<SUBMISSION>
<ACCESSION-NUMBER>0000912057-02-000510
<TYPE>8-K
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20020107
<ITEMS>5
<ITEMS>7
<FILING-DATE>20020108
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS INC
<CIK>0000906709
<ASSIGNED-SIC>2834
<IRS-NUMBER>943134940
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>000-24006
<FILM-NUMBER>2503505
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>150 INDUSTRIAL RD.
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
<PHONE>6506313100
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>150 INDUSTRIAL ROAD
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS
<DATE-CHANGED>19940303
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>a2067348z8-k.htm
<DESCRIPTION>FORM 8-K
<TEXT>
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<P ALIGN="CENTER"><FONT SIZE=5><B>SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>Washington, D.C. 20549  </B></FONT></P>

<P ALIGN="CENTER"><BR><FONT SIZE=5><B>FORM 8-K  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Current Report Pursuant to Section&nbsp;13 or 15(d) of the<BR>
Securities Exchange Act of 1934 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Date
of Report (Date of earliest event reported): </FONT><FONT SIZE=2><B>January&nbsp;7, 2002</B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>Inhale Therapeutic Systems,&nbsp;Inc.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>Delaware<BR>  </B></FONT><FONT SIZE=2>(State or other jurisdiction of incorporation) </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>000-23556<BR> </B></FONT><FONT SIZE=2>(Commission File No.)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>94-3134940</B></FONT><FONT SIZE=2><BR>
(IRS Employer Identification No.)</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2><B>150 Industrial Road<BR>
San Carlos, CA 94070<BR>  </B></FONT><FONT SIZE=2>(Address of principal executive offices and zip code) </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Registrant's
telephone number, including area code: </FONT><FONT SIZE=2><B>(650)&nbsp;631-3100</B></FONT></P>

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<P><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>Item 5. Other Events    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;7, 2002, Inhale Therapeutic Systems,&nbsp;Inc. ("Inhale") announced that it has entered into a broad strategic alliance with
Enzon,&nbsp;Inc. ("Enzon") that will serve to enhance each company's business model. As more fully described below, the most significant terms of the alliance are: </FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Inhale
and Enzon will collaborate to develop three products to be specified over time based on the Inhale Inhance&#153; pulmonary delivery platform
and SEDS&#153; supercritical fluids platform. The collaboration will have a particular focus on the development of products in the oncology field. Enzon will be responsible for
commercialization and clinical development of the products while Inhale will be responsible for product development and manufacturing.
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Inhale
will be solely responsible for licensing Enzon's PEG patents, which include over 40 U.S. patents, to third parties. Inhale will also have the option
to license Enzon's PEG patents for use in Inhale's proprietary products. Enzon will receive a royalty or a share of profits on final product sales of any products that are subject to a license under
Enzon's PEG patents, including its branched PEG patents. Enzon retains the right to use its PEG technology for its own proprietary products and those it may develop with
co-commercialization partners.
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Enzon
will have the option to license Inhale's PEGylation patents for Enzon's proprietary products and Inhale will receive royalties on sales of any such
products.
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Enzon
and Inhale will explore the development of non-invasive delivery of single-chain antibody (SCA&reg;) products via the pulmonary
route. Inhale will become the exclusive pulmonary technology provider for Enzon's single-chain antibody technology using Inhale's proprietary Inhance pulmonary drug delivery technology for at least
three years assuming success in the initial proof of concept program.
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Enzon
purchased $40&nbsp;million of newly issued Inhale convertible preferred stock.
<BR><BR></FONT></DD><DT><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Enzon
and Inhale have agreed to settlement of the patent infringement litigation filed by Enzon against Shearwater Corporation, Inhale's wholly-owned
subsidiary. </FONT></DD></DL>
</UL>
<BR>
<UL>

<P><FONT SIZE=2><I> Product Development Agreements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Enzon and Inhale will jointly develop up to three products using Inhale's platform technologies: the Inhance&#153; pulmonary delivery platform and
SEDS&#153; supercritical fluids platform. The two companies will collaborate to identify product candidates. Inhale will be responsible for formulation development, delivery system supply, and
in some cases, early clinical development. Enzon will have responsibility for most clinical development and for commercialization. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
two companies have agreed to collaborate on realizing the significant therapeutic and competitive potential offered by single-chain antibody (SCA&reg;) products when
administered by the pulmonary route. The two companies will initially focus on exploring the utility of the Inhale pulmonary platform for single-chain antibodies and then move to develop single-chain
products that will complement the current use of antibodies through the injectable route. Single-chain antibodies are genetically engineered proteins designed to expand on the therapeutic and
diagnostic applications possible with monoclonal antibodies. Enzon retains all rights to its SCA products while Inhale retains all rights to its own technology. Inhale will become the exclusive
pulmonary technology provider for Enzon's single-chain antibody technology using Inhale's Inhance pulmonary drug delivery technology for at least the next three years assuming a successful initial
proof-of-concept program. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<UL>

<P><FONT SIZE=2><I> Technology Licensing  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Enzon will grant to Inhale the exclusive right to grant sublicenses under Enzon's PEG patents to third parties. Enzon will receive a share of profits for
certain products that currently incorporate branched PEG technology and royalties on sales of products that are subject to new sublicenses that Inhale grants to its partners under Enzon's PEG Patents.
With respect to Pegasys, it is anticipated that Enzon will receive 0.5% or less of Inhale's current partner's sales, which represents equal profit sharing with Inhale on this product. With respect to
certain other products in Inhale's current product pipeline that use branched PEG technology, Inhale has advised Enzon that it expects to receive a higher percentage of partner sales in the form of
royalty and manufacturing revenues. For such products, Inhale and Enzon will have a profit sharing relationship, but the extent of Enzon's participation in such profit-sharing on a percentage basis is
expected to be considerably less than for Pegasys, since Inhale anticipates receiving a higher percentage of partner sales with respect to such products. Enzon retains the right to use all of its PEG
technology for its own product portfolio, as well as for those products it develops in co-commercialization collaborations with third parties. It is the intent of the parties that Inhale
will be responsible for marketing PEG services and Enzon and Inhale PEG technology to third parties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Enzon
will have an option to license Inhale's PEGylation technology for use with its own portfolio products. Inhale will receive royalties on any sales of Enzon PEGylation products
using Inhale technology. Enzon will have the ability to request PEGylation supply and services from Inhale. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Certain
drug molecules will be excluded from both the product collaboration and PEG licensing agreements. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Settlement Agreement  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In addition to establishing this alliance, the two companies have agreed to settle the patent infringement suit related to Enzon's branched PEG technology
filed in 1998 by Enzon against Shearwater Corporation, Inhale's wholly-owned subsidiary. Inhale will receive licensing access to the contested patents under the cross-license agreement described
above. Enzon will receive a $3&nbsp;million payment from Inhale to cover expenses incurred in connection with defending the branched PEG patents that both companies will now commercially exploit. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Preferred Stock Purchase  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In connection with the strategic alliance, Inhale and Enzon also entered into a Preferred Stock Purchase Agreement (the "Purchase Agreement"), pursuant to
which Inhale sold to Enzon and Enzon purchased from Inhale forty thousand (40,000) shares of non-voting Series&nbsp;B Convertible Preferred Stock (the "Preferred Stock") at a purchase
price of one thousand dollars ($1,000) per share of Preferred Stock for an aggregate purchase price of forty million dollars ($40,000,000). The description contained in this Item 5 of the terms of the
Purchase Agreement and the rights, privileges and preferences of the Preferred Stock is qualified in its entirety by reference to the full text of the Purchase Agreement, the form of which is attached
hereto as </FONT><FONT SIZE=2><B>Exhibit&nbsp;4.21</B></FONT><FONT SIZE=2> and the Certificate of Designation, setting forth the rights, privileges and preferences of the Preferred Stock, the form
of which is attached hereto as </FONT><FONT SIZE=2><B>Exhibit&nbsp;3.5</B></FONT><FONT SIZE=2>. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the Certificate of Designation, the Preferred Stock does not have voting rights and the consent of the holders of the Preferred Stock is not required (except to the extent
required by law or otherwise expressly stated in the Certificate of Designation) for taking any corporate action. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Preferred Stock is convertible, in whole or in part, into that number of shares of common stock (the "Conversion Shares") equal to the quotient of $1,000 per share divided by the
Conversion Price. The "Conversion Price" shall initially be equal to $22.79 per share or 125% of the Closing Price </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2>
and at no time can the Preferred Stock convert into shares of Common Stock at a discount to the Closing Price. The "Closing Price" equals $18.23 per share and was based upon the average of the
Company's closing bid prices as listed on the Nasdaq National Market for the twenty (20)&nbsp;trading days preceding the date of the closing of the transaction. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Preferred Stock is convertible at the option of the holder after the first anniversary of the original issuance of the Preferred Stock (the "Original Issue Date") or, if earlier,
upon a Change in Control (as defined in the Certificate of Designation). Except with respect to an automatic conversion as described below, the Conversion Price shall be equal to 125% of the Closing
Price until the third anniversary of the Original Issue Date. Upon the third anniversary of the Original Issue Date, the Conversion Price shall be adjusted to be equal to either (i)&nbsp;the Closing
Price, in the event that the average of the closing bid prices of Inhale's Common Stock as quoted on the Nasdaq National Market for the twenty (20)&nbsp;trading days preceding the third anniversary
of the original issuance (the "Future Price") is less than or equal to the Closing Price; (ii)&nbsp;the Future Price (as defined above) if the Future Price is greater than the Closing Price but less
than 125% of the Closing Price; or (iii)&nbsp;125% of the Closing Price if the Future Price is equal to or greater than 125% of the Closing Price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To
the extent not previously converted, the Preferred Stock will automatically convert into shares of Inhale Common Stock, based on the then effective Conversion Price, upon the
earliest of (i)&nbsp;the fourth anniversary of the Original Issue Date; (ii)&nbsp;immediately prior to an Asset Transfer or Acquisition (as defined in the Certificate of Designation); or
(iii)&nbsp;with the consent of the holders of a majority of the then outstanding Series&nbsp;B Preferred Stock immediately prior to a liquidation, dissolution or winding up of Inhale. In the event
of an automatic conversion pursuant to an Asset Transfer, Acquisition or liquidation, the adjustment mechanism described above will be applied immediately prior to the automatic conversion. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the terms of the Purchase Agreement, Inhale has agreed to register the shares of common stock issuable upon conversion of the Preferred Stock for resale under certain
circumstances. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Preferred Stock was issued in a private placement exempt from the registration requirements of the Securities Act of 1933 (the "Act") pursuant to an exemption under
Section&nbsp;4(2) of the Act. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This
report contains forward-looking statements that reflect Inhale management's current views as to the company's business strategy, this strategic alliance, future products, product
developments, clinical trials, manufacturing scale-up, and other future events and operations relating to the company and its subsidiaries. The forward-looking statements also involve
uncertainties and risks that are detailed in Inhale's reports and other filings with the Securities and Exchange Commission, including its Form&nbsp;10-K as amended for the year ending
December&nbsp;31, 2000 and its Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2001. Actual results could differ materially from these forward-looking statements. </FONT></P>


