Exhibit 10.21

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
BORROWER.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

 

 

Date: January 23, 2004

 

$500,000

 

AEROGEN, INC.
SECURED CONVERTIBLE DEBENTURE DUE MARCH 1, 2004

 

THIS DEBENTURE is issued by Aerogen, Inc., a Delaware corporation (the
“Borrower”), in the aggregate principal amount of Five Hundred Thousand Dollars
($500,000) (the “Debenture”).

 

FOR VALUE RECEIVED, the Borrower promises to pay to the order of the Carpenter
1983 Family Trust UA, or its registered assigns (the “Holder”), the principal
sum of Five Hundred Thousand Dollars ($500,000), on March 1, 2004 (the “Maturity
Date”), or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder, and to pay interest to the Holder on the aggregate
then outstanding principal amount of this Debenture in accordance with the
provisions hereof. This Debenture is subject to the following additional
provisions:

 

1.                                      
DEFINITIONS.                                  IN ADDITION TO THE TERMS DEFINED
ELSEWHERE IN THIS DEBENTURE: (A) CAPITALIZED TERMS THAT ARE NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE LOAN AND SECURITIES
PURCHASE AGREEMENT, DATED AS OF EVEN DATE HEREWITH, AMONG THE BORROWER AND THE
LENDER IDENTIFIED THEREIN (THE “LOAN AGREEMENT”), AND (B) THE FOLLOWING TERMS
HAVE THE MEANINGS INDICATED BELOW:

 

“CLOSING PRICE” MEANS, FOR ANY DATE, THE PRICE DETERMINED BY THE FIRST OF THE
FOLLOWING CLAUSES THAT APPLIES: (A) IF THE COMMON STOCK IS THEN LISTED OR QUOTED
ON AN ELIGIBLE MARKET, THE CLOSING SALE PRICE PER SHARE OF THE COMMON STOCK FOR
SUCH DATE (OR THE NEAREST

 

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PRECEDING DATE) ON THE PRIMARY ELIGIBLE MARKET OR EXCHANGE ON WHICH THE COMMON
STOCK IS THEN LISTED OR QUOTED; (B) IF PRICES FOR THE COMMON STOCK ARE THEN
QUOTED ON THE OTC BULLETIN BOARD, THE CLOSING SALE PRICE PER SHARE OF THE COMMON
STOCK FOR SUCH DATE (OR THE NEAREST PRECEDING DATE) SO QUOTED; (C) IF PRICES FOR
THE COMMON STOCK ARE THEN REPORTED IN THE “PINK SHEETS” PUBLISHED BY THE
NATIONAL QUOTATION BUREAU INCORPORATED (OR A SIMILAR ORGANIZATION OR AGENCY
SUCCEEDING TO ITS FUNCTIONS OF REPORTING PRICES), THE MOST RECENT SALE PRICE PER
SHARE OF THE COMMON STOCK SO REPORTED; OR (D) IN ALL OTHER CASES, THE FAIR
MARKET VALUE OF A SHARE OF COMMON STOCK AS DETERMINED BY AN INDEPENDENT
APPRAISER SELECTED IN GOOD FAITH BY THE LENDER.

 

“COMMON STOCK EQUIVALENTS” MEANS ANY SECURITIES OF THE BORROWER OR A SUBSIDIARY
THEREOF WHICH ENTITLE THE HOLDER THEREOF TO ACQUIRE COMMON STOCK AT ANY TIME,
INCLUDING WITHOUT LIMITATION, ANY DEBT, PREFERRED STOCK, RIGHTS, OPTIONS,
WARRANTS OR OTHER INSTRUMENT THAT IS AT ANY TIME CONVERTIBLE INTO OR
EXCHANGEABLE FOR, OR OTHERWISE ENTITLES THE HOLDER THEREOF TO RECEIVE, COMMON
STOCK OR OTHER SECURITIES THAT ENTITLE THE HOLDER TO RECEIVE, DIRECTLY OR
INDIRECTLY, COMMON STOCK.

 

“BORROWER PREPAYMENT PRICE” FOR ANY DEBENTURES WHICH SHALL BE SUBJECT TO
PREPAYMENT PURSUANT TO SECTION 11, SHALL EQUAL THE SUM OF: (I) 110% OF THE
PRINCIPAL AMOUNT OF DEBENTURES TO BE PREPAID, AND (II) ALL ACCRUED AND UNPAID
INTEREST ON THE PRINCIPAL AMOUNT OF THE DEBENTURES TO BE PREPAID.

 

“CHANGE OF CONTROL” MEANS THE OCCURRENCE OF ANY OF THE FOLLOWING IN ONE OR A
SERIES OF RELATED TRANSACTIONS: (I) AN ACQUISITION AFTER THE DATE HEREOF BY AN
INDIVIDUAL OR LEGAL ENTITY OR “GROUP” (AS DESCRIBED IN RULE 13D-5(B)(1) UNDER
THE EXCHANGE ACT) OF MORE THAN ONE-HALF OF THE VOTING RIGHTS OR EQUITY INTERESTS
IN THE BORROWER; (II) A REPLACEMENT OF MORE THAN ONE-HALF OF THE MEMBERS OF THE
BORROWER’S BOARD OF DIRECTORS IN A SINGLE ELECTION OF DIRECTORS THAT IS NOT
APPROVED BY THOSE INDIVIDUALS WHO ARE MEMBERS OF THE BOARD OF DIRECTORS ON THE
DATE HEREOF (OR OTHER DIRECTORS PREVIOUSLY APPROVED BY SUCH INDIVIDUALS); (III)
A MERGER OR CONSOLIDATION OF THE BORROWER OR ANY SUBSIDIARY OR A SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF THE BORROWER (OTHER THAN ANY SALE, TRANSFER,
LICENSE OR LEASE OF ASSETS RELATING TO BORROWER’S INSULIN INHALER PRODUCT AND
RELATED TECHNOLOGY OR THE MIA ASSETS PURSUANT TO THE MIA TERM SHEET INDICATED IN
SECTION 6.3(F) OF THE PURCHASE AGREEMENT) IN ONE OR A SERIES OF RELATED
TRANSACTIONS, UNLESS FOLLOWING SUCH TRANSACTION OR SERIES OF TRANSACTIONS, THE
HOLDERS OF THE BORROWER’S SECURITIES PRIOR TO THE FIRST SUCH TRANSACTION
CONTINUE TO HOLD AT LEAST ONE-HALF OF THE VOTING RIGHTS AND EQUITY INTERESTS IN
THE SURVIVING ENTITY OR ACQUIRER OF SUCH ASSETS; (IV) A RECAPITALIZATION,
REORGANIZATION OR OTHER TRANSACTION INVOLVING THE BORROWER OR ANY SUBSIDIARY
THAT CONSTITUTES OR RESULTS IN A TRANSFER OF MORE THAN ONE-HALF OF THE VOTING
RIGHTS OR EQUITY INTERESTS IN THE BORROWER, UNLESS FOLLOWING SUCH TRANSACTION OR
SERIES OF TRANSACTIONS, THE HOLDERS OF THE BORROWER’S SECURITIES PRIOR TO THE
FIRST SUCH TRANSACTION CONTINUE TO HOLD AT LEAST ONE-HALF OF THE VOTING RIGHTS
AND EQUITY INTERESTS IN THE SURVIVING ENTITY OR ACQUIRER OF SUCH ASSETS; (V)
CONSUMMATION OF A “RULE 13E-3 TRANSACTION” AS DEFINED IN RULE 13E-3 UNDER THE
EXCHANGE ACT WITH RESPECT TO THE BORROWER, OR (VI) THE EXECUTION BY THE BORROWER
OR ITS CONTROLLING SHAREHOLDERS OF AN AGREEMENT PROVIDING FOR OR REASONABLY
LIKELY TO RESULT IN ANY OF THE FOREGOING EVENTS.

