrants to purchase up to a total of 2�million shares of Alexza Common Stock, which were initially issued to Holdings, and Holdings contributed the proceeds of the Financing to Symphony Allegro;

WHEREAS, the parties to the Original Agreement desire to amend and restate the Original Agreement and accept the rights and covenants hereof in lieu of their rights and covenants under the Original Agreement;

WHEREAS, contemporaneously with the execution of this Agreement, Alexza has exercised the Purchase Option (as defined below) by delivering the Purchase Option Exercise Notice (as defined below) to Holdings and Symphony Allegro;

WHEREAS, on the Purchase Option Closing Date, Alexza will issue to Holdings, subject to the satisfaction of certain conditions (including, without limitation, the Stockholder Approval (as defined below) and cancellation of the warrants previously issued by Alexza to Holdings and its Affiliates), the Alexza Closing Shares (as defined below) and warrants (the �Alexza Closing Warrants�) to purchase up to 5�million shares of Alexza Common Stock, to be initially issued to Holdings (the �Alexza Closing Warrant Shares�); 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.

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 hereafter 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).

(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; and

(iii) 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 December�1, 2010 (the �Final Termination Date�).

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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 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). Such notice and election shall be irrevocable once delivered. All cash and cash equivalents on Symphony Allegro�s balance sheet on the date of the Purchase Option Closing (the �Purchase Option Closing Date�) are to remain with Symphony Allegro. The Purchase Option Closing Date shall be the date that is the later of:

(i) five (5)�Business Days 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 five (5)�Business Days following the Purchase Option Exercise Date and shall promptly and diligently pursue the related regulatory process; and

(ii) five (5)�Business Days following the date that Alexza receives the necessary stockholder approvals for purposes of NASDAQ Marketplace Rule 5635 in connection with the issuance of the Alexza Closing Shares (as defined below) and the Alexza Closing Warrant Shares (the �Stockholder Approval�).

(b) Purchase Price.

(i) As 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), on the Purchase Option Closing Date, Alexza shall issue to Holdings an aggregate of (A)�ten million (10,000,000)�shares of Alexza Common Stock (the �Alexza Closing Shares�) and (B)�the Alexza Closing Warrants. If, after the date hereof and prior to the Purchase Option Closing, the number of outstanding shares of Alexza Common Stock has been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, stock dividend, stock split, reverse stock split or other similar change in capitalization, an appropriate and proportionate adjustment shall be made to the number of Alexza Closing Shares to be issued on the Purchase Option Closing.

(ii) As further 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), if Alexza enters into any agreement or arrangement with any third party with respect to the development and/or

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commercialization of an AZ-004 Product or an AZ-002 Product (a �Symphony Allegro Product Agreement�), Alexza shall be obligated to make the following payments to Holdings within 10 Business Days of Alexza�s receipt of any Tier 1 Payment, Tier 2 Payment or Tier 3 Payment (each as defined below):

(A) with respect to any upfront, milestone, royalty, profit sharing, or similar payment received by Alexza under such Symphony Allegro Product Agreement that, when combined with any other such payments previously received by Alexza under any Symphony Allegro Product Agreement, is in excess of $25,000,000 in the aggregate but less than or equal to $50,000,000 in the aggregate (a �Tier 1 Payment�), an amount equal to 50% of such Tier 1 Payment;

(B) with respect to any upfront, milestone, royalty, profit sharing, or similar payment received by Alexza under such Symphony Allegro Product Agreement that, when combined with any other such payments previously received by Alexza under any Symphony Allegro Product Agreement, is in excess of $50,000,000 in the aggregate but less than or equal to $100,000,000 in the aggregate (a �Tier 2 Payment�), an amount equal to 25% of such Tier 2 Payment; and

(C) with respect to any upfront, milestone, royalty, profit sharing, or similar payment received by Alexza under such Symphony Allegro Product Agreement that, when combined with any other such payments previously received by Alexza under any Symphony Allegro Product Agreement, is in excess of $100,000,000 in the aggregate (a �Tier 3 Payment�), an amount equal to 10% of such Tier 3 Payment.