<P><FONT SIZE=2><B>Item 7. Financial Statements and Exhibits  </B></FONT></P>

<UL>
<DL compact>
<DT><FONT SIZE=2><B>(c)</B></FONT></DT><DD><FONT SIZE=2><B>Exhibits</B></FONT></DD></DL>
</UL>
<BR>

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<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit<BR>
Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="85%" ALIGN="LEFT"><FONT SIZE=1><B>Description<BR> </B></FONT><HR NOSHADE></TH>
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<TD WIDTH="12%"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certificate of Designation of Series B Convertible Preferred Stock of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%"><FONT SIZE=2>4.21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Preferred Stock Purchase Agreement, dated January 7, 2002, by and between Inhale Therapeutic Systems, Inc. and Enzon, Inc.</FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<BR></FONT><FONT SIZE=2><B>SIGNATURE    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;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
hereunto duly authorized. </FONT></P>

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<TD COLSPAN=3><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Dated: January&nbsp;7, 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="44%" ALIGN="CENTER"><FONT SIZE=2><BR>
/s/ Brigid A. Makes</FONT><HR NOSHADE><FONT SIZE=2> Brigid A. Makes</FONT></TD>
</TR>
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<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="44%" ALIGN="CENTER"><BR><FONT SIZE=2><I>Chief Financial Officer and Vice President (Principal Financial and Accounting Officer)</I></FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<FONT SIZE=2><A HREF="#toc_de1027_1">Item 5. Other Events</A></FONT><BR>
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<TYPE>EX-3.5
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<DESCRIPTION>EXHIBIT 3.5
<TEXT>
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<BR></FONT><FONT SIZE=2><B>Exhibit 3.5    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1027_certificate_of_designation_of___cer04012"> </A>
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<BR></FONT><FONT SIZE=2><B>CERTIFICATE OF DESIGNATION<BR>  <BR>    OF<BR>  <BR>    SERIES B CONVERTIBLE PREFERRED STOCK<BR>  <BR>    OF<BR>  <BR>    INHALE THERAPEUTIC SYSTEMS, INC.    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(Pursuant to Section 151 of the<BR>
Delaware General Company Law) </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>INHALE THERAPEUTIC SYSTEMS, INC.</B></FONT><FONT SIZE=2>, a corporation organized and existing under the General Corporation Law of the State of Delaware
(hereinafter called the "Company"), hereby certifies that the following resolution was adopted by the Board of Directors of the Company as required by Section 151 of the General Company Law at a
meeting duly called and held on December 13, 2001: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>RESOLVED</B></FONT><FONT SIZE=2>, that pursuant to the authority granted to and vested in the Board of Directors of the Company in accordance with the
provisions of its Amended and Restated Certificate of Incorporation, as amended, the Board of Directors hereby creates a series of Preferred Stock, par value $.0001 per share, of the Company and
hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Amended and Restated Certificate
of Incorporation of the Company, which are applicable to the Preferred Stock of all classes and series), as follows: </FONT></P>

<P><FONT SIZE=2>Series
B Convertible Preferred Stock: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.&nbsp;&nbsp;Designation and Amount.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Forty Thousand (40,000) shares of Preferred Stock, $.0001 par value, are
designated "Series B Convertible Preferred Stock" with the rights, preferences, privileges and restrictions specified herein (the "Series B Preferred Stock"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.&nbsp;&nbsp;Dividends and Distributions.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The holders of the Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends at the rate per share equal to any dividend declared on or paid to the Common Stock of
the Company ("Common Stock"), whether payable in cash, securities or other property other than dividends payable solely in shares of Common Stock, on an as converted to Common Stock basis determined
as of the record date established by the Board of Directors for determining holders of Common Stock entitled to receive such dividends or if no such record date is established, the date of
distribution of the dividend (and assuming for purposes of this provision that the Series B Preferred Stock is convertible during the first twelve months following the Original Issue Date (as defined
below) on the same basis as it is convertible on the first anniversary of the Original Issue Date). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.&nbsp;&nbsp;Voting Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as set forth herein, or as otherwise provided by law, holders of Series B
Preferred Stock shall have no voting rights and their consent shall not be required (except to the extent set forth herein or as otherwise required by law) for taking any corporate action. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.&nbsp;&nbsp;Liquidation Preference.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Series B Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all classes of Common Stock of the Company and to each other class of capital stock or series of
preferred stock the terms of which do not expressly provide that it ranks senior to or on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to as "Junior Preferred Stock"); (ii) on a parity with any class of capital stock or series of preferred stock of the
Company the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company (collectively referred to as "Parity Preferred Stock"); and (iii) junior to </FONT></P>

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<P><FONT SIZE=2>
each class of capital stock or series of preferred stock of the Company the terms of which expressly provide that such class or series will rank senior to the Series B Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Preferred Stock"). In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary (a "Liquidation Event"), following the payment of any distributions due to the holders of Senior Preferred Stock, the holders of the Series B
Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of the Common Stock or Junior Preferred
Stock of the Company, an amount per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to the Series B Preferred Stock) equal to $1,000 (the
"Original Issue Price"). If upon the occurrence of such Liquidation Event, the assets and funds thus distributed among the holders of the Series B Preferred Stock and any Parity Preferred Stock shall
be insufficient to permit the payment to such holders of their full preferential amount, then the entire
assets and funds of the Company legally available for distribution shall be distributed among the holders of the Series B Preferred Stock and any Parity Preferred Stock in proportion to the
liquidation preference of such holders' Series B Preferred Stock and Parity Preferred Stock then held by them. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.&nbsp;&nbsp;Conversion.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Series B Preferred Stock shall convert only as follows: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;Conversion at Holder's Option.</B></FONT><FONT SIZE=2> At any time after the first anniversary of the original issuance of the Series B
Preferred Stock (the "Original Issue Date") or, if earlier, a Change in Control, the Series B Preferred Stock shall be convertible, in whole or in part, into such number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i) the Original Issue Price, divided by (ii) the Conversion Price. The "Conversion Price" shall be equal to 125% of the Closing Price (as
otherwise adjusted pursuant to the terms of this Section 5) until the earlier of (i) the third anniversary of the Original Issue Date or (ii) the Conversion Date with respect to an automatic
conversion pursuant to Section 5(b)(B) or 5(b)(C) (such third anniversary or Conversion Date hereinafter referred to as the "Reset Date"); </FONT><FONT SIZE=2><I>provided,
however,</I></FONT><FONT SIZE=2>that effective upon the Reset Date, the Conversion Price shall be equal to: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;the Closing Price (as otherwise adjusted pursuant to the terms of this Section 5) in the event that the average of
closing bid prices of the Company's Common Stock as quoted in the Nasdaq National Market (or if not so listed, on the principal exchange or quotation system on which the Common Stock is quoted or
listed) for the twenty trading days immediately prior to the third anniversary of the Original Issue Date (the "Future Price") is less than or equal to the Closing Price (as otherwise adjusted
pursuant to the terms of this Section 5); </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(ii)</B></FONT><FONT SIZE=2>&nbsp;the Future Price (as otherwise adjusted pursuant to the terms of this Section 5) if the Future Price is greater
than the Closing Price (as otherwise adjusted pursuant to the terms of this Section 5) but less than 125% of the Closing Price (as otherwise adjusted pursuant to the terms of this Section 5); or </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(iii)</B></FONT><FONT SIZE=2>&nbsp;125% of the Closing Price (as otherwise adjusted pursuant to the terms of this Section 5) if the Future Price is
equal or greater than 125% of the Closing Price (as otherwise adjusted pursuant to the terms of this Section 5). </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>The
Closing Price shall be equal to $18.23. </FONT></P>

