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 


 

















 


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).


 


2

















 


“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).


 


3

















 


(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

















 


“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.


 


5

















 


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

















 


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

















 


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

















 


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

















 


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

















 


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

















 


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

















 


(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]


 


13

















 


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

















 


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

















 


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