Exhibit
10.15


 


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.


 


 


No.
1        $950,000.10


 


 


Date: September 9, 2003


 


AEROGEN, INC.

SECURED CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2003


 


THIS DEBENTURE is one of a series of duly
authorized and issued debentures of Aerogen, Inc., a Delaware corporation (the
“Borrower”), designated as its
Secured Convertible Debentures due December 31, 2003, in the aggregate
principal amount of up to Nine Hundred and Fifty Thousand Dollars and Ten Cents
($950,000.10) (the “Debentures”).


 


FOR VALUE RECEIVED, the Borrower promises to
pay to the order of SF Capital Partners, Ltd. or its registered assigns (the “Holder”),
the principal sum of Nine Hundred Fifty Thousand Dollars and Ten Cents
($950,000.10), on December 31, 2003 (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. All holders of Debentures are referred to collectively, as
the “Holders.”  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 September 9, 2003, among the Borrower and the
lenders 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 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 a majority in interest of the Lenders.


 


“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 


 


2

















 


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).


 


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


 


“Conversion Price” means $0.35, subject to
adjustment from time to time 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 Debentures 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.


 


3

















 


(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
occurrence and continuance of any event of default (whether or not declared)
under any Debentures.


 


(vii)                 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).


 


(viii)              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.


 


(ix)                      the
occurrence of a Bankruptcy Event (as defined in the Purchase Agreement).


 


(x)                         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).


 


(xi)                      the
Borrower fails to deliver a stock certificate evidencing Underlying Shares to a
Holder within ten Trading Days after a Conversion Date or the conversion rights
of the Holders pursuant to the terms hereof are otherwise suspended for any
reason.


 


(xii)                   the
Borrower fails to deliver a stock certificate evidencing Warrant Shares to a
Holder within ten Trading Days after an Exercise Date (as defined in the
Warrants) or the exercise rights of the Holders pursuant to the terms thereof
are otherwise suspended for any reason.


 


(xiii)                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.


 


(xiv)               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.


 


4

















 


(xv)                  the
initial Registration Statement to be filed pursuant to the Registration Rights
Agreement shall not be declared effective by the Commission by the 60th
day following the applicable Effectiveness Date (as defined in the Registration
Rights Agreement).


 


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


 


“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.


 


“Underlying Shares” means the shares of
Common Stock issuable upon conversion of the Debentures 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 


 


5

















 


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, or if a conversion hereunder may not be effected in full due
to the application of Section 5(b), 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.


 


(b)                                 Certain
Conversion Restrictions.


 


(i)  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by a Holder upon any conversion of Debentures (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such conversion (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be
aggregated with such Holder’s for purposes of Section 13(d) of the
Exchange Act, does not exceed 9.999% of the total number of issued and outstanding
shares of Common Stock (including for such purpose the shares of Common Stock
issuable upon such conversion).  For
such purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. This provision shall not restrict the number of shares
of Common Stock which a Holder may receive or beneficially own in order to
determine the amount of securities or other consideration that such Holder may
receive in the event of a merger, sale or other business combination or
reclassification involving the Borrower as contemplated herein.  This restriction may not be waived.


 


(ii)  Notwithstanding
anything to the contrary in this Debenture, including without limitation any
adjustments to the Conversion Price pursuant to Section 12(c) below, if
the Borrower has not previously obtained Shareholder Approval (as defined
below), then the Borrower may not issue shares of Common Stock in excess of the
Issuable Maximum upon conversions of this Debenture. The “Issuable Maximum” means a number of shares
of Common Stock equal to 2,714,286.  If
on any Conversion Date: (A) the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding
principal amount of Debentures would exceed the Issuable Maximum on such date,
and (B) the Borrower shall not have previously obtained the vote of
shareholders, as may be 


 


6

















 


required by the applicable rules and
regulations of the Nasdaq (or any successor entity or any other Eligible Market
on which the Company’s securities then trade), applicable to approve the
issuance of shares of Common Stock in excess of the Issuable Maximum pursuant
to the terms hereof (the “Shareholder
Approval”), then, the Borrower shall issue to the Holder a number of
shares of Common Stock equal to the Issuable Maximum and, with respect to the
remainder of the principal amount of Debentures then held by the Holder for
which a conversion would result in an issuance of shares of Common Stock in
excess of the Issuable Maximum (the “Excess
Principal Amount”), the Holder shall have the right to require the
Borrower to either: (1) seek Shareholder Approval as soon as possible, but
in any event not later than the 90th day after such request, or (2) pay cash to
the Holder, in an amount equal to the then outstanding principal under this
Debenture (and accrued and unpaid interest thereon).  If a Holder shall have elected the first option pursuant to the
immediately preceding sentence and the Borrower shall have failed to obtain the
Shareholder Approval on or prior to the 90th day after such request, then
within three (3) days of such 90th day, the Borrower shall pay cash to such
Holder an amount equal to outstanding principal under this Debenture (and
accrued and unpaid interest thereon). 
The Borrower and the Holder understand and agree that shares of Common
Stock issued to and then held by the Holder as a result of conversions of Debentures
shall not be entitled to cast votes on any resolution to obtain Shareholder
Approval pursuant hereto.