 

“Conversion Date” means the date a Conversion Notice together with the
Conversion Schedule is delivered to the Borrower in accordance with
Section 5(a).

 

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“Conversion Notice” means a written notice in the form attached hereto as
Exhibit A.

 

“Conversion Price” means the Nasdaq five-day average closing bid price of the
Company’s Common Stock for the five days prior to the date of this Debenture,
which is $3.044, subject to adjustment pursuant to Section 12.

 

“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq Small Cap Market.

 

“Event of Default” means any one of the following events  (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of law
or pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):

 

(I)                             ANY DEFAULT IN THE PAYMENT (FREE OF ANY CLAIM OF
SUBORDINATION) OF PRINCIPAL, INTEREST OR LIQUIDATED DAMAGES IN RESPECT OF ANY
DEBENTURES, WITHIN FIVE (5) TRADING DAYS OF THE DATE WHEN DUE AND PAYABLE
(WHETHER ON A CONVERSION DATE, THE MATURITY DATE OR BY ACCELERATION OR
PREPAYMENT OR OTHERWISE).

 

(II)                          THE BORROWER OR ANY SUBSIDIARY DEFAULTS IN ANY OF
ITS OBLIGATIONS UNDER ANY OTHER DEBENTURE OR ANY MORTGAGE, CREDIT AGREEMENT OR
OTHER FACILITY, INDENTURE AGREEMENT, FACTORING AGREEMENT OR OTHER INSTRUMENT
UNDER WHICH THERE HAS BEEN ISSUED, OR BY WHICH THERE HAS BEEN SECURED OR
EVIDENCED, ANY INDEBTEDNESS FOR BORROWED MONEY OR MONEY DUE UNDER ANY LONG TERM
LEASING OR FACTORING ARRANGEMENT OF THE BORROWER OR ANY SUBSIDIARY IN AN AMOUNT
EXCEEDING $150,000, WHETHER SUCH INDEBTEDNESS NOW EXISTS OR IS HEREAFTER
CREATED, AND SUCH DEFAULT RESULTS IN SUCH INDEBTEDNESS BECOMING OR BEING
DECLARED DUE AND PAYABLE PRIOR TO THE DATE ON WHICH IT WOULD OTHERWISE BECOME
DUE AND PAYABLE.

 

(III)                       THE OCCURRENCE OF A CHANGE OF CONTROL TRANSACTION.

 

(IV)                      THE INCURRENCE BY THE BORROWER OF ANY DEBT OBLIGATION
THAT IS SENIOR IN RIGHT OF PAYMENT TO THE DEBENTURE OTHER THAN PERMITTED
INDEBTEDNESS (AS DEFINED IN THE SECURITY AGREEMENT), OR OTHERWISE SECURED BY ANY
OF THE ASSETS, INCOME OR PROPERTIES OF THE BORROWER, OTHER THAN PERMITTED LIENS.

 

(V)                         THE PAYMENT BY THE BORROWER OF ANY DIVIDENDS OR
DISTRIBUTIONS OF ASSETS, PROPERTIES OR CASH TO ANY PERSON THAT IS OUTSIDE OF THE
ORDINARY COURSE OF THE BORROWER’S BUSINESS AND NOT CONSISTENT IN AMOUNT AND TYPE
WITH PRIOR PRACTICE AS DISCLOSED IN SEC REPORTS.

 

(VI)                      THE BORROWER DEFAULTS IN THE TIMELY PERFORMANCE OF ANY
OBLIGATION UNDER THE TRANSACTION DOCUMENTS AND SUCH DEFAULT CONTINUES UNCURED
FOR A PERIOD OF TEN TRADING DAYS AFTER THE DATE ON WHICH WRITTEN NOTICE OF SUCH
DEFAULT IS FIRST GIVEN TO THE BORROWER BY THE HOLDER (IT BEING UNDERSTOOD THAT
NO PRIOR NOTICE NEED BE GIVEN IN THE CASE OF A DEFAULT THAT CANNOT REASONABLY BE
CURED WITHIN TEN TRADING DAYS).

 

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(VII)                   ANY OF THE BORROWER’S REPRESENTATIONS AND WARRANTIES SET
FORTH IN THE LOAN AGREEMENT SHALL BE INCORRECT AS OF THE ORIGINAL ISSUE DATE AND
RESULT IN A MATERIAL ADVERSE EFFECT.

 

(VIII)                THE OCCURRENCE OF A BANKRUPTCY EVENT (AS DEFINED IN THE
PURCHASE AGREEMENT).

 

(IX)                        THE COMMON STOCK: (I) IS NOT LISTED OR QUOTED, OR IS
SUSPENDED FROM TRADING, ON AN ELIGIBLE MARKET FOR A PERIOD OF THREE TRADING DAYS
(WHICH NEED NOT BE CONSECUTIVE TRADING DAYS), AND (II) IS NOT TRADED IN THE
OVER-THE-COUNTER MARKET, AS REPORTED BY THE OTC BULLETIN BOARD, OR QUOTED IN THE
OVER-THE-COUNTER MARKET AS REPORTED BY THE NATIONAL QUOTATION BUREAU
INCORPORATED (OR ANY SIMILAR ORGANIZATION OR AGENCY SUCCEEDING ITS FUNCTIONS OF
REPORTING PRICES).

 

(X)                           THE CONVERSION RIGHTS OF THE HOLDER PURSUANT TO
THE TERMS HEREOF ARE OTHERWISE SUSPENDED FOR ANY REASON.

 

(XI)                        THE EXERCISE RIGHTS OF THE HOLDER PURSUANT TO THE
TERMS THEREOF ARE OTHERWISE SUSPENDED FOR ANY REASON.

 

(XII)                     THE BORROWER FAILS TO HAVE AVAILABLE A SUFFICIENT
NUMBER OF AUTHORIZED BUT UNISSUED AND OTHERWISE UNRESERVED SHARES OF COMMON
STOCK AVAILABLE TO ISSUE UNDERLYING SHARES UPON ANY CONVERSION OF DEBENTURES
HEREUNDER OR TO ISSUE WARRANT SHARES UPON AN EXERCISE OF THE WARRANTS.

 

(XIII)                  THE BORROWER FAILS TO MAKE ANY CASH PAYMENT REQUIRED
UNDER THE TRANSACTION DOCUMENTS (INCLUDING, WITHOUT LIMITATIONS, AS PREPAYMENT
HEREUNDER) AND SUCH FAILURE IS NOT CURED WITHIN FIVE TRADING DAYS AFTER NOTICE
OF SUCH DEFAULT IS FIRST GIVEN TO THE BORROWER BY A LENDER.

 

“Original Issue Date” means the date of the first issuance of the Debenture,
regardless of the number of transfers.