For the avoidance of doubt, payments from a third party to Alexza for reimbursement of employee costs, out-of-pocket expenses, costs of clinical trial materials, toxicology studies and clinical trials shall not be considered a Tier 1 Payment, Tier 2 Payment or Tier 3 Payment for purposes of this Agreement.

(iii) The Alexza Closing Shares, the Alexza Closing Warrants and the payments to be made to Holdings set forth in Section�2(b)(ii) shall constitute the �Purchase Price�.

(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

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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) Corporate Governance Letter Agreement. Subject to the terms and conditions of this Agreement, on the Purchase Option Closing Date, Holdings and Alexza shall enter into a letter agreement substantially in the form attached hereto as Exhibit 3 (the �Corporate Governance Letter Agreement�).

(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 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 issuance by Alexza on such date of the portion of the Purchase Price comprised of the Alexza Closing Shares and the Alexza Closing Warrants 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. 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.

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(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 (including, without limitation, the Stockholder Approval); 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 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, other than the Stockholder Approval, 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.

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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. Other than any HSR Filings which, if such HSR Filings are required pursuant to Section�2(a) 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, 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.

(b) Alexza hereby covenants and agrees with Holdings as follows:

(i) Immediately prior to the Purchase Option Closing, Alexza shall have sufficient authorized but unissued, freely transferable and nonassessable Alexza Common Stock available to satisfy the Alexza Closing Shares and Alexza Closing Warrant Shares. 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 substantially in the form attached hereto as Exhibit 2.

(ii) Alexza, on the Purchase Option Closing Date, shall convey good and marketable title to the Alexza Closing Shares, free from any Encumbrances and any and all other restrictions that any issuance, sale, assignment or other transfer of such Alexza Closing Shares be consented to or approved by any Person.

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(iii) Upon 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 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) Alexza shall maintain the separate corporate existence of Symphony Allegro for a minimum of one (1)�year following the Purchase Option Closing Date, unless such maintenance would have a Material Adverse Effect on Alexza or any of its Affiliates.

(v) Alexza agrees to use its commercially reasonable efforts to obtain the Stockholder Approval. In connection with the foregoing, Alexza shall call and hold a meeting of its stockholders to seek Stockholder Approval prior to October�1, 2009, and file with the SEC a proxy statement and shall use its commercially reasonable efforts to solicit proxies in favor of the Stockholder Approval, and shall use its commercially reasonable efforts to respond to any comments of the SEC or its staff and to cause a definitive proxy statement related to such stockholders� meeting to be mailed to Alexza�s stockholders. The Alexza Board shall unanimously recommend Stockholder Approval and such unanimous recommendation shall be included in each proxy statement filed with the SEC and disseminated to the Alexza stockholders in connection with such stockholder meeting (such recommendations, the �Alexza Board Recommendation�). Alexza shall notify Holdings promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to such proxy statement or for additional information and will supply Holdings with copies of all correspondence between Alexza or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to such proxy statement. If at any time prior to such stockholders� meeting there shall occur any event that is required to be set forth in an amendment or supplement to the proxy statement, Alexza shall as promptly as practicable prepare and mail to its stockholders such an amendment or supplement. Each of Holdings and Alexza agrees promptly to correct any information provided by it or on its behalf for use in the proxy statement if and to the extent that such information shall have become false or misleading in any material respect, and Alexza shall as promptly as practicable prepare and mail to its stockholders an amendment or supplement to correct such information to the extent required by applicable laws and regulations. Alexza shall provide Holdings with drafts of each such proxy statement, or amendment or supplement thereto, and consult with Holdings regarding the same, in each case, prior to filing or mailing the same. Without limiting the generality of the foregoing, Alexza�s obligations pursuant to the first two sentences of this Section�3(b)(v) shall not be affected by the withdrawal or modification by the Alexza Board or any committee thereof of the Alexza Board Recommendation. In the event that Stockholder Approval is not obtained at the first meeting of stockholders at which Stockholder Approval is sought, at the written request of Holdings, the Company shall call and convene a subsequent meeting of