<P><FONT SIZE=2>A
"Change of Control" shall be deemed to have occurred if any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes
the beneficial owner (as defined in rules 13d-3 and 13d-5 under the Exchange Act) of more than 25% of the total voting power of the Company voting stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;Automatic Conversion.</B></FONT><FONT SIZE=2> To the extent not previously converted, each share of Series B Preferred Stock shall be
converted automatically into shares of the Company's Common Stock, based on the then effective Conversion Price upon the earliest to occur of the following (A) the fourth anniversary of the Original
Issue Date; (B) immediately prior to any Asset Transfer or Acquisition (as hereinafter defined); or (C) with the consent of the holders of a majority of the then outstanding Series B Preferred Stock,
immediately prior to a Liquidation Event; provided, in the case of an automatic conversion pursuant to Sections 5(b)(B) or 5(b)(C), the Common Stock issued upon conversion shall be deemed outstanding
on any record date established for purposes of entitling the holder thereof to any distribution or exchange of securities related to any Asset Transfer, Acquisition or Liquidation Event. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;An
"Asset Transfer" shall mean a sale, lease or other disposition of substantially all the assets of the Company to any person or entity which is not an affiliate of the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;An
"Acquisition" shall mean (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in
which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the voting power of the surviving entity immediately after such
consolidation, merger or reorganization; or (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting
power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;Adjustments for Combinations or Subdivisions of Common Stock.</B></FONT><FONT SIZE=2> In the event the Company at any time or from time to
time after the Original Issue Date shall declare or pay any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price, the Closing Price and the maximum and minimum number of shares of
Common Stock into which the Series B Preferred Stock may be converted, shall be proportionately decreased or increased, as appropriate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;Mechanics of Conversion.</B></FONT><FONT SIZE=2> Before any holder of Series B Preferred Stock shall be entitled to receive shares of Common
Stock upon conversion, he shall surrender the certificate or certificates evidencing the shares of Series B Preferred Stock to be converted, duly endorsed, at the office of the Company or of any
transfer agent for such stock, and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The Company shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of Series B Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be deemed to have been made (i) in the event of a conversion pursuant to Section 5(a) above, on the date upon which the holder of such outstanding Series B
Preferred Stock delivers notice to the Company of such conversion; or (ii) in the event of a conversion pursuant to Section 5(b) above, on the applicable date referenced therein (the "Conversion
Date"), and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date; provided, in the case of clauses (B) and (C), the Common Stock issued upon conversion shall be deemed outstanding on any record date established for purposes of
entitling the holder thereof to any distribution or exchange of securities related to any Asset Transfer, Acquisition or Liquidation Event. Notwithstanding the foregoing, in the event that the
issuance of the Common Stock issuable upon conversion of the Series B Preferred Stock is subject to the premerger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2>
amended (the "HSR Act"), the Conversion Date shall be such later date that is the first business day following the expiration or termination of any waiting period under the HSR Act applicable to the
issuance of the Common Stock upon conversion of the Series B Preferred Stock provided that any approvals required thereunder have been obtained. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)&nbsp;Reservation of Stock Issuable Upon Conversion.</B></FONT><FONT SIZE=2> The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(f)&nbsp;&nbsp;Fractional Shares.</B></FONT><FONT SIZE=2> No fractional share shall be issued upon the conversion of any share or shares of Series B
Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common
Stock, the Company shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fractional share a sum in cash equal to the closing bid price of the Company's Common Stock
as listed on the Nasdaq National Market (or, if not so listed, on the principal exchange or quotation system on which the Common Stock is quoted or listed) on the Conversion Date, multiplied by such
fraction. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(g)&nbsp;Reorganization, Reclassification, Consolidation, Merger or Sale.</B></FONT><FONT SIZE=2> If any (i) reorganization of the capital stock of
the Company, (ii) consolidation or merger involving the Company or any subsidiary of the Company, (other than an Asset Transfer or Acquisition) (each, an "Event") shall be effected in such a way that
holders of Common Stock shall be entitled to receive securities, cash or other assets or property, provision shall be made so that the holders of the Series B Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon such conversion would have been entitled on such Event, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the
holders of Series B Preferred Stock after the capital reorganization to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and the number of
shares issuable upon conversion of the Series B Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(h)&nbsp;Notice.</B></FONT><FONT SIZE=2> Whenever the Conversion Price is adjusted, the Company shall promptly mail to holders of Series B Preferred
Stock, first class, postage prepaid, a notice of the adjustment, such notice containing a description of the facts requiring the adjustment and the manner of computing the adjustment. No later than 20
days prior to any Asset Transfer, Acquisition, or any dissolution, winding-up or liquidation of the Company, the Company shall give notice to each holder of Series B Preferred Stock setting forth in
reasonable detail the terms of such transaction. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.&nbsp;&nbsp;No Redemption.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The shares of Series B Preferred Stock shall not be redeemable. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.&nbsp;&nbsp;Amendment.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Neither the Amended and Restated Certificate of Incorporation of the Company nor this
Certificate of Designation shall be amended or any provision therein or herein waived in any manner which would alter or change the powers, preferences or rights of the Series B Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of at least a majority the outstanding shares of Series B Preferred Stock, voting together as a single class; provided, however,
without limiting the foregoing, without the consent of the holders of 75% of the outstanding shares of Series B Preferred Stock, no amendment or waiver of the Company's Amended and Restated </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<P><FONT SIZE=2>
Certificate of Incorporation or this Certificate of Designation shall (i) reduce the number of shares of Series B Preferred Stock whose holders must consent to an amendment or waiver, (ii) reduce the
Original Issue Price or change the circumstances under which the holders of Series B Preferred Stock are entitled to receive the Original Issue Price, or (iii) increase the Conversion Price (in a
manner inconsistent with the terms herein) or otherwise adversely affect the right to convert the Series B Preferred Stock. Notwithstanding the foregoing, no consent of the holders of Series B
Preferred Stock shall be required with respect to the authorization, designation, or issuance of any Senior Preferred Stock, Parity Preferred Stock or other security having a preference to, or on a
parity with, the Series B Preferred Stock with respect to dividend distributions or distributions upon the liquidation, dissolution or winding up of the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.&nbsp;&nbsp;Reissuance of Stock.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Shares of Series B Preferred Stock that have been issued and reacquired in any
manner, including upon conversion to Common Stock, shall not be reissued and shall have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may
be designated and issued as part of any series of preferred stock other than Series B Preferred Stock. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2> the undersigned have executed this certificate as of January 7, 2002. </FONT></P>

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<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="52%"><FONT SIZE=2>/s/&nbsp;</FONT><FONT SIZE=2>AJIT S. GILL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Ajit S. Gill<BR>
President and Chief Executive Officer<BR></FONT>
</TD>
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<TD WIDTH="47%"><FONT SIZE=2>ATTEST:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="52%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
/s/&nbsp;</FONT><FONT SIZE=2>ROBERT A. DONNALLY</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Robert A. Donnally<BR>
Assistant Secretary<BR></FONT>
</TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="52%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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<BR>
<P><br><A NAME="02PAL1027_2">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_ke1027_1">Exhibit 3.5</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_ke1027_2">CERTIFICATE OF DESIGNATION OF SERIES B CONVERTIBLE PREFERRED STOCK OF INHALE THERAPEUTIC SYSTEMS, INC.</A></FONT><BR>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.21
<SEQUENCE>4
<FILENAME>a2067348zex-4_21.htm
<DESCRIPTION>EXHIBIT 4.21
<TEXT>
<HTML>
<HEAD>
<TITLE> Prepared by MERRILL CORPORATION
</TITLE>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#02PAL1027_3">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.<BR>
AND<BR>
ENZON,&nbsp;INC.  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ki1027_preferred_stock_purchase_agreement"> </A>
<A NAME="toc_ki1027_1"> </A>
<BR></FONT><FONT SIZE=2><B>PREFERRED STOCK PURCHASE AGREEMENT    <BR>  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><B>January 7, 2002  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kj1027_table_of_contents"> </A>
<A NAME="toc_kj1027_1"> </A>
<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>  </B></FONT></P>

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<TH WIDTH="3%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="79%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Purchase of Preferred Stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>1.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Agreement to Sell and Purchase</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>1.2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Closing; Closing Date</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>1.3.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Delivery</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>1.4.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Hart-Scott-Rodino Compliance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Representations and Warranties of the Company</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Authorization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>No Conflict with Other Instruments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.3.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Amended and Restated Certificate of Incorporation; Bylaws</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.4.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Organization, Good Standing and Qualification</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.5.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>SEC Filings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.6.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Capitalization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.7.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Subsidiaries</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.8.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Valid Issuance of Preferred Stock and Conversion Shares</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.9.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Offering</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.10.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Litigation, etc.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.11.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Governmental Consents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.12.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>No Brokers</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.13.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Compliance</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.14</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Absence of Certain Changes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.15</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Contracts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>2.16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Intellectual Property</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>3.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Representations and Warranties of Enzon</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>3.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Legal Power</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>3.2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Due Execution</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>3.3.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Investment Representations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>3.4.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>No Brokers</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>4.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Conditions to Closing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>4.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Conditions to Obligations of Enzon at Closing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>4.2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Conditions to Obligations of the Company</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>5.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Covenants of Enzon</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>5.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Restriction on Sale or Transfer of Preferred Stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Standstill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>6.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Covenants of the Company</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>6.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Reporting Status; S-3 Eligibility</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Listing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>No Integration; Form D Filing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>7.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Registration Rights</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>S-3 Demand Registration</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>S-1 Demand Registration</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Suspension of Effectiveness</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Registration Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Obligations of the Company</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Termination of Registration Rights</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Furnishing Information</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Indemnification</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>7.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Assignment of Registration Rights</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>14</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>i</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=2,EFW="2067348",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=470263,FOLIO='i',FILE='DISK023:[02PAL7.02PAL1027]KJ1027A.;4',USER='KLIND',CD=';7-JAN-2002;18:36' -->
<A NAME="page_kj1027_1_2"> </A>
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<TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>8.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Miscellaneous</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.1.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Governing Law</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.2.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Public Statements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.3.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Successors and Assigns</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.4.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Entire Agreement</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.5.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Severability</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.6.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Amendment and Waiver</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.7.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Notices</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.8.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Fees and Expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>8.9.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="79%"><FONT SIZE=2>Counterparts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>ii</FONT></P>