 

“Registration Statement” shall have the meaning set forth in the Loan Agreement.

 

“Security Agreements” shall have the meaning set forth in the Loan Agreement.

 

“Trading Day” means: (a) a day on which the shares of Common Stock are traded on
an Eligible Market, or (b) if the shares of Common Stock are not listed on an
Eligible Market, a day on which the shares of Common Stock are traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
shares of Common Stock are not quoted on the OTC Bulletin Board, a day on which
the shares of Common Stock are quoted in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, that in the
event that the shares of Common Stock are not listed or quoted as set forth in
(a), (b) and (c) hereof, then Trading Day shall mean a business day.

 

4

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“Underlying Shares” means the shares of Common Stock issuable upon conversion of
the Debenture and payment of interest thereunder.

 

2.                                       INTEREST.  THE BORROWER SHALL PAY
INTEREST TO THE HOLDER IN CASH ON THE AGGREGATE UNCONVERTED AND THEN OUTSTANDING
PRINCIPAL AMOUNT OF THIS DEBENTURE (INCLUDING ANY INTEREST ADDED TO SUCH
PRINCIPAL IN ACCORDANCE WITH THIS SECTION 2) AT THE RATE OF 10% PER ANNUM,
PAYABLE ON THE MATURITY DATE OR SUCH EARLIER DATE AS THIS DEBENTURE IS REQUIRED
OR PERMITTED TO BE REPAID AS PROVIDED HEREUNDER.  INTEREST SHALL BE CALCULATED
ON THE BASIS OF A 360-DAY YEAR AND SHALL ACCRUE DAILY COMMENCING ON THE ORIGINAL
ISSUE DATE.

 

3.                                       REGISTRATION OF DEBENTURES.  THE
BORROWER SHALL REGISTER THE DEBENTURES UPON RECORDS TO BE MAINTAINED BY THE
BORROWER FOR THAT PURPOSE (THE “DEBENTURE REGISTER”) IN THE NAME OF EACH RECORD
HOLDER THEREOF FROM TIME TO TIME. THE BORROWER MAY DEEM AND TREAT THE REGISTERED
HOLDER OF THIS DEBENTURE AS THE ABSOLUTE OWNER HEREOF FOR THE PURPOSE OF ANY
CONVERSION HEREOF OR ANY PAYMENT OF INTEREST HEREON, AND FOR ALL OTHER PURPOSES,
ABSENT ACTUAL NOTICE TO THE CONTRARY.

 

4.                                       REGISTRATION OF TRANSFERS AND
EXCHANGES.  THE BORROWER SHALL REGISTER THE TRANSFER OF ANY PORTION OF THIS
DEBENTURE IN THE DEBENTURE REGISTER UPON SURRENDER OF THIS DEBENTURE TO THE
BORROWER AT ITS ADDRESS FOR NOTICE SET FORTH HEREIN. UPON ANY SUCH REGISTRATION
OR TRANSFER, A NEW DEBENTURE, IN SUBSTANTIALLY THE FORM OF THIS DEBENTURE (ANY
SUCH NEW DEBENTURE, A “NEW DEBENTURE”), EVIDENCING THE PORTION OF THIS DEBENTURE
SO TRANSFERRED SHALL BE ISSUED TO THE TRANSFEREE AND A NEW DEBENTURE EVIDENCING
THE REMAINING PORTION OF THIS DEBENTURE NOT SO TRANSFERRED, IF ANY, SHALL BE
ISSUED TO THE TRANSFERRING HOLDER. THE ACCEPTANCE OF THE NEW DEBENTURE BY THE
TRANSFEREE THEREOF SHALL BE DEEMED THE ACCEPTANCE BY SUCH TRANSFEREE OF ALL OF
THE RIGHTS AND OBLIGATIONS OF A HOLDER OF A DEBENTURE. THE BORROWER AGREES THAT
ITS PRIOR CONSENT IS NOT REQUIRED FOR THE TRANSFER OF ANY PORTION OF THIS
DEBENTURE.  THIS DEBENTURE IS EXCHANGEABLE FOR AN EQUAL AGGREGATE PRINCIPAL
AMOUNT OF DEBENTURES OF DIFFERENT AUTHORIZED DENOMINATIONS, AS REQUESTED BY THE
HOLDER SURRENDERING THE SAME. NO SERVICE CHARGE OR OTHER FEE WILL BE IMPOSED IN
CONNECTION WITH ANY SUCH REGISTRATION OF TRANSFER OR EXCHANGE.

 

5.                                       CONVERSION.

 

(A)                                  AT THE OPTION OF THE HOLDER.  ALL OR ANY
PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE THEN OUTSTANDING TOGETHER WITH
ANY ACCRUED AND UNPAID INTEREST THEREUNDER SHALL BE CONVERTIBLE INTO SHARES OF
COMMON STOCK AT THE CONVERSION PRICE (SUBJECT TO LIMITATIONS SET FORTH IN
SECTION 5(B)), AT THE OPTION OF THE HOLDER, AT ANY TIME AND FROM TIME TO TIME
FROM AND AFTER THE ORIGINAL ISSUE DATE. THE HOLDER MAY EFFECT CONVERSIONS UNDER
THIS SECTION 5(A), BY DELIVERING TO THE BORROWER A CONVERSION NOTICE TOGETHER
WITH A SCHEDULE IN THE FORM OF SCHEDULE 1 ATTACHED HERETO (THE “CONVERSION
SCHEDULE”). IF THE HOLDER IS CONVERTING LESS THAN ALL OF THE PRINCIPAL AMOUNT
REPRESENTED BY THIS DEBENTURE, THE BORROWER SHALL HONOR SUCH CONVERSION TO THE
EXTENT PERMISSIBLE HEREUNDER AND SHALL PROMPTLY DELIVER TO THE HOLDER A
CONVERSION SCHEDULE INDICATING THE PRINCIPAL AMOUNT WHICH HAS NOT BEEN
CONVERTED.

 

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6.                                       MECHANICS OF CONVERSION.

 

(A)                                  THE NUMBER OF UNDERLYING SHARES ISSUABLE
UPON ANY CONVERSION HEREUNDER SHALL EQUAL THE OUTSTANDING PRINCIPAL AMOUNT OF
THIS DEBENTURE TO BE CONVERTED, DIVIDED BY THE CONVERSION PRICE ON THE
CONVERSION DATE, PLUS (IF INDICATED IN THE APPLICABLE CONVERSION NOTICE) THE
AMOUNT OF ANY ACCRUED BUT UNPAID INTEREST ON THIS DEBENTURE THROUGH THE
CONVERSION DATE, DIVIDED BY THE CONVERSION PRICE ON THE CONVERSION DATE.