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stockholders for the purpose of obtaining Stockholder Approval (and the Alexza Board will unanimously recommend Stockholder Approval), which meeting may not be unreasonably delayed by Alexza, and all covenants between the parties set forth in this Section�3(b)(v) shall apply equally with respect to any subsequent meeting of stockholders. Unless otherwise required by applicable law, Alexza shall not call or convene a meeting of its stockholders prior to the meeting of stockholders at which Stockholder Approval is sought.

(vi) Prior to the Purchase Option Closing Date, the Alexza Board shall have adopted resolutions, reasonably satisfactory to Holdings, approving the issuance of the Alexza Closing Shares, the Alexza Closing Warrants and the Alexza Closing Warrant Shares to Holdings for purposes of Section�203(a)(1) of the Delaware General Corporation Law (the �DGCL�), such that the restrictions on �business combinations� set forth in Section�203 of the DGCL shall not apply to Alexza and Holdings as a result of such issuances.

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.

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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, 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.

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(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 the Alexza Closing Shares 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 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 Alexza Closing Shares has 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.

(D) Holdings is acquiring the Alexza Closing 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. Holdings agrees that the Alexza Closing Shares may not be resold (x)�without registration thereof under the Securities Act (unless an exemption from such registration is available), or (y)�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 Alexza Closing 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 that all certificates evidencing the Alexza Closing Shares may bear the following legend:

�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�.

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(b) Holdings hereby covenants and agrees with Alexza as follows:

(i) [Reserved.]

(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(b)(i) or (ii)�(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 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.

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(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.

(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.

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(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 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.

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(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.

(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

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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).

(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

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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 $250,000 in the aggregate principal amount at any one time outstanding (unless the Development Committee shall authorize the existence of ordinary course liens securing obligations valued at greater than $250,000), 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 $1,000,000 at any time;

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(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

(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,

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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 date hereof:

(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 fifteen (15)�Business Days 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 fifteen (15)�Business Days 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 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

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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 five (5)�Business Days 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 five (5)�Business Days 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 ten (10)�days 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 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

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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.

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

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other Parties; provided, however, that Alexza, without the prior approval of each of the other Parties, 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 AN AMENDED AND RESTATED PURCHASE OPTION AGREEMENT (THE �PURCHASE OPTION AGREEMENT�) DATED AS OF JUNE 15, 2009, 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.

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Section 8. Costs and Expenses; Payments. Except as otherwise specified in Section�2(f) hereof, each Party shall pay its own costs and expenses incurred in connection with the negotiation and preparation of this Agreement and related documentation, the exercise of the Purchase Option and all actions reasonably required to complete the Purchase Option Closing; provided, however, that Alexza shall pay any filing fees incurred in connection with any HSR Filings made pursuant to the Purchase Option Closing.

Section 9. Expiration; Termination of Agreement.

(a) Termination.

(i) This Agreement shall terminate upon the mutual written consent of all of the Parties.

(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.

(iii) If the Purchase Option Closing shall not have occurred by October�15, 2009, this Agreement shall terminate and become null and void ab initio and the Original Agreement shall simultaneously be reinstated in its entirety and supersede this Agreement in its entirety.

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.

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(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.

(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

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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, 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

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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 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

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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.

2091 Stierlin Court

Mountain View, CA 94043

Attn: August J. Moretti

Facsimile: (650)�944-7999

with a copy to:

Cooley Godward Kronish LLP

380 Interlocken Crescent

Suite 900

Broomfield, CO 80021

Attn: Brent D. Fassett, Esq.