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<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.<BR>  PREFERRED STOCK PURCHASE AGREEMENT    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>THIS PREFERRED STOCK PURCHASE AGREEMENT</B></FONT><FONT SIZE=2> (this "Agreement") is made as of January 7, 2002, by and between </FONT> <FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,
&nbsp;INC.</B></FONT><FONT SIZE=2>, a Delaware corporation with its principal office at 150 Industrial Road, San Carlos, California 94070 (the
"Company"), and </FONT><FONT SIZE=2><B>ENZON,&nbsp;INC.</B></FONT><FONT SIZE=2>, a Delaware corporation with its principal office at 20 Kingsbridge Road, Piscataway, New Jersey 08854 ("Enzon"). </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>RECITALS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, the Company and Enzon have entered into those certain Cross-License Agreement, Product Development
Agreement, Single-Chain Antibody Development Agreement and Litigation Settlement Agreement (collectively, the "Related Agreements"); and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS, </B></FONT><FONT SIZE=2>Shearwater Corporation, a subsidiary of the Company ("Shearwater"), is also a party to certain of the Related Agreements; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS, </B></FONT><FONT SIZE=2>in connection with the Related Agreements, the Company desires to sell to Enzon and Enzon desires to purchase from the Company
shares of convertible preferred stock of the Company, on the terms and subject to the conditions set forth in this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE</B></FONT><FONT SIZE=2>, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the parties
hereto, intending to be legally bound, do hereby agree as follows: </FONT></P>


<P><FONT SIZE=2><B>1. Purchase of Preferred Stock.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.1.&nbsp;&nbsp;Agreement to Sell and Purchase.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;At the Closing (as hereinafter defined), the Company will sell to
Enzon and Enzon will purchase from the Company forty thousand (40,000) shares of Series&nbsp;B Convertible Preferred Stock of the Company (the "Preferred Stock") at a purchase price of one thousand
dollars ($1,000) per share of Preferred Stock for an aggregate purchase price of forty million dollars ($40,000,000) (the "Purchase Price"). The rights, privileges and preferences of the Preferred
Stock are set forth in the Certificate of Designation annexed hereto as Exhibit&nbsp;A (the "Certificate of Designation"). </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.2.&nbsp;&nbsp;Closing; Closing Date.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The completion of the sale and purchase of the Preferred Stock (the
"Closing") shall be held at 9:00&nbsp;a.m. (Pacific Time) as soon as practicable following the satisfaction of the conditions set forth in this Section&nbsp;1 and Section&nbsp;5 (the "Closing
Date"), at the offices of Cooley Godward LLP, 3175 Hanover Street, Palo Alto, California, or at such other time and place as the Company and Enzon may agree. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.3.&nbsp;&nbsp;Delivery.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;At the Closing, subject to the terms and conditions hereof, the Company will deliver to
Enzon a stock certificate or certificates, in such denominations and registered in such names as Enzon may designate by notice to the Company, representing the Preferred Stock, dated as of the Closing
Date (the "Stock Certificates"), against payment of the purchase price therefor by wire transfer, unless other means of payment shall have been agreed upon by Enzon and the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.4.&nbsp;&nbsp;Hart-Scott-Rodino Compliance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Notwithstanding anything else in this Section&nbsp;1,
if the sale and issuance of the Preferred Stock is subject to the premerger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), it shall also be a condition to the Closing that any waiting period under the HSR Act applicable to the purchase of the Preferred Stock shall have expired or been terminated. The parties shall
promptly file any necessary notifications and shall cooperate in promptly filing such notifications and in taking all steps reasonably necessary to obtain early termination of any applicable HSR Act
waiting periods. In the event that the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>1</FONT></P>

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issuance of the Company's Common Stock issuable upon conversion of the Preferred Stock (the "Conversion Shares") is subject to the premerger notification requirements of the HSR Act, the issuance of
the Conversion Shares will be subject to the applicable terms of the Certificate of Designation relating thereto and to the expiration or termination of any applicable waiting period under the HSR
Act. The parties shall promptly file any necessary notifications and shall cooperate in promptly filing such notifications and in taking all steps reasonably necessary to obtain early termination of
any applicable HSR Act waiting periods. </FONT></P>

<P><FONT SIZE=2><B>2. Representations and Warranties of the Company.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except
as otherwise specifically disclosed in the Disclosure Schedule attached hereto, the Company hereby represents and warrants to Enzon as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.1.&nbsp;&nbsp;Authorization.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;All corporate action on the part of the Company, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this Agreement has been taken. The Company has the requisite corporate power to enter into this Agreement and carry out and
perform its obligations under the terms of this Agreement. At the Closing, the Company will have the requisite corporate power to issue and sell the Preferred Stock and the Conversion Shares. This
Agreement has been duly authorized, executed and delivered by the Company and, upon due execution and delivery by Enzon, this Agreement will be a valid and binding agreement of the Company, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by equitable principles. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.2.&nbsp;&nbsp;No Conflict with Other Instruments.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The execution, delivery and performance of this Agreement will
not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i)&nbsp;any provision of the Company's Amended and
Restated Certificate of Incorporation or Bylaws as in effect on the date hereof or at the Closing; (ii)&nbsp;any provision of any judgment, decree or order to which the Company is a party or by
which it is bound; (iii)&nbsp;any contract, obligation or commitment to which the Company is a party or by which it is bound; or (iv)&nbsp;any statute, rule or governmental regulation applicable
to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3.&nbsp;&nbsp;Amended and Restated Certificate of Incorporation; Bylaws.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Attached hereto as Exhibits B and C,
respectively, are true, correct and complete copies of the Amended and Restated Certificate of Incorporation, as amended and Bylaws of the Company, as in effect on the date hereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.4.&nbsp;&nbsp;Organization, Good Standing and Qualification.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or
properties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.5.&nbsp;&nbsp;SEC Filings.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company has made available to Enzon accurate and complete copies (excluding
copies of exhibits) of each report, registration statement (on a form other than Form&nbsp;S-3 or S-8) and definitive proxy statement filed by the Company with the Securities
and Exchange Commission (the "SEC") between January&nbsp;1, 2001 and the date of this Agreement (the "Company SEC Documents").
Except as set forth on Part&nbsp;2.5 of the Disclosure Schedule, each Company SEC Document was filed with the SEC in a timely manner pursuant to the requirements of the Exchange Act. As of the time
it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i)&nbsp;each of the Company SEC Documents complied in all
material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the case
may be; and (ii)&nbsp;none of the Company SEC Documents contained any untrue </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they
were made, not misleading. The consolidated financial statements contained in the Company SEC Documents: (i)&nbsp;complied as to form in all material respects with the published rules and
regulations of the SEC applicable thereto; (ii)&nbsp;were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered, except as
may be indicated in the notes to such financial statements and (in the case of unaudited statements) as permitted by Form&nbsp;10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit adjustments; and (iii)&nbsp;fairly present the consolidated financial position of the Company and its subsidiaries
as of the respective dates thereof and the consolidated results of operations of the Company and its subsidiaries for the periods covered thereby. Except as set forth in the financial statements
included in the Company SEC Documents, neither the Company nor its subsidiaries has any liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business
subsequent to September&nbsp;30, 2001, and liabilities of the type not required under generally accepted accounting principles to be reflected in such financial statements. Such liabilities incurred
subsequent to September&nbsp;30, 2001, are not, in the aggregate, material to the financial condition or operating results of the Company and its subsidiaries, taken as a whole. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.6.&nbsp;&nbsp;Capitalization.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The authorized capital stock of the Company consists of (i)&nbsp;300,000,000
shares of common stock, of which (A)&nbsp;55,081,020 shares were issued and outstanding as of December&nbsp;31, 2001, (B)&nbsp;14,419,743 shares were reserved for issuance upon the exercise of
outstanding options and warrants as of December&nbsp;31, 2001, and (C)&nbsp;6,643,321 shares were reserved for issuance upon conversion of outstanding convertible indebtedness as of
December&nbsp;31, 2001; and (ii)&nbsp;10,000,000 shares of preferred stock, 3,100,000 shares of which have been designated Series&nbsp;A Junior Participating Preferred Stock, none of which are
outstanding and 40,000 shares of which shall be designated Series&nbsp;B Convertible Preferred Stock as of the filing of the Certificate of Designation with the Secretary of State of the State of
Delaware, none of which shall be outstanding prior to the Closing. All issued and outstanding shares of the Company's Common Stock have been duly authorized and validly issued, and are fully paid and
nonassessable. Except as set forth herein, the SEC Documents or Part&nbsp;2.6 of the Disclosure Schedule, there are no (i)&nbsp;preemptive or other outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from the Company of any shares of its capital stock or other securities of the Company; or (ii)&nbsp;obligations of the Company to
purchase redeem or otherwise acquire any of its outstanding capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. There are no antidilution or
price adjustment provisions contained in the terms governing any outstanding security of the Company that will be triggered by the issuance of the Preferred Stock of the Conversion Shares. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.7.&nbsp;&nbsp;Subsidiaries.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as disclosed in the Part&nbsp;2.7 of the Disclosure Schedule, the Company
does not presently own or control, directly or indirectly, and has no stock or other interest as owner or principal in, any other corporation or partnership, joint venture, association or other
business venture or entity (each entity identified in Schedule&nbsp;2.7, a "Subsidiary"). Each Subsidiary is duly incorporated or organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted. Each Subsidiary is duly qualified
to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. Except as set forth in
Part&nbsp;2.7 of the Disclosure Schedule, all of the outstanding capital stock or other voting securities of each Subsidiary is owned by the Company, directly or indirectly, free and clear of any
liens, claims, or encumbrances. There are no outstanding obligations of the Company or any Subsidiary to issue any capital stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of any Subsidiary. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>2.8.&nbsp;&nbsp;Valid Issuance of Preferred Stock and Conversion Shares.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Preferred Stock and the Conversion
Shares are duly authorized and, when issued, sold and delivered in accordance with the terms hereof and, as applicable, the Certificate of Designation, will be duly and validly authorized and issued,
fully paid and nonassessable free from all taxes, liens, claims, encumbrances and charges with respect to the issue thereof; provided, however, that the Preferred Stock and the Conversion Shares may
be subject to restrictions on transfer under state and/or federal securities laws or as otherwise set forth herein. The issuance, sale and delivery of the Preferred Stock and Conversion Shares in
accordance with the terms hereof and, as applicable, the Certificate of Designation, will not be subject to preemptive rights or other similar rights of stockholders of the Company. The Conversion
Shares have been duly reserved for issuance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.9.&nbsp;&nbsp;Offering.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Assuming the accuracy of the representations of Enzon in Section&nbsp;3.3 of this
Agreement on the date hereof and on the Closing Date, the offer, issue and sale of the Preferred Stock and the issuance of the Conversion Shares (assuming no change in applicable law prior to the date
such Conversion Shares are issued), are and will be exempt from the registration and prospectus delivery requirement of the Securities Act and have been or will be registered or qualified (or are or
will be exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would
require registration under the Securities Act of the issuance of the Preferred Stock to Enzon or the issuance of the Conversion Shares upon conversion of the Preferred Stock. Neither the issuance of
the Preferred Stock to Enzon nor the issuance of the Conversion Shares will be integrated with any other issuance of the Company's securities (past, current or future) for purpose of the Securities
Act or any applicable rules of Nasdaq. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10.&nbsp;&nbsp;Litigation, etc.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as set forth in the Company SEC Documents, there is no action, suit,
proceeding nor investigation pending or, to the Company's knowledge, currently threatened against the Company or any of its Subsidiaries that if adversely determined would reasonably be expected to
have a material adverse effect on the business, condition, prospects, capitalization, assets, liabilities,
operations, or financial performance of the Company and its Subsidiaries taken as a whole nor, to its knowledge, is there any basis therefor. The foregoing includes, without limitation, any action,
suit, proceeding or investigation, pending or threatened, that questions the validity of this Agreement or the right of the Company to enter into such Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.11.&nbsp;&nbsp;Governmental Consents.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for (i)&nbsp;any filing required to be filed pursuant to the HSR Act as contemplated in Section&nbsp;1; and (ii)&nbsp;notices required or
permitted to be filed with certain state and federal securities commissions, which notices will be filed on a timely basis. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.12.&nbsp;&nbsp;No Brokers.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;No broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.13.&nbsp;&nbsp;Compliance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company is not in violation of its Amended and Restated Certificate of
Incorporation or Bylaws. Neither the Company nor the Subsidiaries have been advised or have reason to believe, that it is not conducting its business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to
be so in compliance would not materially adversely affect the business, condition, capitalization, assets, liabilities, operations, or financial performance of the Company and its Subsidiaries taken
as a whole. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>2.14&nbsp;&nbsp;Absence of Certain Changes.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as disclosed in the Company SEC Documents, since
September&nbsp;30, 2001, there has been no material adverse change in the assets, liabilities, business, properties, operations, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.15&nbsp;&nbsp;Contracts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The material contracts of the Company and its Subsidiaries described in the Company SEC
Documents are in full force and effect on the date hereof; and neither the Company nor its Subsidiaries are in breach of or default under any of such contracts except, in each case, where the failure
of such contracts to be in full force or effect or the breach or default of such contract, as applicable, by the Company or its Subsidiaries would not have a material adverse effect on the assets,
liabilities, business, properties, operations, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.16&nbsp;&nbsp;Intellectual Property.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except for matters to which the Litigation Settlement Agreement between the
Company, Shearwater and Enzon relates or as disclosed in the Company SEC Documents (i)&nbsp;the Company and its Subsidiaries have sufficient trademark rights, trade names, patent rights, copyrights,
licenses, and governmental authorizations to conduct its business; (ii)&nbsp;neither the Company nor its Subsidiaries have knowledge of any material infringement by it of trademark rights, trade
name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others that the Company or its Subsidiaries believe to be valid; and (iii)&nbsp;no claim has been made or
threatened in writing against the Company or any Subsidiary regarding infringement of any third party trademark, trade name, patent, copyright, license, or trade secret except, in each case, where the
failure to have such rights, such infringement or such claim of infringement, as applicable, would not have a material adverse effect on the assets, liabilities, business, properties, operations,
financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. </FONT></P>