 

(B)                                 THE BORROWER SHALL PROMPTLY FOLLOWING A
CONVERSION DATE (BUT IN NO EVENT LATER THAN FIVE TRADING DAYS AFTER SUCH
CONVERSION DATE) ISSUE OR CAUSE TO BE ISSUED AND CAUSE TO BE DELIVERED TO OR
UPON THE WRITTEN ORDER OF THE HOLDER AND IN SUCH NAME OR NAMES AS THE HOLDER MAY
DESIGNATE A CERTIFICATE FOR THE UNDERLYING SHARES ISSUABLE UPON SUCH CONVERSION,
FREE OF RESTRICTIVE LEGENDS. THE HOLDER, OR ANY PERSON SO DESIGNATED BY THE
HOLDER TO RECEIVE UNDERLYING SHARES, SHALL BE DEEMED TO HAVE BECOME HOLDER OF
RECORD OF SUCH UNDERLYING SHARES AS OF THE CONVERSION DATE. THE BORROWER SHALL,
UPON REQUEST OF THE HOLDER, USE ITS BEST EFFORTS TO DELIVER UNDERLYING SHARES
HEREUNDER ELECTRONICALLY (VIA A DWAC) THROUGH THE DEPOSITORY TRUST CORPORATION
OR ANOTHER ESTABLISHED CLEARING CORPORATION PERFORMING SIMILAR FUNCTIONS.

 

(C)                                  THE HOLDER SHALL NOT BE REQUIRED TO DELIVER
THE ORIGINAL DEBENTURE IN ORDER TO EFFECT A PARTIAL CONVERSION HEREUNDER.
EXECUTION AND DELIVERY OF THE CONVERSION NOTICE SHALL HAVE THE SAME EFFECT AS
CANCELLATION OF THE DEBENTURE AND ISSUANCE OF A NEW DEBENTURE REPRESENTING THE
REMAINING OUTSTANDING PRINCIPAL AMOUNT. UPON SURRENDER OF THIS DEBENTURE
FOLLOWING ONE OR MORE PARTIAL CONVERSIONS, THE BORROWER SHALL PROMPTLY DELIVER
TO THE HOLDER A NEW DEBENTURE REPRESENTING THE REMAINING OUTSTANDING PRINCIPAL
AMOUNT.

 

(D)                                 THE BORROWER’S OBLIGATIONS TO ISSUE AND
DELIVER UNDERLYING SHARES UPON CONVERSION OF THIS DEBENTURE IN ACCORDANCE WITH
THE TERMS HEREOF ARE ABSOLUTE AND UNCONDITIONAL, IRRESPECTIVE OF ANY ACTION OR
INACTION BY THE HOLDER TO ENFORCE THE SAME, ANY WAIVER OR CONSENT WITH RESPECT
TO ANY PROVISION HEREOF, THE RECOVERY OF ANY JUDGMENT AGAINST ANY PERSON OR ANY
ACTION TO ENFORCE THE SAME, OR ANY SETOFF, COUNTERCLAIM, RECOUPMENT, LIMITATION
OR TERMINATION, OR ANY BREACH OR ALLEGED BREACH BY THE HOLDER OR ANY OTHER
PERSON OF ANY OBLIGATION TO THE BORROWER OR ANY VIOLATION OR ALLEGED VIOLATION
OF LAW BY THE HOLDER OR ANY OTHER PERSON, AND IRRESPECTIVE OF ANY OTHER
CIRCUMSTANCE WHICH MIGHT OTHERWISE LIMIT SUCH OBLIGATION OF THE BORROWER TO THE
HOLDER IN CONNECTION WITH THE ISSUANCE OF SUCH UNDERLYING SHARES.

 

(E)                                  IF BY THE FIFTH TRADING DAY AFTER A
CONVERSION DATE THE BORROWER FAILS TO DELIVER TO THE HOLDER SUCH UNDERLYING
SHARES IN SUCH AMOUNTS AND IN THE MANNER REQUIRED PURSUANT TO SECTION 5, THEN
THE HOLDER WILL HAVE THE RIGHT TO RESCIND THE CONVERSION NOTICE PERTAINING
THERETO BY GIVING WRITTEN NOTICE TO THE BORROWER PRIOR TO SUCH HOLDER’S RECEIPT
OF SUCH UNDERLYING SHARES.

 

7.                                       EVENTS OF DEFAULT.

 

(A)                                  AT ANY TIME OR TIMES FOLLOWING THE
OCCURRENCE OF AN EVENT OF DEFAULT, THE HOLDER MAY ELECT, BY NOTICE TO THE
BORROWER (AN “EVENT NOTICE”), TO REQUIRE THE BORROWER TO REPURCHASE ALL OR ANY
PORTION OF THE OUTSTANDING PRINCIPAL AMOUNT OF THIS DEBENTURE AND THE WARRANT
HELD BY SUCH HOLDER, AS INDICATED IN THE EVENT NOTICE, AT A REPURCHASE PRICE

 

6

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equal to 110% of such outstanding principal amount, plus all accrued but unpaid
interest thereon through the date of payment.

 

(B)                                 UPON THE OCCURRENCE AND DURING THE
CONTINUANCE OF ANY BANKRUPTCY EVENT, ALL OUTSTANDING UNCONVERTED PRINCIPAL AND
ACCRUED BUT UNPAID INTEREST ON THIS DEBENTURE SHALL IMMEDIATELY BECOME DUE AND
PAYABLE IN FULL IN CASH (FREE OF ANY CLAIM OF SUBORDINATION), WITHOUT ANY
FURTHER ACTION BY THE HOLDER, AND THE BORROWER SHALL IMMEDIATELY BE OBLIGATED TO
REPURCHASE THIS DEBENTURE PURSUANT TO THE PRECEDING PARAGRAPH AS IF THE HOLDER
HAD DELIVERED AN EVENT NOTICE IMMEDIATELY PRIOR TO THE OCCURRENCE OF SUCH
BANKRUPTCY EVENT.

 

(C)                                  IN CONNECTION WITH ANY EVENT OF DEFAULT,
THE HOLDER NEED NOT PROVIDE AND THE BORROWER HEREBY WAIVES ANY PRESENTMENT,
DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND, AND THE HOLDER MAY IMMEDIATELY AND
WITHOUT EXPIRATION OF ANY GRACE PERIOD ENFORCE ANY AND ALL OF ITS RIGHTS AND
REMEDIES HEREUNDER AND ALL OTHER REMEDIES AVAILABLE TO IT UNDER APPLICABLE LAW.
ANY SUCH DECLARATION MAY BE RESCINDED AND ANNULLED BY THE HOLDER AT ANY TIME
PRIOR TO PAYMENT HEREUNDER. NO SUCH RESCISSION OR ANNULMENT SHALL AFFECT ANY
SUBSEQUENT EVENT OF DEFAULT OR IMPAIR ANY RIGHT CONSEQUENT THERETO.

 

8.                                       RANKING.  THIS DEBENTURE RANKS PARI
PASSU WITH ALL DEBENTURES ISSUED TO SF CAPITAL PARTNERS, LTD. (“SF CAPITAL”) AND
IS SENIOR TO ALL OTHER EXISTING AND HEREAFTER CREATED INDEBTEDNESS OF THE
BORROWER. OTHER THAN PERMITTED INDEBTEDNESS, NO INDEBTEDNESS OF THE BORROWER IS
SENIOR TO THIS DEBENTURE IN RIGHT OF PAYMENT, WHETHER WITH RESPECT OF INTEREST,
DAMAGES OR UPON LIQUIDATION OR DISSOLUTION OR OTHERWISE. THE BORROWER WILL NOT,
AND WILL NOT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, ENTER INTO,
CREATE, INCUR, ASSUME OR SUFFER TO EXIST ANY INDEBTEDNESS OF ANY KIND, ON OR
WITH RESPECT TO ANY OF ITS PROPERTY OR ASSETS NOW OWNED OR HEREAFTER ACQUIRED OR
ANY INTEREST THEREIN OR ANY INCOME OR PROFITS THEREFROM, THAT IS SENIOR IN ANY
RESPECT TO THE BORROWER’S OBLIGATIONS UNDER THE DEBENTURE, OTHER THAN PERMITTED
INDEBTEDNESS.