Facsimile: (720)�566-4099

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

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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 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

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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.

(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.

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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 Alexza Closing Warrants shall be treated as option premium payable in respect of the grant and exercise 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.

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Section�21. Original Agreement.

(a) The Original Agreement is hereby amended and superseded in its entirety and restated herein. Such amendment and restatement is effective upon execution of this Agreement by the Parties. Upon such execution, all provisions of, rights granted and covenants made in the Original Agreement are hereby superseded in their entirety by the provisions hereof and shall have no further force or effect; provided, however, that, if the Purchase Option Closing shall not have occurred by October�15, 2009, this Agreement shall terminate and become null and void ab initio and the Original Agreement shall simultaneously be reinstated in its entirety and supersede this Agreement in its entirety.

(b) Defined terms in the Operative Documents (other than this Agreement and the Warrant Purchase Agreement) that refer to definitions in this Agreement shall be deemed to refer to the definitions in the Original Agreement, except where the context requires otherwise.

[SIGNATURES FOLLOW ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written.

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ALEXZA PHARMACEUTICALS, INC.

By:	�	/s/ Thomas B. King
	�	Name: Thomas B. King
	�	Title: ��President and Chief Executive Officer

SYMPHONY ALLEGRO HOLDINGS LLC

By:	�	Symphony Capital Partners, L.P., its Manager

By:	�	Symphony Capital GP, L.P., its General Partner

By:	�	Symphony GP, LLC, its General Partner

By:	�	/s/ Mark Kessel
	�	Name: Mark Kessel
	�	Title: ��Managing Member

SYMPHONY ALLEGRO, INC.

By:	�	/s/ Andrew L. Busser
	�	Name: Andrew L. Busser
	�	Title: ��Chairman of the Board

Signature Page to Amended and Restated Purchase Option Agreement

ANNEX A

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 Board� means the board of directors of Alexza.

�Alexza Closing Shares� has the meaning set forth in Section�2(b) of the Purchase Option Agreement.

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�Alexza Closing Warrant Shares� has the meaning set forth in Recitals of this Agreement.

�Alexza Closing Warrants� has the meaning set forth in the Recitals of this Agreement.

�Alexza Common Stock� means the common stock, par value $0.0001 per share, of Alexza.

�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 Original 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.

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�AZ-004 Program� means the development, manufacture and/or use of any AZ-004 Product in accordance with the Development Plan.

�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.

�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.

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�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.

�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 Original 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 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.

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�Corporate Governance Letter Agreement� has the meaning set forth in Section�2(e) of the Purchase Option Agreement.

�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 the 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),

(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,

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(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 Original 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 Original 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.

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�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 thereof).

�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.

�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

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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 Original 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.

�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.

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�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.

�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 Original 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.

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�Indemnification Agreement� means the Indemnification Agreement among Symphony Allegro and the Directors named therein, dated as of the Original 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 Original 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 Original 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.

�Investors� means Symphony Allegro Investors LLC.

�

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�Investors LLC Agreement� means the Amended and Restated Agreement of Limited Liability Company of Investors dated as of the Original 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 Original 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;

�

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(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.

�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.

�

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�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 Original Closing Date, among Alexza, Symphony Allegro and Holdings.

�

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�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, the Corporate Governance Letter 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.

�Original Agreement� has the meaning set forth in the Preliminary Statement of the Purchase Option Agreement.

�Original Closing Date� means December�1, 2006.

�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.

�

A-14

�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 Amended and Restated Purchase Option Agreement dated as of the date hereof, 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

�

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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.

�Registration Rights Agreement� means the Amended and Restated Registration Rights Agreement dated as of the date hereof, 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 Original Closing Date, among Alexza, Holdings and Symphony Allegro.

�Research and Development Agreement� means the Research and Development Agreement dated as of the Original 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.

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�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 Original 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.

�Stockholder Approval� has the meaning set forth in Section�3(b)(v) of the Purchase Option Agreement.

�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.

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�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 Original 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 Original Closing Date.

�Symphony Allegro Charter� means the Amended and Restated Certificate of Incorporation of Symphony Allegro, dated as of the Original 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.

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�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 Original 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 Original 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.

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�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 date hereof, between Alexza and Holdings.

�Warrant Surrender Price� has the meaning set forth in Section�7.08 of the Warrant Purchase Agreement.

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EXHIBIT 1

PURCHASE OPTION EXERCISE NOTICE

��, 20��

Attention: ��

Ladies and Gentlemen:

Reference is hereby made to that certain Amended and Restated Purchase Option Agreement dated as of June�15, 2009 (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 ��.

�


Very truly yours,

ALEXZA PHARMACEUTICALS, INC.

By:	�	�
	�	Name: Thomas B. King Title: ��President and Chief Executive Officer

EXHIBIT 2

FORM OF OPINION OF COOLEY GODWARD KRONISH LLP

[See attached.]

��, 2009

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 amendment of certain terms of the Financing, the Company has entered into the agreements listed on Schedule I hereto (collectively, the �Transaction Agreements�). We are rendering this opinion pursuant to Section�3(b)(i) of the Purchase Option Agreement (as defined in Schedule I hereto).

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 independently to 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 currently 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; 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.

Our opinion is expressed only with respect to the federal laws of the United States of America, the laws of the State of California for the purposes of paragraphs 4 and 5 below, 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.

��, 2009

Page Two

�

We express no opinion as to any provisions of the Transaction Agreements that: (a)�relate to the subject matter jurisdiction of any federal court of the United States of America or any federal appellate court to adjudicate any controversy related to the Transaction Agreements, (b)�contains a waiver of an inconvenient forum, or (c)�relates to advance waivers of claims, defenses, rights granted by law, or notice, opportunity for hearing, evidentiary requirements, statutes of limitations, trial by jury, or procedural rights.

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 the Investment Company Act of 1940, as amended, except as expressly set forth in paragraph 9 below; 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. We have made no further investigation.

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, and (iv)�a review of the Delaware General Corporation Law. We have made no further investigation.

With regard to our opinion in 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 (as defined on Schedule I hereto)) to exceed the number of shares of Common Stock that then remain authorized but unissued.

��, 2009

Page Three

�

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 Alexza Closing Shares (as defined in the Purchase Option Agreement), the Warrant (as defined in the Warrant Purchase Agreement) 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 qualifications set forth herein, 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 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 Alexza Closing Shares and the Warrant have been duly authorized by the Company.

�

The issuance of the Alexza Closing Shares and the Warrant pursuant to the Transaction Agreements and the Warrant Shares pursuant to the Warrant (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.

�

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 sale and issuance of the Alexza Closing Shares and 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 terms.

��, 2009

Page Four

�

The Alexza Closing Shares and the Warrant Shares, when sold and issued in accordance with the terms of the Purchase Option Agreement or the Warrant, as applicable, will be validly issued, fully paid and non-assessable, and the issuance of the Alexza Closing Shares and the Warrant Shares is not 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.

�

The offer and sale of the Alexza Closing Shares, the Warrant and the 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.

��, 2009

Page Five

�

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.

��, 2009

Page Six

�

This opinion is limited to the matters expressly set forth herein, and no opinion, express or implied, is given beyond the matters expressly stated. This opinion speaks only as to the laws and facts in effect or existing as of the date hereof, and we have no obligation to update or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur.

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:	�	�
	�	��Brent D. Fassett

SCHEDULE I

LIST OF TRANSACTION AGREEMENTS

�

1.	Warrant Purchase Agreement, dated as of June�15, 2009 between the Company and Symphony Allegro Holdings LLC (the �*Warrant Purchase Agreement*�).