 


(c)                                  Unconverted
Portion of Debentures. If on any prepayment date or in connection with
repayment of outstanding principal amount of this Debenture on the Maturity
Date, the Holder elects to convert the outstanding principal amount of this
Debenture (including any accrued and unpaid interest) to shares of Common Stock
under Section 5(a), and any portion that the Holder is unable to convert
due to Section 5(b) (the “Debenture Balance”)
shall be, at the option of the Holder, repaid
in cash at the applicable amount or exchanged for a non-secured and
non-interest bearing note in a principal amount equal to the Debenture Balance
and which shall be convertible into shares of Common Stock (the “Balance Debenture”). 
The Balance Debenture shall have a two (2) year term and a per share
conversion price equal to the Conversion Price.  The Balance Debenture shall not contain any anti-dilution or
other exercise price adjustments (other than for stock splits, dividends,
recombinations and the like) and shall otherwise be in the same form as this
Debenture.  The Balance Debenture shall
be included within the definition of “Debentures” under the Loan Agreement and
the shares of Common Stock issuable upon conversion of the Balance Debenture
shall be included within the definition of Registrable Securities (as defined
in the Registration Rights Agreement) under the Registration Rights Agreement.


 


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 


 


7

















 


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.


 


(f)                                    If by the fifth
Trading Day after a Conversion Date the Borrower fails to deliver to the Holder
the required number of Underlying Shares in the manner required pursuant to
Section 5, and if after such fifth Trading Day and prior to the receipt of
such Underlying Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Underlying Shares which the Holder anticipated receiving upon
such conversion (a “Buy-In”), then
the Borrower shall: (1) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying
(A) the number of Underlying Shares that the Borrower was required to deliver
to the Holder in connection with the exercise at issue by (B) the Closing Price
at the time of the obligation giving rise to such purchase obligation and (2)
at the option of the Holder, either void the conversion at issue and reinstate
the principal amount of Debentures (plus accrued interest therein) for which
such conversion was not timely honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Borrower timely
complied with 


 


8

















 


its exercise and delivery obligations
hereunder.  The Holder shall provide the
Borrower reasonably detailed evidence or written notice indicating the amounts
payable to the Holder in respect of the Buy-In.


 


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 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
other Debentures (as defined in the Loan Agreement) now or hereafter issued
pursuant to the Transaction Documents and is senior to all 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 Debentures, 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 


 


9

















 


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.


 


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 (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 pursuant to any Transaction Document, second: to
accrued and unpaid interest and third: to the principal amount of Debenture
subject to prepayment hereunder.


 


(b)                                 The
Borrower Prepayment Price shall be 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 and the Holder), shall
be preceded by the delivery to the Holder of a Borrower Prepayment Notice
indicating that a portion of the amount owning in respect of Debentures
(including accrued and unpaid interest thereon and 


 


10

















 


unpaid liquidated damages) shall be subject
to prepayment pursuant to the terms and conditions of this Section at the
Borrower Prepayment Price and the Borrower shall direct that the purchaser of
such Collateral deliver the Purchaser Price to the Holder in satisfaction of
the Borrower’s obligation to deliver 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 Debentures (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.


 


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 


 


11

















 


Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it 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)                                  Subsequent
Equity Sales.


 


(i)                  If the Borrower
or any subsidiary thereof, as applicable, at any time while this Debenture is
outstanding, shall issue shares of Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at a price per share
(the “Effective Price”) less than
the Conversion Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price), then, at the option of the Holder for such
conversions as it shall indicate, the Conversion Price shall be adjusted to
mirror the conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at
issue.  Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.  The Borrower shall notify the Holder in
writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalent subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms. 
No further adjustments shall be made to the Conversion Price upon the
actual issuance of Common Stock upon conversion or exercise of the applicable
Common Stock Equivalent.


 


(ii)               If, at any time
while this Debenture is outstanding, the Borrower or any Subsidiary issues
Common Stock Equivalents with an Effective Price or a number of underlying
shares that floats or resets or otherwise varies or is subject to adjustment
based (directly or indirectly) on market prices of the Common Stock (a “Floating Price Security”), then for purposes of applying the
preceding paragraph in connection with any subsequent conversion, the Effective
Price will be determined separately on each Conversion Date and will be deemed
to equal the lowest Effective Price at which any holder of such Floating Price
Security is entitled to acquire Common Stock, whether prior, on or after such
Conversion Date (regardless of whether any such holder actually acquires any
shares on such date).


 


(iii)            Notwithstanding the
foregoing, no adjustment will be made under this paragraph (d) in respect of:
(A) the issuance of securities upon the exercise or conversion of any Common
Stock Equivalents issued by the Borrower prior to the date of this 


 


12

















 


Agreement (but will apply to any amendments,
modifications and reissuances thereof), (B) the grant of options or warrants,
or the issuance of additional securities, under any duly authorized Borrower
stock option, restricted stock plan or stock purchase plan, including any
amendments or other modifications thereto, (C) the issuance of Common Stock in
connection with a restructuring of the Borrower’s lease for its principal
business office in Mountain View, CA, 
(D) the issuance of Common Stock or Common Stock Equivalents pursuant to
a Strategic Transaction, or (E) the issuance of any Common Stock or Common
Stock Equivalents in the Additional Closing or any other such issuance to
Holder or Holder’s Affiliates.


 


(d)                                 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.


 


(e)                                  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.


 


(f)                                    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.


 


(g)                                 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 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 


 


13

















 


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 6:30
p.m. (New York City 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 6:30 p.m. (New York City 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 New York, 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 City of New York, Borough of
Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York 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 New York
Court or that a New York 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 


 


14

















 


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.


 


(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.


 


15

















 


(i)                                     The
obligations under this Debenture are secured pursuant to the Security
Agreements.


 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGE FOLLOWS]


 


16

















 


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/ Jane E. Shaw

  	
   

  
	
   

  	
  Name:

  	
  Jane E. Shaw

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  



 


17

















 


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:

  
				



 


 


[  ] By the delivery of this Conversion Notice the Holder
represents and warrants to the Borrower that its ownership of the Common Stock
does not exceed the restrictions set forth in Section 5(b)(i) of the
Debenture.


 


18

















 


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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


19