 

9.                                       CHARGES, TAXES AND EXPENSES.  ISSUANCE
OF CERTIFICATES FOR UNDERLYING SHARES UPON CONVERSION OF (OR OTHERWISE IN
RESPECT OF) THIS DEBENTURE SHALL BE MADE WITHOUT CHARGE TO THE HOLDER FOR ANY
ISSUE OR TRANSFER TAX, WITHHOLDING TAX, TRANSFER AGENT FEE OR OTHER INCIDENTAL
TAX OR EXPENSE IN RESPECT OF THE ISSUANCE OF SUCH CERTIFICATE, ALL OF WHICH
TAXES AND EXPENSES SHALL BE PAID BY THE BORROWER; PROVIDED, HOWEVER, THAT THE
BORROWER SHALL NOT BE REQUIRED TO PAY ANY TAX WHICH MAY BE PAYABLE IN RESPECT OF
ANY TRANSFER INVOLVED IN THE REGISTRATION OF ANY CERTIFICATES FOR UNDERLYING
SHARES OR DEBENTURES IN A NAME OTHER THAN THAT OF THE HOLDER. THE HOLDER SHALL
BE RESPONSIBLE FOR ALL OTHER TAX LIABILITY THAT MAY ARISE AS A RESULT OF HOLDING
OR TRANSFERRING THIS DEBENTURE OR RECEIVING UNDERLYING SHARES IN RESPECT HEREOF.

 

7

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10.                                 RESERVATION OF UNDERLYING SHARES.  THE
BORROWER COVENANTS THAT IT WILL AT ALL TIMES RESERVE AND KEEP AVAILABLE OUT OF
THE AGGREGATE OF ITS AUTHORIZED BUT UNISSUED AND OTHERWISE UNRESERVED COMMON
STOCK, SOLELY FOR THE PURPOSE OF ENABLING IT TO ISSUE UNDERLYING SHARES AS
REQUIRED HEREUNDER, THE NUMBER OF UNDERLYING SHARES WHICH ARE THEN ISSUABLE AND
DELIVERABLE UPON THE CONVERSION OF (AND OTHERWISE IN RESPECT OF) THIS ENTIRE
DEBENTURE (TAKING INTO ACCOUNT THE ADJUSTMENTS OF SECTION 12), FREE FROM
PREEMPTIVE RIGHTS OR ANY OTHER CONTINGENT PURCHASE RIGHTS OF PERSONS OTHER THAN
THE HOLDER. THE BORROWER COVENANTS THAT ALL UNDERLYING SHARES SO ISSUABLE AND
DELIVERABLE SHALL, UPON ISSUANCE IN ACCORDANCE WITH THE TERMS HEREOF, BE DULY
AND VALIDLY AUTHORIZED, ISSUED AND FULLY PAID AND NONASSESSABLE.

 

11.                                 PREPAYMENT AT THE OPTION OF THE BORROWER.

 

(A)                                  AT ANY TIME FOLLOWING THE ORIGINAL ISSUE
DATE AND PRIOR TO THE MATURITY DATE, UPON DELIVERY OF A WRITTEN NOTICE TO THE
HOLDER AND TO SF CAPITAL (A “BORROWER PREPAYMENT NOTICE” AND THE DATE SUCH
NOTICE IS DELIVERED BY THE BORROWER, THE “BORROWER NOTICE DATE”), THE BORROWER
SHALL BE ENTITLED TO PREPAY ALL OR A PORTION OF THE PRINCIPAL AMOUNT OF THIS
DEBENTURE (INCLUDING ACCRUED AND UNPAID INTEREST THEREUNDER), FOR AN AMOUNT IN
CASH EQUAL TO THE BORROWER PREPAYMENT PRICE WHICH SHALL BE DUE ON THE 10TH
TRADING DAY IMMEDIATELY FOLLOWING THE BORROWER NOTICE DATE.  THE HOLDER MAY
CONVERT ANY PORTION OF THE OUTSTANDING PRINCIPAL AMOUNT OF THE DEBENTURES
SUBJECT TO A BORROWER PREPAYMENT NOTICE PRIOR TO THE DATE THAT THE BORROWER
PREPAYMENT PRICE IS DUE AND PAID IN FULL.  ONCE DELIVERED, THE BORROWER SHALL
NOT BE ENTITLED TO RESCIND A BORROWER PREPAYMENT NOTICE.  ANY PAYMENT MADE
HEREUNDER BY THE BORROWER SHALL BE APPLIED FIRST: TO ANY LIQUIDATED DAMAGES OWED
TO SF CAPITAL OR PURSUANT TO ANY TRANSACTION DOCUMENT, SECOND: TO ACCRUED AND
UNPAID INTEREST ON A PRO RATA BASIS WITH SF CAPITAL AND THIRD: TO THE PRINCIPAL
AMOUNT OF DEBENTURE SUBJECT TO PREPAYMENT HEREUNDER ON A PRO RATA BASIS WITH SF
CAPITAL.

 

(B)                                 THE BORROWER PREPAYMENT PRICE SHALL BE PARRI
PASSU WITH ANY SIMILAR AMOUNT TO BE PAID TO SF CAPITAL, AND FREE OF ANY CLAIM OF
SUBORDINATION. IF ANY PORTION OF THE BORROWER PREPAYMENT PRICE SHALL NOT BE
TIMELY PAID BY THE BORROWER, INTEREST SHALL ACCRUE THEREON AT THE RATE OF 12%
PER ANNUM (OR THE MAXIMUM RATE PERMITTED BY APPLICABLE LAW, WHICHEVER IS LESS)
UNTIL THE BORROWER PREPAYMENT PRICE PLUS ALL SUCH INTEREST IS PAID IN FULL,
WHICH PAYMENT SHALL CONSTITUTE LIQUIDATED DAMAGES AND NOT A PENALTY.  IN
ADDITION, IF ANY PORTION OF THE BORROWER PREPAYMENT PRICE REMAINS UNPAID AFTER
SUCH DATE, THE HOLDER SUBJECT TO SUCH PREPAYMENT MAY ELECT BY WRITTEN NOTICE TO
THE BORROWER TO INVALIDATE AB INITIO SUCH BORROWER PREPAYMENT NOTICE WITH
RESPECT TO THE UNPAID AMOUNT, NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE
CONTRARY.  IF THE HOLDER MAKES SUCH AN ELECTION, THIS DEBENTURE SHALL BE
REINSTATED WITH RESPECT TO SUCH UNPAID AMOUNT AND THE BORROWER SHALL NO LONGER
HAVE ANY PREPAYMENT RIGHTS UNDER THIS SECTION 10.