�

2.	Amended and Restated Purchase Option Agreement, dated as of June�15, 2009, by and among the Company, Symphony Allegro Holdings LLC and Symphony Allegro, Inc. (the �*Purchase Option Agreement*�).

�

3.	Registration Rights Agreement, dated as of June�15, 2009, between the Company and Symphony Allegro Holdings LLC.

�

4.	Letter Agreement, dated as of ��, 2009, between the Company and Symphony Allegro Holdings LLC, in respect of various corporate governance matters.

SCHEDULE II

LIST OF MATERIAL AGREEMENTS

�

1.	Lease between the Company and Brittania, LLC dated August�25, 2006.

�

2.	First Amendment to Lease between the Company and Britannia Hacienda VIII LLC dated May�4, 2007.

�

3.	Second Amendment to Lease between the Company and Britannia Hacienda VIII LLC dated August�28, 2007.

�

4.	2009-2010 Performance Based Incentive Program.

�

5.	Second Amended and Restated Investors� Rights Agreement between the Company and certain holders of Preferred Stock dated November�5, 2004.

�

6.	2005 Equity Incentive Plan.

�

7.	2005 Non-Employee Directors� Stock Option Plan.

�

8.	2005 Employee Stock Purchase Plan. 9. Development Agreement between the Company and Autoliv ASP, Inc. dated October�3, 2005.

�

10.	Manufacturing and Supply Agreement between the Company and Autoliv ASP dated November�2, 2007.11. Master Security Agreement between the Company and General Electric Capital Corporation dated May�17, 2005, as amended on May�18, 2005.

�

12.	Promissory Note between the Company and General Electric Capital Corporation dated June�15, 2005.

�

13.	Promissory Note between the Company and General Electric Capital Corporation dated August�24, 2005.

�

14.	Warrant to Purchase shares of Series B Preferred Stock issued to Silicon Valley Bank dated March�20, 2002.

�

15.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated January�30, 2003, as amended on March�4, 2003.

�

16.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated September�19, 2003.

�

17.	Warrant to Purchase shares of Series C Preferred Stock issued to Silicon Valley Bank dated April�7, 2004.

18.	Stock and Warrant Purchase Agreement between the Company and Biomedical Investment Fund Pte Ltd. dated March�26, 2008.

�

19.	Warrant to Purchase shares of Common Stock issued to Biomedical Investment Fund Pte Ltd. dated March�27, 2008.

�

20.	Common Stock Purchase Agreement between the Company and Azimuth Opportunity Ltd. dated March�31, 2009.

EXHIBIT 3

FORM OF CORPORATE GOVERNANCE LETTER AGREEMENT

[See attached.]

Symphony Allegro Holdings LLC

7361 Calhoun Place, Suite 325

Rockville, MD 20855

��, 2009

Alexza Pharmaceuticals, Inc.

2091 Stierlin Court

Mountain View, CA 94043

Attention: Chief Executive Officer

Ladies and Gentlemen:

In connection with the acquisition of shares of Common Stock, par value $0.0001 per share (the �Common Stock�), of Alexza Pharmaceuticals, Inc., a Delaware corporation (the �Company�), by Symphony Allegro Holdings LLC, a Delaware limited liability company (together with its permitted successors, assigns and transferees, the �Purchaser�), pursuant to the terms of that certain Amended and Restated Purchase Option Agreement, dated as of June�15, 2009, among the Company, the Purchaser and Symphony Allegro, Inc. (the �Amended and Restated Purchase Option Agreement�), the Company and the Purchaser agree as follows:

Section�1. Definitions. For purposes of this letter agreement, the following terms have the respective meanings set forth below:

�Affiliate� shall mean, 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.

�Beneficially Owns� (including the terms �Beneficial Ownership� or �Beneficially Owned�) shall mean beneficial ownership within the meaning of Rule 13d-3 under the Exchange Act.

�Board� shall mean the Board of Directors of the Company.

�Exchange Act� shall mean the U.S. Securities Exchange Act of 1934, as amended.