<P><FONT SIZE=2><B>3. Representations and Warranties of Enzon.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Enzon
hereby represents and warrants to the Company as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1.&nbsp;&nbsp;Legal Power.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Enzon has the requisite corporate power and authority to enter into this Agreement,
to carry out and perform its obligations under the terms of this Agreement. All action on Enzon's part required for the lawful execution and delivery of this Agreement have been or will be effectively
taken prior to the Closing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.2.&nbsp;&nbsp;Due Execution.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;This Agreement has been duly authorized, executed and delivered by Enzon, and, upon
due execution and delivery by the Company, this Agreement will be a valid and binding agreement of Enzon, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or by equitable principles. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.3.&nbsp;&nbsp;Investment Representations.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In connection with the sale and issuance of the Preferred Stock and
the Conversion Shares (collectively the "Securities"), Enzon makes the following representations: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;Investment for Own Account.</B></FONT><FONT SIZE=2> Enzon is acquiring the Securities for its own account, not as nominee or agent, for
investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;Transfer Restrictions; Legends.</B></FONT><FONT SIZE=2> Enzon understands that (i)&nbsp;the Securities have not been registered under the
Securities Act; (ii)&nbsp;the Securities are being offered and sold pursuant to an exemption from
registration and that the Securities must be held by Enzon indefinitely, and that Enzon must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2>
disposition thereof is registered under the Securities Act or is exempt from such registration; (iii)&nbsp;each certificate representing the Securities will be endorsed with the following legend: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR RULE 144 UNDER THE ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. </FONT></P>

</UL>
<DL compact>
<DT><FONT SIZE=2>(iv)</FONT></DT><DD><FONT SIZE=2>each
certificate representing the Preferred Stock will also be endorsed with the following legend: </FONT></DD></DL>
</UL>
<UL>
<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON TRANSFERABILITY, OF THAT CERTAIN STOCK PURCHASE AGREEMENT, DATED
JANUARY&nbsp;7, 2002. A COPY OF SUCH STOCK PURCHASE AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO INHALE THERAPEUTIC
SYSTEMS,&nbsp;INC. AT ITS PRINCIPAL PLACE OF BUSINESS. </FONT></P>

</UL>

<P><FONT SIZE=2>and
(v)&nbsp;the Company will instruct any transfer agent not to register the transfer of the Securities (or any portion thereof) unless the conditions specified in the foregoing legends are
satisfied, until such time as a transfer is made, pursuant to the terms of this Agreement, and in compliance with Rule&nbsp;144 under the Securities Act or pursuant to a registration statement or,
if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act or this Agreement, or
other satisfactory assurances of such nature are given to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;Removal of Legends.</B></FONT><FONT SIZE=2> Unless otherwise required by applicable securities laws, the Company shall be obligated, at the
request of Enzon, to cause the transfer agent to reissue unlegended certificates with respect to the Conversion Shares if (i)&nbsp;Enzon shall have obtained an opinion of counsel reasonably
acceptable to the Company to the effect that the Conversion Shares with respect to which unlegended
certificates are to be issued may lawfully be disposed of without registration, qualification or legend; or (ii)&nbsp;the Conversion Shares can be sold without restriction as to the number of
securities sold under Rule&nbsp;144(k). Further, the Company will instruct the transfer agent to remove the legend on Conversion Shares (i)&nbsp;upon the sale of such Conversion Shares pursuant to
an effective registration statement, provided the transfer agent and Company have received evidence or assurances of such sale in a form satisfactory to the transfer agent and the Company or
(ii)&nbsp;upon the sale of such Conversion Shares pursuant to Rule&nbsp;144 under the Securities Act, provided the transfer agent and the Company have received evidence or assurances from Enzon of
compliance with Rule&nbsp;144 in a form satisfactory to the transfer agent and the Company; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;Financial Sophistication.</B></FONT><FONT SIZE=2> Enzon has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in connection with the transactions contemplated in this Agreement. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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<UL>

<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>(e)&nbsp;Accredited Investor Status.</B></FONT><FONT SIZE=2> Enzon is an "accredited investor" as such term is defined in Rule&nbsp;501(a) of the
rules and regulations promulgated under the Securities Act. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.4.&nbsp;&nbsp;No Brokers.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;No broker, finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by Enzon. </FONT></P>