 

(C)                                  ANY ELECTION BY THE BORROWER PURSUANT TO
SECTION 13 OF THE SECURITY AGREEMENTS TO SELL A PORTION OF THE COLLATERAL (AS
DEFINED IN THE SECURITY AGREEMENTS) AT A PRICE (THE “PURCHASE PRICE”) WHICH
SHALL BE EQUAL TO OR GREATER THAN THE FAIR MARKET VALUE OF SUCH COLLATERAL (AS
DETERMINED IN GOOD FAITH BY THE BORROWER’S BOARD OF DIRECTORS), SHALL BE
PRECEDED BY THE DELIVERY TO THE HOLDER AND SF CAPITAL OF A BORROWER PREPAYMENT
NOTICE INDICATING THAT A PORTION OF THE AMOUNT OWNING IN RESPECT OF THE
DEBENTURE (INCLUDING ACCRUED

 

8

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and unpaid interest thereon and unpaid liquidated damages) shall be subject to
prepayment pursuant to the terms and conditions of this Section at the Borrower
Prepayment Price.  Notwithstanding anything herein to the contrary, if, as a
potential result of a sale of Collateral pursuant to the immediately preceding
sentence, there shall remain an amount owning in respect of the Debenture
(including accrued and unpaid interest thereon and unpaid liquidated damages),
then the Borrower shall deliver a Borrower Prepayment Notice pursuant to which
it shall pay a Borrower Prepayment Price equal to no less than 50% of the
Purchase Price parri passu with any similar obligation to SF Captial.

 

12.                                 CERTAIN ADJUSTMENTS.  THE CONVERSION PRICE
IS SUBJECT TO ADJUSTMENT FROM TIME TO TIME AS SET FORTH IN THIS SECTION 12.

 

(A)                                  STOCK DIVIDENDS AND SPLITS.  IF THE
BORROWER, AT ANY TIME WHILE THIS DEBENTURE IS OUTSTANDING: (I) PAYS A STOCK
DIVIDEND ON ITS COMMON STOCK OR OTHERWISE MAKES A DISTRIBUTION ON ANY CLASS OF
CAPITAL STOCK THAT IS PAYABLE IN SHARES OF COMMON STOCK, (II) SUBDIVIDES
OUTSTANDING SHARES OF COMMON STOCK INTO A LARGER NUMBER OF SHARES, OR (III)
COMBINES OUTSTANDING SHARES OF COMMON STOCK INTO A SMALLER NUMBER OF SHARES,
THEN IN EACH SUCH CASE THE CONVERSION PRICE SHALL BE MULTIPLIED BY A FRACTION OF
WHICH THE NUMERATOR SHALL BE THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
IMMEDIATELY BEFORE SUCH EVENT AND OF WHICH THE DENOMINATOR SHALL BE THE NUMBER
OF SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY AFTER SUCH EVENT.  ANY
ADJUSTMENT MADE PURSUANT TO CLAUSE (I) OF THIS PARAGRAPH SHALL BECOME EFFECTIVE
IMMEDIATELY AFTER THE RECORD DATE FOR THE DETERMINATION OF STOCKHOLDERS ENTITLED
TO RECEIVE SUCH DIVIDEND OR DISTRIBUTION, AND ANY ADJUSTMENT PURSUANT TO CLAUSE
(II) OR (III) OF THIS PARAGRAPH SHALL BECOME EFFECTIVE IMMEDIATELY AFTER THE
EFFECTIVE DATE OF SUCH SUBDIVISION OR COMBINATION.

 

(B)                                 FUNDAMENTAL TRANSACTIONS.  SUBJECT TO THE
PROVISIONS OF THIS PARAGRAPH, IF, AT ANY TIME WHILE THIS DEBENTURE IS
OUTSTANDING, (I) THE BORROWER EFFECTS ANY MERGER OR CONSOLIDATION OF THE
BORROWER WITH OR INTO ANOTHER PERSON, (II) THE BORROWER EFFECTS ANY SALE OF ALL
OR SUBSTANTIALLY ALL OF ITS ASSETS IN ONE OR A SERIES OF RELATED TRANSACTIONS,
(III) ANY TENDER OFFER OR EXCHANGE OFFER (WHETHER BY THE BORROWER OR ANOTHER
PERSON) IS COMPLETED PURSUANT TO WHICH HOLDERS OF COMMON STOCK ARE PERMITTED TO
TENDER OR EXCHANGE THEIR SHARES FOR OTHER SECURITIES, CASH OR PROPERTY, OR (IV)
THE BORROWER EFFECTS ANY RECLASSIFICATION OF THE COMMON STOCK OR ANY COMPULSORY
SHARE EXCHANGE PURSUANT TO WHICH ALL OF THE COMMON STOCK IS EFFECTIVELY
CONVERTED INTO OR EXCHANGED FOR OTHER SECURITIES, CASH OR PROPERTY (OTHER THAN
AS A RESULT OF A SUBDIVISION OR COMBINATION OF SHARES OF COMMON STOCK COVERED BY
SECTION 12(A) ABOVE) (IN ANY SUCH CASE, A “FUNDAMENTAL TRANSACTION”), THEN UPON
ANY SUBSEQUENT CONVERSION OF THIS DEBENTURE, THE HOLDER SHALL HAVE THE RIGHT TO
RECEIVE, FOR EACH UNDERLYING SHARE THAT WOULD HAVE BEEN ISSUABLE UPON SUCH
CONVERSION ABSENT SUCH FUNDAMENTAL TRANSACTION, THE SAME KIND AND AMOUNT OF
SECURITIES, CASH OR PROPERTY AS IT WOULD HAVE BEEN ENTITLED TO RECEIVE UPON THE
OCCURRENCE OF SUCH FUNDAMENTAL TRANSACTION IF IT HAD BEEN, IMMEDIATELY PRIOR TO
SUCH FUNDAMENTAL TRANSACTION, THE HOLDER OF ONE SHARE OF COMMON STOCK (THE
“ALTERNATE CONSIDERATION”). FOR PURPOSES OF ANY SUCH CONVERSION, THE BORROWER
SHALL APPORTION THE CONVERSION PRICE AMONG THE ALTERNATE CONSIDERATION IN A
REASONABLE MANNER REFLECTING THE RELATIVE VALUE OF ANY DIFFERENT COMPONENTS OF
THE ALTERNATE CONSIDERATION. IF HOLDERS OF COMMON STOCK ARE GIVEN ANY CHOICE AS
TO THE SECURITIES, CASH OR PROPERTY TO BE RECEIVED IN A FUNDAMENTAL TRANSACTION,
THEN THE HOLDER SHALL BE GIVEN THE SAME CHOICE AS TO THE ALTERNATE CONSIDERATION
IT

 

9

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receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Borrower or surviving entity in such Fundamental Transaction
(or, if different, the ultimate parent of such successor or entity or the entity
issuing the Alternate Consideration) shall issue to the Holder a new debenture
consistent with the foregoing provisions and evidencing the Holder’s right to
convert such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

 

(C)                                  RECLASSIFICATIONS; SHARE EXCHANGES.      IN
CASE OF ANY RECLASSIFICATION OF THE COMMON STOCK, OR ANY COMPULSORY SHARE
EXCHANGE PURSUANT TO WHICH THE COMMON STOCK IS CONVERTED INTO OTHER SECURITIES,
CASH OR PROPERTY (OTHER THAN COMPULSORY SHARE EXCHANGES WHICH CONSTITUTE CHANGE
OF CONTROL TRANSACTIONS), THE HOLDERS OF THE DEBENTURES THEN OUTSTANDING SHALL
HAVE THE RIGHT THEREAFTER TO CONVERT SUCH SHARES ONLY INTO THE SHARES OF STOCK
AND OTHER SECURITIES, CASH AND PROPERTY RECEIVABLE UPON OR DEEMED TO BE HELD BY
HOLDERS OF COMMON STOCK FOLLOWING SUCH RECLASSIFICATION OR SHARE EXCHANGE, AND
THE HOLDERS SHALL BE ENTITLED UPON SUCH EVENT TO RECEIVE SUCH AMOUNT OF
SECURITIES, CASH OR PROPERTY AS A HOLDER OF THE NUMBER OF SHARES OF COMMON STOCK
OF THE BORROWER INTO WHICH SUCH SHARES OF DEBENTURES COULD HAVE BEEN CONVERTED
IMMEDIATELY PRIOR TO SUCH RECLASSIFICATION OR SHARE EXCHANGE WOULD HAVE BEEN
ENTITLED. THIS PROVISION SHALL SIMILARLY APPLY TO SUCCESSIVE RECLASSIFICATIONS
OR SHARE EXCHANGES.