�Person� shall mean any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

Section�2. Standstill. Except for the exercise of the Alexza Closing Warrants (as defined in the Amended and Restated Purchase Option Agreement) and the acquisition of Alexza Closing Warrant Shares (as defined in the Amended and Restated Purchase Option Agreement), for so long as the Purchaser and its Affiliates Beneficially Own more than 10% of the Company�s outstanding Common Stock, neither the Purchaser nor any of its Affiliates shall, without the prior written consent of a majority of the independent members of the Board who are not Affiliated with the Purchaser, in any manner, whether directly or indirectly:

(a) make, effect, initiate, cause or participate in (i)�any acquisition of Beneficial Ownership of any securities of the Company or any securities of any subsidiary or other Affiliate of the Company, (ii)�any acquisition of any assets of the Company or any assets of any subsidiary or other Affiliate of the Company, (iii)�any tender offer, exchange offer, merger, business combination, recapitalization, restructuring, liquidation, dissolution or extraordinary transaction involving the Company or any subsidiary or other Affiliate of the Company, or involving any securities or assets of the Company or any securities or assets of any subsidiary or other Affiliate of the Company, or (iv)�any �solicitation� of �proxies� (as those terms are used in the proxy rules of the Securities and Exchange Commission (�SEC�)) or consents with respect to any securities of the Company;

(b) form, join or participate in a �group� (as defined in the Securities Exchange Act and the rules promulgated thereunder) with respect to the Beneficial Ownership of any securities of the Company;

(c) without limiting any rights of the Purchaser pursuant to Section�5 hereof, act, alone or in concert with others, to seek to control or influence the management, board of directors or policies of the Company;

(d) take any action that might require the Company to make a public announcement regarding any of the types of matters set forth in clause �(a)� of this sentence;

(e) agree or offer to take, or encourage or propose (publicly or otherwise) the taking of, any action prohibited by clause �(a)�, �(b)�, �(c)� or �(d)� of this sentence;

(f) assist, induce or encourage any other Person to take any action of the type prohibited by clause �(a)�, �(b)�, �(c)�, �(d)� or �(e)� of this sentence;

(g)�enter into any discussions, negotiations, arrangement or agreement with any other Person relating to any of the foregoing; or

�

(h) request or propose that the Company or any of the Company�s Affiliates amend, waive or consider the amendment or waiver of any provision set forth in this Section�2.

Section�3. No Effect on Directors. Notwithstanding any of the foregoing, the provisions set forth in Section�2 shall in no way limit the ability of any individual who is serving as a director of the Company to take any actions (or to refrain from taking any actions) in his or her capacity as a director of the Company.

Section�4. Voting Agreement. In the event the Purchaser and its Affiliates Beneficially Own more than 33% of the Company�s outstanding Common Stock, any shares of Common Stock entitled to vote for the election of directors Beneficially Owned by the Purchaser and its Affiliates in excess of 33% of the shares of Common Stock then outstanding, with respect to the election or removal of directors only, shall be voted either, solely at the Purchaser�s election (a)�as recommended by the Board or (b)(i) in an election, in the same proportion with the votes of shares of Common Stock voted in such election (excluding shares with respect to which the votes were withheld, abstained or otherwise not cast) and not Beneficially Owned by the Purchaser (excluding withheld shares and abstentions) or (ii)�in a removal vote, in the same proportions as all outstanding shares of Common Stock not Beneficially Owned by the Purchaser (including shares with respect to which the votes were withheld, abstained or otherwise not cast), whether at an annual or special meeting of stockholders of the Company, by written consent or otherwise. The Purchaser shall retain its right to vote (or to withhold its vote) all of its shares on all other matters.

Section�5. Member of the Board. For so long as the Purchaser and its Affiliates Beneficially Own more than 10% of the Company�s outstanding Common Stock, then, subject to applicable law and the rules and regulations of the SEC and the NASDAQ Stock Market, the Company will nominate and use its commercially reasonable efforts to cause to be elected and cause to remain as a director on the Board one (1)�individual designated by the Purchaser.