<P><FONT SIZE=2><B>4. Conditions to Closing.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.1.&nbsp;&nbsp;Conditions to Obligations of Enzon at Closing.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Enzon's obligation to purchase the Preferred Stock
at the Closing is subject to the fulfillment to Enzon's satisfaction, on or prior to the Closing, of all of the following conditions, any of which may be waived by Enzon: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;Representations and Warranties True; Performance of Obligations.</B></FONT><FONT SIZE=2> The representations and warranties made by the
Company in Section&nbsp;2 hereof shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date and the Company
shall have performed and complied with all obligations and conditions herein required to be performed or complied with by it on or prior to the Closing and a certificate duly executed by an officer of
the Company, to the effect of the foregoing, shall be delivered to Enzon. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;Proceedings and Documents.</B></FONT><FONT SIZE=2> All corporate and other proceedings in connection with the transactions contemplated at
the Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to counsel to Enzon, and counsel to Enzon shall have received all
such counterpart originals or certified or other copies of such documents as they may reasonably request. The Certificate of Designation shall have been filed with the Secretary of State of the State
of Delaware and shall continue to be in full force and effect as of the Closing Date. The Company shall have delivered (or caused to have been delivered) to Enzon, the Stock Certificates. The
Conversion Shares shall have been duly authorized and reserved for issuance upon conversion of the Preferred Stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;Qualifications, Legal Investment.</B></FONT><FONT SIZE=2> All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Preferred Stock shall have been duly obtained and shall be effective on
and as of the Closing. No stop order or other order enjoining the sale of the Preferred Stock shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the
Securities shall be legally permitted by all laws and regulations to which Enzon and the Company are subject. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction
will have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement or the Related Agreements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;Execution of Agreements.</B></FONT><FONT SIZE=2> The Company shall have executed this Agreement and the Related Agreements and have
delivered such agreements to Enzon. Shearwater shall have executed the Related Agreements to which it is a party and have delivered such agreements to Enzon. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)&nbsp;Officer's Certificate.</B></FONT><FONT SIZE=2> The Company shall have delivered to Enzon a certificate or certificates dated as of the
Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of the Company certifying, as to the Company, the matters contained in this Section&nbsp;4.1(a). </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

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<UL>

<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>(f)&nbsp;&nbsp;Secretary's Certificate</B></FONT><FONT SIZE=2>. The Company shall have delivered to Enzon a certificate of the Secretary of the Company
certifying as to the truth and accuracy of (i)&nbsp;the resolutions of the Board of Directors' relating to the transaction contemplated hereby (a copy of which shall be included with such
certificate) and (ii)&nbsp;the incumbency and signatures of each of the officer of the Company executing this Agreement and the certificate set forth in Section&nbsp;4.1(e) on behalf of the
Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(g)&nbsp;Trading and Listing.</B></FONT><FONT SIZE=2> Trading and listing of the Common Stock on the Nasdaq national market shall not have been
suspended by the SEC or Nasdaq. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(h)&nbsp;Blue Sky.</B></FONT><FONT SIZE=2> The Company shall have obtained all necessary "blue sky" law permits and qualifications, or have the
availability of exemptions therefrom, required by any state for the offer and sale of the Preferred Stock and the Conversion Shares. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(i)&nbsp;&nbsp;Material Adverse Change.</B></FONT><FONT SIZE=2> Since the date of this Agreement, there shall not have occurred any event which results in
a material adverse effect on the business, condition, capitalization, assets, liabilities, operations or financial performance of the Company and its Subsidiaries taken as a whole. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(j)&nbsp;&nbsp;Opinion.</B></FONT><FONT SIZE=2> The Company shall have delivered to Enzon the opinion of Cooley Godward LLP, counsel to the Company, dated
as of the Closing Date in substantially the form attached hereto as Exhibit&nbsp;D. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.2.&nbsp;&nbsp;Conditions to Obligations of the Company.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company's obligation to issue and sell the Preferred
Stock at the Closing is subject to the fulfillment to the Company's satisfaction, on or prior to the Closing of the following conditions, any of which may be waived by the Company: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;Representations and Warranties True.</B></FONT><FONT SIZE=2> The representations and warranties made by Enzon in Section&nbsp;3 hereof
shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;Performance of Obligations.</B></FONT><FONT SIZE=2> Enzon shall have performed and complied with all agreements and conditions herein
required to be performed or complied with by it on or before the Closing, and a Certificate duly executed by an officer of Enzon, to the effect of the foregoing, shall be delivered to the Company.
Enzon shall have delivered the Purchase Price, by wire transfer, to the account designated by Inhale for such purpose. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;Qualifications, Legal Investment.</B></FONT><FONT SIZE=2> All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Preferred Stock shall have been duly obtained and shall be effective on
and as of the Closing. No stop order or other order enjoining the sale of the Preferred Stock shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the
Preferred Stock and the Conversion Shares shall be legally permitted by all laws and regulations to which Enzon and the Company are subject. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction will have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement or the Related Agreements. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;Execution of Agreements.</B></FONT><FONT SIZE=2> Enzon shall have executed this Agreement and the Related Agreements and have delivered such
agreements to Inhale or, as applicable, Shearwater. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_km1027_1_9"> </A> </FONT> <FONT SIZE=2><B>5. Covenants of Enzon.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Restriction on Sale or Transfer of Preferred
Stock.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Enzon hereby covenants and agrees that, without the prior written consent of the Company, it will not contract to sell, sell or otherwise transfer, loan,
pledge or grant any rights with respect to any shares of the Preferred Stock acquired pursuant to this Agreement (or purchase or sell any derivative security that has a similar effect or enter into
any contract that has a similar effect). Notwithstanding the foregoing, Enzon may transfer the Preferred Stock to a wholly owned-subsidiary or parent corporation that owns all of the capital stock of
Enzon provided such transferee agrees to be subject to all restrictions set forth in Section&nbsp;5 of this Agreement as if such transferee were Enzon. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Standstill.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Other than shares of Preferred Stock
which it is purchasing pursuant to this Agreement and the Conversion Shares issuable upon conversion thereof, Enzon hereby covenants and agrees that it will not, nor will it permit any of its
subsidiaries (i)&nbsp;to purchase or otherwise acquire, directly or indirectly, any equity securities of the Company (or rights or options to purchase such securities) or (ii)&nbsp;form, join or
participate in a "group" (as defined in the Securities Exchange Act of 1934 and the rules promulgated thereunder) with respect to the beneficial ownership of any equity securities of the Company
without the prior approval of the Company. Notwithstanding the foregoing, Enzon may, for purposes of any hedging or similar transaction, purchase, sell or otherwise acquire or dispose of options or
other derivative securities having the same economic effect as a purchase of the Company's equity securities ("Derivative Securities"); provided that (i)&nbsp;neither Enzon, its subsidiaries nor any
group which Enzon has formed, joined or participated in shall file&nbsp;a Schedule&nbsp;13D indicating its intention to assume control of the Company, and (ii)&nbsp;the aggregate amount of
equity securities which Enzon acquires or has a right to acquire pursuant to such Derivative Securities at no time shall exceed 50% of the maximum number of Conversion Shares issuable upon conversion
of the Preferred Stock at the Closing Date (assuming, solely for purposes of the foregoing, that the Preferred Stock is convertible at the Closing Date at a conversion price equal to 125% of the
Closing Price (as defined in the Certificate of Designation)). This Section&nbsp;5.2 shall terminate and be of no further force or effect five (5)&nbsp;years from the Closing or such earlier date
as shall be agreed to by the Company; provided, that this Section&nbsp;5.2 shall automatically terminate upon the occurrence of any of the following events: (i)&nbsp;the filing with the SEC of a
Schedule&nbsp;13D by any person or entity indicating that a person or entity has acquired (a)&nbsp;more than 33% of any class of the Company's voting equity securities, or (b)&nbsp;has acquired
at least 5% of any class of the Company's voting equity securities which Schedule&nbsp;13D expresses the filing party's intention to assume control of the Company, whether by tender offer, merger,
proxy contest or otherwise; (ii)&nbsp;the commencement of a tender offer by any person or entity to acquire 33% or more of the Company's outstanding voting equity securities; or (iii)&nbsp;the
solicitation of proxies by any party other than the Company which is intended to effect a change in the majority of the members of the Company's Board of Directors. </FONT></P>

<P><FONT SIZE=2><B>6. Covenants of the Company.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Reporting Status; S-3 Eligibility.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The
Company's Common Stock is registered under Section&nbsp;12 of the Exchange Act. With a view to making available to Enzon the benefits of certain rules and regulations of the SEC which may permit the
sale of the Conversion Shares to the public without registration, the Company agrees to use it reasonable efforts to file with the SEC, in a timely manner all reports and other documents required of
the Company under the Exchange Act. The Company currently meets the "registrant eligibility" requirement set forth in the general instructions to Form&nbsp;S-3 to enable the registration
of the resale of the Conversion Shares as provided in Section&nbsp;7 herein. The Company will otherwise take such further action as Enzon may reasonably request, all to the extent required from time
to time to enable Enzon to sell the Conversion Shares without registration under the Securities Act or any successor rule or regulation adopted by the SEC. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>6.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Listing.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;On or before the 15<SUP>th</SUP>
business day after the date of this Agreement, the Company will secure the listing of the Conversion Shares on Nasdaq (subject to official notice of issuance) and, so long as Enzon owns any of the
Preferred Stock or the Conversion Shares, will maintain such listing or an alternative listing on the American Stock Exchange or the New York Stock Exchange and will comply in all material respects
with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers,&nbsp;Inc. and such exchanges, if applicable. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;No Integration; Form&nbsp;D Filing.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company
will not make any offers or sales of any security under circumstances that would cause the offering of the Preferred Stock or issuance of the Conversion Shares pursuant to this Agreement to be
integrated with any other offering of securities by the Company (i)&nbsp;for the purpose of any stockholder approval provision applicable to the Company or its securities of (ii)&nbsp;for purposes
of the registration requirements set forth in Section&nbsp;5 of the Securities Act. On or before the 15<SUP>th</SUP> day following the Closing Date, the Company shall file&nbsp;a Form&nbsp;D
pursuant to Securities and Exchange Commission Regulation&nbsp;D with respect to the issuance of the Preferred Stock. </FONT></P>