 

(D)                                 CALCULATIONS.      ALL CALCULATIONS UNDER
THIS SECTION 12 SHALL BE MADE TO THE NEAREST CENT OR THE NEAREST SHARE, AS
APPLICABLE. THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT ANY GIVEN TIME
SHALL NOT INCLUDE SHARES OWNED OR HELD BY OR FOR THE ACCOUNT OF THE BORROWER,
AND THE DISPOSITION OF ANY SUCH SHARES SHALL BE CONSIDERED AN ISSUE OR SALE OF
COMMON STOCK.

 

(E)                                  NOTICE OF ADJUSTMENTS.      UPON THE
OCCURRENCE OF EACH ADJUSTMENT PURSUANT TO THIS SECTION 12, THE BORROWER AT ITS
EXPENSE WILL PROMPTLY COMPUTE SUCH ADJUSTMENT IN ACCORDANCE WITH THE TERMS
HEREOF AND PREPARE A CERTIFICATE DESCRIBING IN REASONABLE DETAIL SUCH ADJUSTMENT
AND THE TRANSACTIONS GIVING RISE THERETO, INCLUDING ALL FACTS UPON WHICH SUCH
ADJUSTMENT IS BASED. UPON WRITTEN REQUEST, THE BORROWER WILL PROMPTLY DELIVER A
COPY OF EACH SUCH CERTIFICATE TO THE HOLDER.

 

(F)                                    NOTICE OF CORPORATE EVENTS.      IF THE
BORROWER (I) DECLARES A DIVIDEND OR ANY OTHER DISTRIBUTION OF CASH, SECURITIES
OR OTHER PROPERTY IN RESPECT OF ITS COMMON STOCK, INCLUDING WITHOUT LIMITATION
ANY GRANTING OF RIGHTS OR WARRANTS TO SUBSCRIBE FOR OR PURCHASE ANY CAPITAL
STOCK OF THE BORROWER OR ANY SUBSIDIARY, (II) AUTHORIZES OR APPROVES, ENTERS
INTO ANY AGREEMENT CONTEMPLATING OR SOLICITS STOCKHOLDER APPROVAL FOR ANY
FUNDAMENTAL TRANSACTION OR (III) AUTHORIZES THE VOLUNTARY DISSOLUTION,
LIQUIDATION OR WINDING UP OF THE AFFAIRS OF THE BORROWER, THEN THE BORROWER
SHALL DELIVER TO THE HOLDER A NOTICE DESCRIBING THE MATERIAL TERMS AND
CONDITIONS OF SUCH TRANSACTION, AT LEAST 20 CALENDAR DAYS FOR TRANSACTIONS
DESCRIBED IN SUBSECTIONS (I) AND (III) ABOVE, AND AT LEAST 10 CALENDAR DAYS FOR
TRANSACTIONS DESCRIBED IN SUBSECTION (II) ABOVE, PRIOR TO THE APPLICABLE RECORD
OR EFFECTIVE DATE ON WHICH A PERSON WOULD

 

10

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need to hold Common Stock in order to participate in or vote with respect to
such transaction, and the Borrower will take all steps reasonably necessary in
order to insure that the Holder is given the practical opportunity to convert
this Debenture prior to such time so as to participate in or vote with respect
to such transaction; provided, however, that the failure to deliver such notice
or any defect therein shall not affect the validity of the corporate action
required to be described in such notice.

 

13.                                 FRACTIONAL SHARES.      THE BORROWER SHALL
NOT BE REQUIRED TO ISSUE OR CAUSE TO BE ISSUED FRACTIONAL UNDERLYING SHARES ON
CONVERSION OF THIS DEBENTURE. IF ANY FRACTION OF AN UNDERLYING SHARE WOULD,
EXCEPT FOR THE PROVISIONS OF THIS SECTION, BE ISSUABLE UPON CONVERSION OF THIS
DEBENTURE, THE NUMBER OF UNDERLYING SHARES TO BE ISSUED WILL BE ROUNDED TO THE
NEAREST WHOLE SHARE.

 

14.                                 NOTICES.      ANY AND ALL NOTICES OR OTHER
COMMUNICATIONS OR DELIVERIES HEREUNDER (INCLUDING WITHOUT LIMITATION ANY
CONVERSION NOTICE) SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN AND EFFECTIVE
ON THE EARLIEST OF (I) THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION
IS DELIVERED VIA FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS
SECTION PRIOR TO 5:00 P.M. (CALIFORNIA TIME) ON A TRADING DAY, (II) THE NEXT
TRADING DAY AFTER THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS
DELIVERED VIA FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION ON A
DAY THAT IS NOT A TRADING DAY OR LATER THAN 5:00 P.M. (CALIFORNIA TIME) ON ANY
TRADING DAY, (III) THE TRADING DAY FOLLOWING THE DATE OF MAILING, IF SENT BY
NATIONALLY RECOGNIZED OVERNIGHT COURIER SERVICE, OR (IV) UPON ACTUAL RECEIPT BY
THE PARTY TO WHOM SUCH NOTICE IS REQUIRED TO BE GIVEN. THE ADDRESSES FOR SUCH
COMMUNICATIONS SHALL BE: (I) IF TO THE BORROWER, TO 2071 STIERLIN COURT,
MOUNTAIN VIEW, CA 94043, FACSIMILE: (650) 864-7433, ATTENTION CHIEF FINANCIAL
OFFICER, OR (II) IF TO THE HOLDER, TO THE ADDRESS OR FACSIMILE NUMBER APPEARING
ON THE BORROWER’S STOCKHOLDER RECORDS OR SUCH OTHER ADDRESS OR FACSIMILE NUMBER
AS THE HOLDER MAY PROVIDE TO THE BORROWER IN ACCORDANCE WITH THIS SECTION.

 

15.                                 MISCELLANEOUS.

 

(A)                                  THIS DEBENTURE SHALL BE BINDING ON AND
INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. THIS DEBENTURE MAY BE AMENDED ONLY IN WRITING SIGNED BY THE BORROWER
AND THE HOLDER AND THEIR SUCCESSORS AND ASSIGNS.