Section�6. Representations. Each party represents to the other that: (a)�this letter agreement has been duly authorized by all necessary corporate or partnership action, as the case may be; and (b)�this letter agreement is a valid and binding agreement of such party, enforceable against it in accordance with its terms.

Section�7. Specific Enforcement; Legal Effect. The parties hereto agree that any breach of this letter agreement would result in irreparable injury to the other party and that money damages would not be an adequate remedy for such breach. Accordingly, without prejudice to the rights and remedies otherwise available under applicable law, either party shall be entitled to specific performance and equitable relief by way of injunction or otherwise if the other party breaches or threatens to breach any of the provisions of this letter agreement. It is further understood and agreed that no failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right,

�

power or privilege hereunder. If any term, provision, covenant or restriction in this letter agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this letter agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, provided that the parties hereto shall negotiate in good faith to attempt to place the parties in the same position as they would have been in had such provision not been held to be invalid, void or unenforceable. This letter agreement contains the entire agreement between the parties hereto concerning the matters addressed herein. No modification of this letter agreement or waiver of the terms and conditions hereof shall be binding upon either party hereto, unless approved in writing by each such party; provided, however, that no waiver or amendment shall be effective as against the Company unless such waiver or amendment is approved in writing by the vote of a majority of the independent members of the Board who are not Affiliated with the Purchaser. This Agreement shall be governed by and construed in accordance with the law of the State of New York.

Section�8. Termination. This agreement shall continue in full force and effect from the date hereof until such time as the Purchaser and its Affiliates Beneficially Own less than 10% of the Company�s outstanding Common Stock.

Section�9. Counterparts. This letter agreement may be executed in counterpart (including by facsimile), each of which shall be deemed an original.

[Remainder of page left blank intentionally]

�

If you are in agreement with the terms set forth above, please sign this letter agreement in the space provided below and return an executed copy to the undersigned.

�


Very truly yours,

SYMPHONY ALLEGRO HOLDINGS LLC

By:	�	Symphony Capital Partners, L.P., its Manager

By:	�	Symphony Capital GP, L.P., its General Partner

By:	�	Symphony GP, LLC, its General Partner

	�	By:	�	�
	�	Name:	�	Mark Kessel
	�	Title:	�	Managing Member

�


Confirmed and Agreed:

ALEXZA PHARMACEUTICALS, INC.

By:	�	�
	�	Name:	�	August J. Moretti
	�	Title:	�	Senior Vice President and Chief Financial Officer

Exhibit 31.1

CERTIFICATIONS

I, Thomas B. King, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 Rules 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 fiscal 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:�November 5,�2014	�	�	/s/ Thomas B. King
	�	�	Thomas B. King
	�	�	President and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Mark K. Oki, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alexza Pharmaceuticals, Inc.:

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:�November 5,�2014	�	/s/ Mark K. Oki
	�	Mark K. Oki
	�	Senior Vice President, Finance, Chief Financial Officer and Secretary

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 Mark K. Oki, the Senior Vice President, Finance, Chief Financial Officer and Secretary, each hereby certifies that, to the best of his knowledge:

1. The Company�s Quarterly Report on Form 10-Q for the period ended September�30, 2014, to which this Certification is attached as Exhibit 32.1 (the �Periodic 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 Periodic 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 5th day of November 2014.

�


/s/ Thomas B. King	�	�	/s/ Mark K. Oki
Thomas B. King	�	�	Mark K. Oki
President and Chief Executive Officer	�	�	Senior Vice President, Finance, Chief Financial Officer and Secretary

This certification accompanies the Form 10-Q 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-Q), irrespective of any general incorporation language contained in such filing.

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Form 10-Q Alexza Pharmaceuticals For: Sep 30

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