<P><FONT SIZE=2><B>7. Registration Rights.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.1</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;S-3 Demand Registration.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Upon the
written request of Enzon, the Company shall use reasonable commercial efforts to prepare and file with the SEC, as promptly as reasonably practicable following receipt of such notice, a registration
statement on Form&nbsp;S-3 (or any successor to Form&nbsp;S-3), covering the resale of the Conversion Shares (the "S-3 Registration Statement") and use
commercially reasonable efforts, as soon as reasonably practicable thereafter, to effect such registration and any related qualification or compliance with respect to all Conversion Shares then
outstanding and held by Enzon or issuable upon conversion the then outstanding Preferred Stock held by Enzon; provided however, that the Company shall not be obligated to file such S-3
Registration Statement or effect any such registration, qualification or compliance: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;if Form&nbsp;S-3 (or any successor form) is not available for such offering by Enzon; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;at any time prior to the earlier of (i)&nbsp;date 60&nbsp;days prior to the first anniversary of the Closing
Date, in which case the S-3 Registration Statement need not be declared effective until the first anniversary of the Closing Date, or (ii)&nbsp;the conversion of the Preferred Stock; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;if the Company shall furnish to Enzon a certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such S-3 Registration Statement
to filed or effected at such time, in which event the Company shall have the right, to defer the filing of the S-3 Registration Statement for not more than ninety (90)&nbsp;days after
receipt of the request of Enzon to effect such registration; provided, that a delay pursuant to this Section&nbsp;7.1(c) shall be no longer than the Board of Directors reasonably deems necessary and
shall not be invoked more than one time in any twelve-month period; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;if, at the time of the receipt of such request, all the Conversion Shares held by or issuable to Enzon may be sold
under Rule&nbsp;144 in any ninety (90)&nbsp;day period. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.2</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;S-1 Demand Registration.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In the event
that Form&nbsp;S-3 (or any successor form) is not then available for the offering requested by Enzon pursuant to Section&nbsp;7.1 and otherwise permitted pursuant to the terms of this
Agreement, the Company shall, upon the written request of Enzon, use reasonable commercial efforts to prepare and file with the SEC, as promptly as reasonably practicable following receipt of such
notice, a registration statement on Form&nbsp;S-1 (or any successor to Form&nbsp;S-1), covering the resale of the Conversion Shares (the "S-1 Registration
Statement") and use commercially reasonable efforts, as soon as reasonably practicable thereafter, to effect such registration and any related qualification or compliance with respect to all
Conversion Shares then outstanding and held by </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2>
Enzon or issuable upon conversion the then outstanding Preferred Stock held by Enzon; provided however, that the Company shall not be obligated to file such S-1 Registration Statement or
effect any such registration, qualification or compliance: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;if Form&nbsp;S-3 (or any successor form) is then available for such offering by Enzon; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;at any time prior to the earlier of (i)&nbsp;date 60&nbsp;days prior to the first anniversary of the Closing
Date, in which case the S-1 Registration Statement need not be declared effective until the first anniversary of the Closing Date, or (ii)&nbsp;the conversion of the Preferred Stock; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;after the Company, (i)&nbsp;in the event that Enzon has not exercised the Extension Option (as defined below), has
effected two (2)&nbsp;registrations pursuant to this Section&nbsp;7.2 and such registrations have been declared or ordered effective and remained effective for at least such time period as
required pursuant to Section&nbsp;7.5(b); or (ii)&nbsp;in the event that Enzon has exercised the Extension Option, the Company has already effected one (1)&nbsp;registration pursuant to this
Section&nbsp;7.2 and such registration has been declared or ordered effective for at least such time period as required pursuant 7.5(b); </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;if the Company shall furnish to Enzon a certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such S-1 Registration Statement
to filed or effected at such time, in which event the Company shall have the right, to defer the filing of the S-1 Registration Statement; provided, that a delay pursuant to this
Section&nbsp;7.2(d) (i)&nbsp;shall be no longer than the Board of Directors reasonably deems necessary, (ii)&nbsp;shall not be invoked more than one time with respect to any particular demand to
file an S-1 Registration Statement, or (iii)&nbsp;delay such filing(s) more than ninety (90)&nbsp;days in the aggregate for all S-1 Registration Statements, after receipt
of the request(s) of Enzon to effect such registration(s); or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)</B></FONT><FONT SIZE=2>&nbsp;if, at the time of the receipt of such request, all the Conversion Shares held by or issuable to Enzon may be sold
under Rule&nbsp;144 in any ninety (90)&nbsp;day period. </FONT></P>

</UL>

<P><FONT SIZE=2><B>As used herein, the term "Registration Statement" shall mean the S-3 Registration Statement or S-1 Registration Statement, as
applicable.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.3</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Suspension of Effectiveness.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Notwithstanding any
other provision of this Agreement, Enzon understands and acknowledges that there may be periods during which the Company may determine, in good faith, that it is in the best interest of the Company
and its stockholders to defer disclosure of non-public information until such information has reached a more advanced stage and that during such periods sales of Conversion Shares and the
effectiveness of any Registration Statement covering Conversion Shares, may be suspended or delayed. Enzon agrees to provide one (1)&nbsp;day advance notice of any proposed sale by Enzon of any
Conversion Shares pursuant to the S-3 Registration Statement;
provided that such notice may set forth Enzon's intention to sell for up to thirty (30)&nbsp;days following the date of such notice and Enzon shall have been deemed to have provided sufficient
notice with respect all such sales. Whether or not such notice from Enzon has been provided to the Company, Enzon agrees that upon receipt of any notice from the Company of a suspension pursuant to
this Section&nbsp;7.3, Enzon will forthwith discontinue its disposition of Conversion Shares pursuant to the Registration Statement until Enzon's receipt of notice from the Company that the use of
the Registration Statement may be resumed and, where appropriate as determined by the Company, a supplement or amendment to the prospectus and, if so directed by the Company, Enzon will use its best
efforts to deliver to the Company all copies, other than permanent file copies then in Enzon's possession, of the prospectus relating to such Conversion Shares current at the time of receipt of such
notice; </FONT><FONT SIZE=2><I>provided however</I></FONT><FONT SIZE=2>, that in no event shall such periods in which disposition of Conversion Shares pursuant to the Registration Statement is
suspended pursuant to the foregoing exceed 45&nbsp;days in any one instance or an aggregate </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

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<P><FONT SIZE=2>
of 90&nbsp;days in any 360&nbsp;day period. Notwithstanding the foregoing, no such suspension period shall be longer than the Company reasonably deems necessary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.4</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Registration Expenses.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company shall pay the
expenses incurred by the Company in complying with Section&nbsp;7 hereof, including, all registration and filing fees, NASD fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding any and all underwriting discounts and selling
commissions applicable to the sale of Conversion Shares by Enzon). The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section&nbsp;7.1
or 7.2, the request of which has been subsequently withdrawn by Enzon unless (a)&nbsp;the withdrawal is based upon material adverse information concerning the Company of which Enzon was not aware at
the time of such request or (b)&nbsp;Enzon agrees to forfeit its right to one requested registration pursuant to Section&nbsp;7.2. If the Company is required to pay the registration expenses of a
withdrawn offering pursuant to clause&nbsp;(a) above, then Enzon shall not forfeit its rights pursuant to Section&nbsp;7.2 to an S-1 demand registration. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.5</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Obligations of the Company.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Subject to
Section&nbsp;7.3, whenever required to effect the registration of any Conversion Shares, the Company shall: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;Cause any S-3 Registration Statement to remain effective until the earlier of the date on which all
Conversion Shares covered by the S-3 Registration Statement (i)&nbsp;have been sold, transferred or disposed of by Enzon (or a permitted assignee pursuant to Section&nbsp;7.9),
pursuant to the S-3 Registration Statement or otherwise, or (ii)&nbsp;are eligible for sale pursuant to Rule&nbsp;144(k). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;Cause any S-1 Registration Statement to remain effective until the earlier of (i)&nbsp;the date on
which all Conversion Shares covered by the S-1 Registration Statement have been sold, transferred or disposed of by Enzon (or a permitted assignee pursuant to Section&nbsp;7.9), pursuant
to the S-1 Registration Statement or otherwise, (ii)&nbsp;the date on which all Conversion Shares covered by the S-1 Registration Statement are
eligible for sale pursuant to Rule&nbsp;144(k), or (iii)&nbsp;(A)&nbsp;the date thirty (30)&nbsp;days following the initial effective date of the S-1 Registration Statement, or
(B)&nbsp;with respect to the initial S-1 Registration, if so requested by Enzon in writing, the date which is the earlier of (Y)&nbsp;a date subsequent to the 30<SUP>th</SUP> day
following the initial effective date of such S-1 Registration Statement specified by Enzon in writing or (Z)&nbsp;sixty (60)&nbsp;days following the initial effective date of such
S-1 Registration Statement (the "Extension Option"), in which event Enzon shall forfeit its right to any further requested registration pursuant to Section&nbsp;7.2; provided, however,
that if use of the S-1 Registration Statement is suspended pursuant to Section&nbsp;7.3, the Company shall cause such S-1 Registration Statement to remain effective for an
additional period equal to the length of time of such suspension. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;As soon as reasonably practicable, prepare and file with the SEC such amendments and supplements to such
Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of
all securities covered by such Registration Statement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;As soon as reasonably practicable, furnish to Enzon such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as it may reasonably request in order to facilitate the disposition of Conversion Shares included in
such Registration Statement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)</B></FONT><FONT SIZE=2>&nbsp;Use commercially reasonable efforts to register and qualify the securities covered by such Registration Statement
under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested Enzon, provided that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file&nbsp;a general consent to service </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