 

(B)                                 SUBJECT TO SECTION 15(A), ABOVE, NOTHING IN
THIS DEBENTURE SHALL BE CONSTRUED TO GIVE TO ANY PERSON OR CORPORATION OTHER
THAN THE BORROWER AND THE HOLDER ANY LEGAL OR EQUITABLE RIGHT, REMEDY OR CAUSE
UNDER THIS DEBENTURE. THIS DEBENTURE SHALL INURE TO THE SOLE AND EXCLUSIVE
BENEFIT OF THE BORROWER AND THE HOLDER.

 

(C)                                  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS DEBENTURE SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.  EACH
PARTY AGREES THAT ALL PROCEEDINGS SHALL BE COMMENCED EXCLUSIVELY IN THE STATE
AND FEDERAL COURTS SITTING IN THE NORTHERN DISTRICT OF CALIFORNIA (THE
“CALIFORNIA COURTS”).  EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE CALIFORNIA COURTS FOR ANY PROCEEDING, AND HEREBY
IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY CALIFORNIA

 

11

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Court or that a California Court is an inconvenient forum for such proceeding. 
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law. 
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding.  The
prevailing party in a proceeding shall be reimbursed by the other party for its
attorney’s fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such proceeding.

 

(D)                                 THE HEADINGS HEREIN ARE FOR CONVENIENCE
ONLY, DO NOT CONSTITUTE A PART OF THIS DEBENTURE AND SHALL NOT BE DEEMED TO
LIMIT OR AFFECT ANY OF THE PROVISIONS HEREOF.

 

(E)                                  IN CASE ANY ONE OR MORE OF THE PROVISIONS
OF THIS DEBENTURE SHALL BE INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY
AND ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS OF THIS DEBENTURE SHALL
NOT IN ANY WAY BE AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT IN
GOOD FAITH TO AGREE UPON A VALID AND ENFORCEABLE PROVISION WHICH SHALL BE A
COMMERCIALLY REASONABLE SUBSTITUTE THEREFOR, AND UPON SO AGREEING, SHALL
INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS DEBENTURE.

 

(F)                                    NO PROVISION OF THIS DEBENTURE MAY BE
WAIVED OR AMENDED EXCEPT IN A WRITTEN INSTRUMENT SIGNED, IN THE CASE OF AN
AMENDMENT, BY THE BORROWER AND THE HOLDER OR, OR, IN THE CASE OF A WAIVER, BY
THE HOLDER. NO WAIVER OF ANY DEFAULT WITH RESPECT TO ANY PROVISION, CONDITION OR
REQUIREMENT OF THIS DEBENTURE SHALL BE DEEMED TO BE A CONTINUING WAIVER IN THE
FUTURE OR A WAIVER OF ANY SUBSEQUENT DEFAULT OR A WAIVER OF ANY OTHER PROVISION,
CONDITION OR REQUIREMENT HEREOF, NOR SHALL ANY DELAY OR OMISSION OF EITHER PARTY
TO EXERCISE ANY RIGHT HEREUNDER IN ANY MANNER IMPAIR THE EXERCISE OF ANY SUCH
RIGHT.

 

(G)                                 NOTWITHSTANDING ANY PROVISION TO THE
CONTRARY CONTAINED IN THE DEBENTURES, IT IS EXPRESSLY AGREED AND PROVIDED THAT
THE TOTAL LIABILITY OF THE BORROWER UNDER THE DEBENTURES FOR PAYMENTS IN THE
NATURE OF INTEREST SHALL NOT EXCEED THE MAXIMUM LAWFUL RATE AUTHORIZED UNDER
APPLICABLE LAW (THE “MAXIMUM RATE”), AND, WITHOUT LIMITING THE FOREGOING, IN NO
EVENT SHALL ANY RATE OF INTEREST OR DEFAULT INTEREST, OR BOTH OF THEM, WHEN
AGGREGATED WITH ANY OTHER SUMS IN THE NATURE OF INTEREST THAT THE BORROWER MAY
BE OBLIGATED TO PAY UNDER THE DEBENTURES EXCEED SUCH MAXIMUM RATE. IT IS AGREED
THAT IF THE MAXIMUM CONTRACT RATE OF INTEREST ALLOWED BY LAW AND APPLICABLE TO
THE DEBENTURES IS INCREASED OR DECREASED BY STATUTE OR ANY OFFICIAL GOVERNMENTAL
ACTION SUBSEQUENT TO THE DATE HEREOF, THE NEW MAXIMUM CONTRACT RATE OF INTEREST
ALLOWED BY LAW WILL BE THE MAXIMUM RATE OF INTEREST APPLICABLE TO THE DEBENTURES
FROM THE EFFECTIVE DATE FORWARD, UNLESS SUCH APPLICATION IS PRECLUDED BY
APPLICABLE LAW. IF UNDER ANY CIRCUMSTANCES WHATSOEVER, INTEREST IN EXCESS OF THE
MAXIMUM RATE IS PAID BY THE BORROWER TO ANY HOLDER WITH RESPECT TO INDEBTEDNESS
EVIDENCED BY THE DEBENTURES, SUCH EXCESS SHALL BE APPLIED BY SUCH HOLDER TO THE
UNPAID PRINCIPAL BALANCE OF ANY SUCH INDEBTEDNESS OR BE REFUNDED TO THE
BORROWER, THE MANNER OF HANDLING SUCH EXCESS TO BE AT SUCH HOLDER’S ELECTION.

 

12

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(H)                                 EXCEPT PURSUANT TO SECTIONS 7 AND 11
HEREUNDER, THE OUTSTANDING PRINCIPAL AMOUNT AND INTEREST UNDER THIS DEBENTURE
MAY NOT BE PREPAID BY THE BORROWER WITHOUT THE PRIOR WRITTEN CONSENT OF THE
HOLDER.

 

(I)                                     THE OBLIGATIONS UNDER THIS DEBENTURE ARE
SECURED PURSUANT TO THE SECURITY AGREEMENTS.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Borrower has caused this Debenture to be duly executed
by a duly authorized officer as of the date first above indicated.

 

AEROGEN, INC.

 

 

 

 

 

 

 

By:

/s/ Robert S. Breuil

 

 

 

Name:

Robert S. Breuil

 

 

Title:

Chief Financial Officer

 

 

14

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EXHIBIT A

 

CONVERSION NOTICE

 

 (To be Executed by the Registered Holder in order to convert Debentures)

 

The undersigned hereby elects to convert the principal amount of Debenture
indicated below, into shares of Common Stock of Aerogen, Inc., as of the date
written below. If shares are to be issued in the name of a Person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Borrower in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any. All terms
used in this notice shall have the meanings set forth in the Debenture.

 

Conversion calculations:

 

 

Date to Effect Conversion

 

 

 

 

 

Principal amount of Debenture owned prior to conversion

 

 

 

 

 

Principal amount of Debenture to be Converted

 

(including             of interest added)

 

 

 

 

 

Principal amount of Debenture remaining after Conversion

 

 

 

 

 

Number of shares of Common Stock to be Issued

 

 

 

 

 

Applicable Conversion Price

 

 

 

 

 

Name of Holder

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

15

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Schedule 1

 

CONVERSION SCHEDULE

 

This Conversion Schedule reflects conversions made under the above referenced
Debentures.

 

Dated:

 

Date of Conversion

 

Amount of
Conversion

 

Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion

 

Applicable Conversion
Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

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