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<P><FONT SIZE=2>
of process in any such states or jurisdictions in which it is not otherwise required to so qualify or consent. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;As soon as reasonably practicable, notify Enzon at any time when a prospectus relating to such offering is required
to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(g)</B></FONT><FONT SIZE=2>&nbsp;As soon as reasonably practicable, notify Enzon (i)&nbsp;when the Registration Statement, any
pre-effective amendment, the prospectus, any prospectus supplement or post effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii)&nbsp;of any written request by the SEC for amendment or supplements to the Registration Statement or prospectus
therein; (iii)&nbsp;of the
notification to the Company by the SEC of its initiation of any stop order suspending the effectiveness of the Registrations Statement; and (iv)&nbsp;of the receipt by the Company of any
notification with respect to the suspension of the qualification of any Conversion Shares for sale under the applicable securities or blue sky laws of any jurisdiction. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.6</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Termination of Registration Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;All
registration rights granted under this Section&nbsp;7 shall terminate and be of no further force and effect on the first date upon which the Conversion Shares are eligible for sale by Enzon pursuant
to Rule&nbsp;144(k). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.7</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Furnishing Information.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;It shall be a condition
precedent to the obligations of the Company to take any action pursuant to Section&nbsp;7, that Enzon shall furnish to the Company such information regarding itself, the Conversion Shares held by
Enzon and the intended method of disposition of such securities as shall be required to effect the registration of the Conversion Shares. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.8</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Indemnification.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In the event any Conversion Shares
are included in a Registration Statement under Section&nbsp;7: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)</B></FONT><FONT SIZE=2>&nbsp;To the extent permitted by law, the Company will indemnify and hold harmless Enzon, its officers, directors, any
underwriter (as defined in the Securities Act) for Enzon and each person, if any, who controls Enzon or such underwriter within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company:
(i)&nbsp;any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii)&nbsp;the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not
misleading, or (iii)&nbsp;any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such Registration Statement; and the Company will reimburse each of Enzon, and such officers or
directors, underwriters or controlling persons for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or
action; provided however, that the indemnity agreement contained in this Section&nbsp;7.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a Violation which </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

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<P><FONT SIZE=2>
occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by Enzon or any such officer, director, underwriter or controlling
person. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)</B></FONT><FONT SIZE=2>&nbsp;To the extent permitted by law, Enzon will, if Conversion Shares are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other shareholder selling securities under such registration statement or any of such other shareholder's partners, directors or officers or any
person who controls such other shareholder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or
other such shareholder, or partner, director, officer or controlling person of such other shareholder may become subject under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information furnished by Enzon under an instrument duly executed by Enzon and stated to be specifically for use in connection with such
registration; and Enzon will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other shareholder, or partner,
officer, director or controlling person of such other shareholder in connection with investigating or defending any such loss, claim, damage, liability or action if it is determined that there was
such a Violation; provided, however, that the indemnity agreement contained in this Section&nbsp;7.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of Enzon, which consent shall not be unreasonably withheld. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)</B></FONT><FONT SIZE=2>&nbsp;Promptly after receipt by an indemnified party under this Section&nbsp;7.8 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section&nbsp;7.8, deliver to the
indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with
any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section&nbsp;7.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section&nbsp;7.8. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)</B></FONT><FONT SIZE=2>&nbsp;The obligations of the Company and Enzon under this Section&nbsp;7.8 shall survive completion of any offering of
Conversion Shares in such Registration Statement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.9</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Assignment of Registration Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The rights to
cause the Company to register Conversion Shares pursuant to this Section&nbsp;6 may be assigned by Enzon only to (i)&nbsp;a party to whom the Preferred Stock may be transferred in accordance with
Section&nbsp;5.1, or (ii)&nbsp;to a party to whom the Conversion </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<P><FONT SIZE=2>
Shares are transferred, other than pursuant to the Registration Statement or Rule&nbsp;144, provided that such transferee acquires a number of Conversion Shares equal or exceeding one percent (1%)
of the Company's outstanding common stock on the date of transfer. Any such assignment shall be conditioned upon Enzon, within ten (10)&nbsp;days after such transfer, furnishing to the Company
written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and such transferee agreeing to be subject to
all restrictions, limitations and obligations set forth in Section&nbsp;5 and Section&nbsp;7 this Agreement as if such transferee were Enzon. Any such permitted assignee shall have all the rights
of Enzon under this Section&nbsp;7 with respect to the Conversion Shares transferred (or issuable upon conversion of the Preferred Stock transferred). </FONT></P>

<P><FONT SIZE=2><B>8. Miscellaneous.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.1.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Governing Law.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without regard to the choice of law provisions thereof, and the federal laws of the United States. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.2.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Public Statements.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The parties agree that the
initial public announcement of the execution of this Agreement shall be in the form of the press release that describes the nature and scope of the transaction and attached to the Cross-License
Agreement as an appendix. Future characterizations of this Agreement, the Related Agreements and the transactions contemplated hereby and thereby shall be consistent with such press release, although
the parties recognize that either of them may be obligated to make more specific disclosures of financial or other terms in their filings with the SEC. It is understood by the parties that the initial
report on Form&nbsp;8-K regarding the consummation of this Agreement, the Related Agreements and the transactions contemplated hereby and thereby filed by each party may contain such
additional detail; provided, however, that such initial reports will be exchanged for review and comment prior to filing and any party receiving comments in response will review and consider them in
good faith. Subject to paragraph&nbsp;17.1 of the Cross-License Agreement, the terms of which shall govern the disclosure of Confidential Information (as defined in the Cross-License Agreement)
relating to or pursuant to this Agreement, each party shall use reasonable efforts to submit to the other party a draft of all press releases and other public disclosures relating to this Agreement or
the parties' relationship hereunder ("Proposed Disclosures") for review and comment by the other party at least five (5)&nbsp;full business days prior to the date on which such party plans to
release such Proposed Disclosure, and in any event shall submit such drafts at least 24&nbsp;hours prior to the release of
such Proposed Disclosures, and shall review and consider in good faith any comments provided in response. If a party is unable to comply with the foregoing 24&nbsp;hour notice requirement because of
a legal obligation or stock exchange requirement to make more rapid disclosure, such party shall not be in breach of this Agreement, but shall in that case give telephone notice to a senior executive
of the other party and provide a draft of such Proposed Disclosure with as much notice as possible prior to the release of such Proposed Disclosure. A party may publicly disclose without regard to the
preceding requirements of this Section&nbsp;8.2 information that was previously disclosed (a)&nbsp;in a Proposed Disclosure that was in compliance with such requirements, or (b)&nbsp;in the
initial public announcement of the execution of this Agreement or in the initial report on Form&nbsp;8-K. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.3.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Successors and Assigns.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.4.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Entire Agreement.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;This Agreement, the Related
Agreements and the exhibits hereto and thereto, and the other documents delivered pursuant hereto, constitute the full and entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

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<P><FONT SIZE=2>
agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective
successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.5.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Severability.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;In the event any provision of this
Agreement shall be invalid, illegal, or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.6.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Amendment and Waiver.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;Except as otherwise provided
herein, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), with the written consent of the Company and Enzon. Any amendment or waiver effected in accordance with this Section shall be binding upon
any holder of any securities purchased under this Agreement (including securities into which such securities have been converted), each future holder of all such securities, and the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.7.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Notices.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;All notices and other communications
required or permitted hereunder shall be in writing and shall be deemed effectively given and received (i)&nbsp;upon personal delivery, (ii)&nbsp;on the fifth day
following mailing by registered or certified mail, return receipt requested, postage prepaid, addressed to the Company and Enzon at their respective addresses first above written, or (iii)&nbsp;upon
confirmed delivery by overnight commercial courier service. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.8.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Fees and Expenses.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;The Company and Enzon shall
bear their own expenses and legal fees incurred on their behalf with respect to this Agreement and the transactions contemplated hereby. Each party hereby agrees to indemnify and to hold harmless of
and from any liability the other party for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which such indemnifying party or any of its employees or representatives are responsible. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.9.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;Counterparts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>[The
Remainder of this Page is Blank] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

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<P><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2>, the foregoing Preferred Stock Purchase Agreement is hereby executed as of the date first above written. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;</FONT><FONT SIZE=2>AJIT S. GILL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Ajit S. Gill<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3><BR><FONT SIZE=2><B>ENZON,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;</FONT><FONT SIZE=2>ARTHUR J. HIGGINS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Arthur J. Higgins<BR></FONT> <FONT SIZE=2><I>Chairman and Chief Executive Officer</I></FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

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NAME="ko1027_exhibit_a_certificate_of_designation"> </A>
<A NAME="toc_ko1027_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT A<BR>  <BR>    CERTIFICATE OF DESIGNATION    <BR>  </B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>EXHIBIT B<BR>  <BR>    AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED    <BR>  </B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>EXHIBIT C<BR>  <BR>    BYLAWS    <BR>  </B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>EXHIBIT D<BR>  <BR>    OPINION OF COOLEY GODWARD LLP    <BR>  </B></FONT></P>

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<FONT SIZE=2><A HREF="#toc_ki1027_1">PREFERRED STOCK PURCHASE AGREEMENT</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_kj1027_1">TABLE OF CONTENTS</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_kk1027_1">INHALE THERAPEUTIC SYSTEMS, INC. PREFERRED STOCK PURCHASE AGREEMENT</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_ko1027_1">EXHIBIT A CERTIFICATE OF DESIGNATION</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_kq1027_1">EXHIBIT B AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_ks1027_1">EXHIBIT C BYLAWS</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_ku1027_1">EXHIBIT D OPINION OF COOLEY GODWARD LLP</A></FONT><BR>
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